What is a vacation rental?
A vacation rental is a property used for short term rental terms, typically weekly and the tenants use the home like a pseudo hotel, pay nightly rates and the landlord supplies all pots, pans, flatware, towels, soap, shampoo, toiletries, paper good and handles cleaning at the end of the vacation term.
Why investors consider vacation rental income properties?
The weekly vacation rates, especially during the summer months and holidays is very high, typically equal to one months rent in normal months. In Mission Beach we have whats called the 9/3 split, where we would for example rent a 3 bedroom townhome to USD or SDSU students for the September to May school year for about $4000/ month and then rent it for $3800 – $4200/ week in the summers. With full occupancy and a strong year, this would take this property’s income from $48,000/ year to $88,000/ year, a 45% increase in rental income revenue.
ALSO, investors can choose to send business associates, family, friends and themselves to their vacation properties on weeks they decide not to book. Some use them all year round on a weekly or 3-5 night rental basis, however the trade off is low occupancy on the off months when less people travel or the weather is poor.
What must investors take into account for these?
1) Cost of soft goods: paper towels and shampoo adds up over the span of 12 tenants in a summer.
2) Wear and Tear on property: Vacationers are in for a short time and there is always someone who really beats up the home, these can be large costs.
3) Management fees: the best vacation rental properties are self managed for income, but this is a lot of work. Those who choose to have a professional manager need to be prepared to pay 20-40% of rental revenue to a manager for all services (move in and move out).
4) Stress: Some vacation rental owners feel stress on occupancy because like hotels people book their vacation housing last minute. It is normal for new owners to get very concerned then book the day before for a full week. As owners acclimate they can adjust.
Whats an example of a vacation rental on the market now?
711 Island Court listed for $549,000. With 25% down, taxes, insurance and payments would be about $2,700/month. This unit typically rents to students for $2900/month. So there would be a slight monthly profit in the winter months. Much more of course when you take into account depreciation and all your write offs.
That said, this condo has a history of renting for about $3,300/ week in the summer. With a a full winter and summer if you take into account your monthly costs and your projected rent revenue, your net annual profit before miscellaneous expenses would be $65,700 – $31,200.
= $34,500 Profit on a $137,000 down payment.
It is nearly impossible to find this kind of return, especially in a high end zip code such as Mission Beach’s. Remember these are all rough estimates. I have sold many homes that perform similar to this and these opportunities exist all along the coastline with the best place being Mission Beach.
Also, at the end of the day you end up with a coastal asset with an ocean view steps to the beach that historically has far above average appreciation!
Mr. Credit, ESPN Radio 1700am
April 14, 2014 • San Diego Vacation Properties
How to successfully buy a Vacation Rental Property vs. a standard Investment Property. A specific home for sale in Mission Beach which can net you over $50,000 a year as a vacation rental.
Contact Seth O’Byrne for more information.
Cal BRE #01463479
Pacific Sotheby’s Intl. Realty