I remember as a child always begging my parents to take me to Disney World. Finally, after years of pleading with them, they had saved up enough money and surprised me with a one week vacation of my dreams. We didn’t have a lot of money back then, and I remember seeing some of the expressions on their faces with certain costs they incurred. Mom and dad started adding up the cost of this family excursion and realized their savings account was quickly disappearing. Travel cost, food, attractions tickets, and then there’s the cost of lodging a family of five near their destination which, if you’re looking to stay in a decent hotel that’s close to your destination, it can range upward of $300 per day in today’s market. And that’s just for a hotel! Then there’s eating out. The restaurants know you’re stuck and they mark the menus up accordingly. The price of everything continues to climb and the economy has yet to catch up. But family vacations are still a must and children’s memories must be made. With these added costs and the need for family vacations are more important than ever, there is a small niche that is quickly growing in the investment world. Investors are starting to see the value in short term rental properties because of the demand to create a “win win” situation for both the investor and the vacationing family.
Enter the world of the short term rental market. These single family homes offer vacationers the opportunity to lodge close to the attractions, have their own private pool. Fix meals in a fully equipped kitchen so they are not eating out for every meal, and since the property is usually 3-4 bedrooms and sleeps 10-12 people, they can now invite other family members to help with the costs. And the occupancy rates for these properties are $185-$200 per night, depending on location and the time of the year.
The allure for the investor is just as nice. The returns on these properties are solid and equitable and managing these properties is fairly easy and straight forward.
5 REASONS YOU SHOULD START LOOKING AT SHORT TERM INVESTMENT
Let’s start with the numbers. When I look for a short term rental property, I’m strictly looking at the numbers. I analyze what the rental history has been for a property for the past 3 years and decide if it has been steady and if it sees a lot of return guests.
- Check the rates. Peak season rates and off season rates.
- What are the monthly expenses? (HOA fees, utilities, lawn maintenance, pool, etc.)
- Management company in place. The management company can be a strong asset in this purchase. They know the property better than anyone and they know the history.
- Annual occupancy percentage.
- Pre bookings. How much money is already scheduled to come in to my pocket once I close on the property?
In my experience with purchasing short term rentals, I don’t want anything with less than an average annual occupancy rate of 85%. I also want to see at least 3 months of pre bookings in place and an annual cap rate of 15% or higher.
Now, this might sound like a property that would be impossible to find, but I’m amazed almost daily of what I am finding as I research these properties and run the numbers.
MANAGEMENT COMPANY TAKES THE HEADACHES AND WORRY AWAY.
These companies are not your typical rental property managers. These companies know the market and your property inside and out. They will market your property for you. They will provide 24 hour service for your guests. They will inspect the property prior to your guests arrival and make sure it has been cleaned and the towels have been folded into various animals. They will fix minor issues for you, (smoke detector batteries, burned out light bulbs, etc.) and they will notify you of any more serious problems and help you get them corrected.
FAMILIES WILL ALWAYS BE LOOKING FOR WAYS TO CUT COST
Today, families are always trying to save money, and the word has gotten out that they can lodge in a home for almost half the cost of staying in a hotel with one room and two queen size beds. Plus, they can save on the cost of eating out every night by utilizing the kitchen and grill you have provided for them.
- Resort lodging close to the attraction for a family of 5 will typically cost $300 per night or more. Your property will save them around 1/3 per day.
- They will have to eat out for every meal. One dinner for a family of 5 will cost around half of what they would spend by stopping by the grocery store and stocking up for the week.
USUALLY ALREADY FURNISHED
You only want to invest in property that comes fully furnished. I’m not talking just talking about bedroom and living room sets. I mean FURNISHED! Towels, utensils, plates and glasses, sheets, decorations, tvs, electronics, pool furniture, games, and all the appliances. I would also recommend you only purchase property with a pool. That is a must. Your property will book before anyone else’s because of this. I would also look for one with a hot tub and a lot of them have converted the garage into a game room, with pool table, ping pong table, air hockey and so on.
YOU NOT ONLY HAVE AN INVESTMENT PROPERTY BUT ALSO YOUR OWN VACATION DESTINATION!
Ah! The piece de resistance! Now not only are you making money on your property, but you picked a place where you would like to vacation as well and your guests are paying for your annual vacations. What could be better!
Now that you have the information, where do you start? Well, pick a destination that you know is a popular tourist attraction, and a place you would like to visit as well. Find the neighborhoods where the HOA allows for short term rentals. Do the research on the subdivisions. Make sure they are in close proximity to the attractions. Make sure it’s fully equipped and furnished with all the amenities you would want in a vacation home. Now, you can find short term rentals cheaper without furniture and you can put apartment style furniture in them fairly cheaply, but then you are probably finding a property that was in a short term rental area but only used for personal use. So, for the $10,000 savings, you will lose the comfort of an established rental history, pre bookings and a management company who has knowledge of the property.
So do your research and analyze the numbers. Once you’ve found everything you’re looking for from the above information, grab it, sit back and enjoy your new found investment opportunity.
Written By: Dan Oliver – Acquisition/Sales agent with Altura Investment Realty
Dan Oliver has been a feature blogger on biggerpockets.com. He can be reached at 407.341.9359