Physician Investing: Vacation Home Rentals - Part 1

A very interesting and often overlooked aspect of real estate investments is vacation home rental.

This unique aspect of the property market offers multiple advantages to the owner/investor.  Whether you are looking to purchase such a property or already have a property that could be utilized in this fashion, it may be something worth looking at.

First, by way of clarification, I am not referring to "classic" investment property rentals. In that scenario, you would typically employ the services of a property manager, and the tenants living in the property are there on a hopefully, long term lease basis.  Vacation home rentals are for short-term rentals only - any where from 2 days to 2 weeks (occasionally up to a few weeks).  There are two ways of handling such rentals - you can work with an on-site or off-site rental manager or you can do it yourself.

I have used a rental manager for many of our properties.  These have been in ski resort areas. The most common rental is for a weekend or a week. The manager handles all the marketing, the reservation booking as well as the cleaning and maintenance. For these services, the rental manager charges 30% to 50% of the net rental proceeds.  As compared to long-term leases, these rentals will provide a much higher nightly rental rate. If your property is in a desirable location and you are able to have good occupancy, you can frequently bring in significantly more income by nightly rentals.  For example, a condo in the ski resort of Mammoth Lakes, CA. could lease for $ 1500 per month. Nightly rentals could bring $ 300 per night! So if you want a steady source of income without having to worry about nightly occupancy, then a long-term lease is for you. If you want to try to reap higher income, then nightly rentals are worth a shot. The primary advantage of using such a rental manager is time and effort - they do all the work. The obvious disadvantage is having to give up a large portion of the proceeds.  

The last scenario is doing vacation home rentals yourself. As an example, let me tell you about our vacation rental.  We have a guest house on the spectacular Mendocino Coast of Northern California. It is part of our large ocean-view DragonMist Estate property we have for our primary residence. When are son went off to college, he in no uncertain terms informed us that he would not be a "failure to launch" candidate and would not be returning home, other than occasional respites (for some home cooking and laundry). So we took a long and hard look at our property, our expenses and most important our life style in this empty nest portion of our lies. It became obvious that there was no reason why the property couldn't start paying for itself.  So we started looking at managing our own vacation home rental. More on that in my next post.