In the short-term rental riches will discuss investing in real estate with a specific focus on short term rentals quick actionable items to wire. Scale your portfolio I’m your host Tim Hubbard.

Welcome back ladies and gentlemen to the short-term rental riches podcast we’re talking this week specifically about luxury vacation rentals and I’m not talking about a luxury studio vacation on talking about a large vacation rental that hosts families maybe multiple families maybe 10 bedrooms really expensive ones and this idea came up well I’m always kind of think about this and and the reality is vacation rentals what people normally think about when they think about short term rentals they don’t typically if they’re new to the industry think about urban type properties or short term rentals in cities where people are just living and working which can be very lucrative as we’ve talked about on this channel the most the time people are thinking about luxury vacation rentals overlooking the ocean overlook and cliff view of the river a cannon or something like that so my friend called me the other day and he says Hey we just finished an amazing vacation my family and another family rented a luxury vacation rental it was expensive it was over 1000 or $1500 a night and he said we discovered a property in that market it’s off market and it’s for sale we’re thinking about buying it this isn’t a cheap entry price they are partnering one of the cool things about real estate we can partner and do bigger deals together but he said it’s $3000000 and what do you think I should do so that’s not like a super easy question answer right there’s tons of variables and that’s we’re gonna talk about this week whether a deal like that or a big vacation rental is super risky for you or not so the first thing is I want to cover some of the the brief points we made in our prior episodes comparing luxury vacation rentals and short term. Runnels in an urban area that are less expensive for example it’s a some of those things work it’s just kind of harder to get financing for pure vacation rental which means if it’s harder to get financing it’s gonna be harder to sell that property to if it’s in an area where people are typically using financing so might be harder for you to purchase a property might be harder for you to sell the property it later on because we’ll be less potential buyers and that buyer pool the other risks to buying a huge vacation rental is what happens if that thing’s not rent it out can you run it down to a long term 10 on the year lease not as likely as you could maybe a 2 bedroom in a city which is kind of what I’ve been doing yes call me conservative but Hey it works and I feel comfortable with it and I’m not opposed to vacation rentals we’re gonna get into that here but you just want to make sure that you evaluate your risk your individual risk before you purchase one of these luxury vacation rentals so there’s a few points the other point is what happens if there is a recession in the economy and people aren’t spending $1500 a night on a short term rental families are traveling together that’s one of the first things that go into recession is on necessary travel I guess you know so luxury vacations back kinda gets cut out in re sessions now if you have a smaller vacation rental that’s maybe one bedroom or 2 bedrooms it could be really nice and luxurious your chances of rain out long term we’re gonna be much better because yes we do live in a world now where you can pretty much work from anywhere but the chances of one person or individual couple individuals running a 10 bedroom home it’s just a little less likely so we’ve talked about these points in the past I don’t want to dwell on those I want to talk about your actual risk profile if you’re thinking about buying one of these. Properties and so the first thing I want to bring up is the break even occupancy what I mean by that how many days out of the year do you need to rent this property to cover all your expenses so to cover your mortgage to cover your property taxes the cover your utilities your housekeeping costs now remember some of these costs are going to increase the more your properties booked so there’s a few calculations you have to do in there you can Google break even and come up with that formula we wanna make sure counting for everything we do have a great calculator in our S. T. R. playbook which is essentially my playbook for investing in these types of properties on our website arrest methods.com she can check that out there but regardless you need to know what your potential expenses are for this property now you can estimate them the other side of that is you need to know potentially how many days you’re going to rent this property out so we’re going to do an episode shortly on a hand full of great places to forecast your occupancy but in a nutshell give you a sneak peek you can go to err DNA.CO I’ve talked about that one a lot you can go to mash visor you can go to all the rooms.com and you can simply check the listing sites like Airbnb and BRB to see how booked their counter is so we’re gonna dive more into this occupancy in forecasting so we can get more realistic numbers in a future episode but those are some great starting points so you need to know your break even occupancy and you need to know how many days you are comfortable with running that property out if it only rented for 2 months is that going to put you in a really stressful financial position is 2 months the break even point is that enough to cover all your expenses on these properties so. Part of the exciting piece of these luxury vacation rentals like my friend mention is Hey properties $3000000 look it can make 300 to $400000 a year it can make that much but what if it doesn’t right we always want to be thinking of the backup plans we don’t want to put ourselves in a risky financial position we need to know what the break even occupancy is and you need to be confident that you’re going to meet that break even occupancy the lower the breakeven occupancy is the last race you’re kind of gonna have there if you can rent the property for one month to year and cover all the expenses for a whole year well then awesome that’s gonna be a lot easier than a property need to rent for 6 months right so that’s the first thing a little bit on our break even occupancy. The second point I want to bring up it’s just your net worth and your assets is this property you’re potentially going to buyer you going all in on this thing or is this like 5 percent of your portfolio so this is a very individual basis try this is to me different for everyone I would just recommend if it’s a huge percentage of your net worth your really going all and then you want to be extra super duper careful that you’re getting a property that’s going to make sense so that peace is gonna be different for everyone what percentage of the net income you’re expecting to make what percentage of that is a percentage of their income you’re making right now and what percentage is this purchase going to be of your net assets so that is another thing we want to look at another point. What is your rainy day fund how much do you have saved up after the purchase to support this property if it’s not rented that again that number’s gonna be different for everyone the bigger your rainy day fund the batter but at a minimum especially if this is a real seasonal property which a lot of these big vacationers are I would I would want to have like 6 months at least and a lot of your lenders are probably gonna want to see that as well so back up plans what backup plans do you have if this property does not work out can you sell another one of your properties if you have another property can you work more to cover the extraction fans can you move into the property is in a place where you would love to live as well so maybe you’re buying it not just as a vacation rental but dental place to live part of the year what are your backup plans if worse comes to worse and this thing’s not getting ranted and there’s a recession and people are travelling we got to think about these things and the more we think about these things the more comfortable we’re going to be with all of this right and then the last point I want to bring up is H. yeah how old are you and. This is something really got to consider I mean if we were older and especially if this is going to be a big percentage of our net assets it’s a really big purchase for us well then it’s going to be a little risk you’re right we’re older we have slightly less opportunity to kind of start over right so if we get into a bad deal and it flips upside down and we’re tied into it for multiple years that’s gonna be a lot more stressful than it for it for quite a bit younger right this is why a lot of mutual funds and and stock portfolios and stuff for retirement you know they have like age groups where they place you in more conservative mutual funds if your older self another thing you want to think about you know in all of these things together is gonna create pretty much your risk profile so if you’ve got a green light on all these things and go for it awesome the huge vacation rentals are fun they are cool they’re exotic and they’re just nice right so just keep these things in mind though I think they can be great investments you can make sure we’re comfortable with it so hopefully that helps to analyze a potential deal you might be working on or thinking about a little better and if you haven’t yet we’ve got quite a few resources at rest methods.com for free under a recommended resources check those out and get our house rules in the show notes the same ones that I use to help protect your property a little better until next time I hope you have a wonderful. There’s so much money to be made the short term rentals but it all starts by having the right property if you guys haven’t yet seen my free ebook on our website rest methods.com head over there and get a copy it’s going to break down what I look for in a property in some great short cuts so that you don’t have to spend hours and hours researching at over rest methods.com and you can grab your free copy there if you want a crash course in everything I’ve really learned to short term rentals in over 5 years managing over 15000 Gasol recorded on our last live event I am happy to say we broke it down really nicely into a bunch of different modules that you can watch at your own pace it takes you from start to finish finding a property we talk about analyzing the property but then also some of the more important pieces how to find your team and how to set up everything so that you can run your operation is passively as possible and free up your time you can find that it rests methods.com forward slash virtual.

RELATED PODCAST EPISODES

• Episode 110: Get better deals by building your network
• Episode 104: Your Q&A
• Episode 92: Luxury VS Affordable Airbnb? What’s A Better Investment
• Episode 80: Sound In Your Rental and The Consequences
• Episode 67: Control (The Beauty of Real Estate vs. Other Investments)