The past 20 years of my career (pretty much my entire career) have been spent primarily building online businesses, including projects like this website. I’ve had more success earning money than I could have ever imagined when I started close 20 years ago, but I have had this nagging feeling throughout the last 10-15 years that I should be more assertive about investing the money I’ve been able to stash away.
In the past few months, I’ve begun investing in real estate for several reasons, including to have tax write-offs (my accountant has repeatedly told my wife and I over the past few years that we need to buy rentals to be able to use their depreciation against my tax basis), and to be more assertive about having my money work for me rather than sitting in a bank account, where current rates of return are about the same as sticking money in a mattress.
I’ve heard a lot of talk about buying nightly vacation rentals from people who’ve heard from people that it’s a great investment idea on its own, even without the additional tax benefits for business owners. I decided it’s finally time to jump in.
Finding a Investment Rental Property To Purchase
One of the first questions many investors have about getting into nightly rental investments involves location. If you’re going to buy a vacation rental to put on VRBO or AirBNB (or however you’re going to advertise it), you want to be sure that there is going to be a high enough occupancy rate to make it worth your while. If you’re financing a rental property (a strategy that I personally don’t suggest, but many people have used it successfully), you’ll want to at least cover your mortgage, HOA, maintenance, and other costs. Whether you’re using financing or not, you’ll want the rental to produce the maximum income, especially compared to other potential investment opportunities you might have.
The best places you find nightly rental investment properties are around areas known for recreation. It’s best if the area is in good demand for people to spend vacation time there throughout all four seasons, since there is typically limited availability for your “inventory”, so you’d naturally prefer that you can sell rental slots year-round instead of just a shortened portion of the year.
Saint George, Utah, Zion National Park and Southern Utah
Something that helped me get comfortable with the idea of purchasing nightly rental properties was my experience as a vacationer, renting everything from hotels to condos in the area where I ended up deciding to invest.
I’ve been familiar with the area around St. George in southern Utah for a long time, having moved to northern Utah (Utah County, just south of Salt Lake City) more than 20 years ago. Over the years, I’ve had reasons to visit the area for my own family vacations, including summer trips to Zion National Park, winter breaks from the cold spent in St George and Las Vegas (less than two hours south of St George), and more recently (the past couple years) chasing baseball and soccer tournaments with my kids in various cities surrounding St George.
Over the years I’ve planned for and spent my own vacation time in this area of southern Utah, I’ve seen how difficult it can be find a good deal on a hotel or a nightly rental. On many weekends, it’s hard to find any decent place to stay. I’ve found myself thinking over those years, “Man, wouldn’t it be nice to own something down here?”
My First Nightly Rental Property: Robbins Nest Retreat at Las Palmas
As of February, 2019 (just a month ago at the time I’m writing this), I do own something down there. I bought an older property in a condo resort area called Las Palmas, which is zoned for nightly rentals. I’ve taken my family to stay at Las Palmas and the neighboring condo subdivision (Sports Village) several times. We really enjoy that area, especially because there are lots of pools, playgrounds, and fun things for kids to do, and because it is central to many of the areas where sports activities are held.
As I shopped for a place to buy, I stayed in close contact with a property manager in the area who was referred to me by a real estate agent as being reputable. The owner of the property management company (Red Sands Vacations) was helpful in pointing out what to look for in a potential rental investment as well as helping me understand how to make a rental unit as attractive as possible.
After making a couple offers on condos in Las Palmas that didn’t get accepted (they were for much lower than the asking prices), I was able to get under contract and shortly thereafter purchase what we have now labeled the Robbins Nest Retreat at Las Palmas, a 3-bedroom, 2-bathroom condo that we were able to arrange, with the help of our property manager, to fit up to 12 occupants.
My kids helped me come up with a name of our new rental business. We chose to put this property and each of our subsequent vacation rental purchases under the Robbins Nest Retreats umbrella so that we can build some brand identity as we expand the business and pick up more properties, first in southern Utah near St George, and later in similar areas through the United States and possibly internationally.
Some Things I’ve Learned So Far
Although I’m sure I’ve made some mistakes here and there in my approach to getting my feet wet with real estate investing, things have gone overall very well so far. Here are some of the key takeaways I’ve noticed.
- Already being familiar with the area gave me confidence that I knew what I was getting into. I had a sense of the market there, and I have been able to see the demand for nightly rentals firsthand.
- Using a property manager is a good way to start out. Thinking about what all is involved in making sure the rental is going to be successful can be nerve wracking for an inexperienced investor. The property manager I went with was available to look at the property with me prior to my purchasing it, and his company has been supportive in helping me get the property set up and rented well. Having a good, attentive, and experienced property manager seems critical for new investors. Property managers normally take a 30% of monthly rental income. If you’re going to use a property manager, be prepared for that and make sure that your estimates consider that management expense.
- Paying cash for the property takes off quite a bit of the stress of getting the rental income moving. I was able to use some money from a home equity line of credit on my home along with savings to pay for the new condo. I get a sense that if I was highly leveraged on the property, I’d be much more stressed and anxious about having it rented out consistently. As a busy business owner who’s also raising six kids, it’s nice to know that I can spend whatever time I need to marketing the property and building up the rental clientele.
Using a Real Estate Agent or Not
Several years ago I went through the licensing procedure to become a real estate agent, and I worked for a few months with a Coldwell-Banker office in Orem, Utah. I’ve written before about my attitude toward real estate agents and the subject of whether they truly act in a fiduciary way as “required” by law. Because of my experience at Coldwell-Banker and in dealing with real estate agents generally, I tend to be highly skeptical of them, always wondering whether they’re telling me the truth or trying to influence me to make a decision simply because it benefits them.
Because of that background, I chose to not use a buyer’s agent in purchasing my first rental property in St George. Instead, I made offers and went through the process of paying for an inspection and scheduling an appraisal myself. Things went well, and I was able to get a deal on the property with the extra 3% of bargaining space.
However, in the process I met an agent who I trust, and who has given me a lot of useful help and information. Having someone like that on your personal real estate investment team seems very much like a worthwhile asset.
As I’m working on purchasing another rental condo, one that is a new construction project, I decided to be represented by this agent, who lives in the area and can monitor progress on the condo. Whereas it didn’t make so much sense to employ an agent for my Las Palmas existing home purchase, it makes much more sense to hire one who I trust to help out with a purchase that has a longer, more complicated due diligence and completion process.
Financing a Real Estate Investment Purchase
Some of the real estate investment webinars and courses I’ve watched over the years find ways to come up with creative financing arrangements for buying investment real estate. I’ve also heard listened to a lot of seasoned, experience-based advice from people like Dave Ramsey, who’s much more likely to recommend that a person wait and, except in limited circumstances, pay cash instead of getting financing for real estate investments.
I tend to lean much more heavily towards the wait and invest with cash side of the risk spectrum. I’m sure that being conservative with investing has cost me some money, but I’m also glad that I haven’t taken the risks that I’ve seen people take who are now cured of wanting to invest in real estate, or who have even lost marriages and family over making poor, high-risk decisions involving too much financing.
If you’re not able to pay cash and really feel like you need to jump in to real estate investments, including nightly and longer rentals, financing any particular deal should be done by running numbers with buffers in place for low rental income periods, maintenance costs, and other thorough contingency planning that can keep you from making the bad hasty decisions that come from being cash-strapped.
Keeping a Vacation Rental Property Full
As I talked about above, finding the right place for a nightly vacation rental investment property is the first major step to turning a worthwhile ROI on your money. There is plenty of information available from local real estate associations, city and county planning people, and other resources to be able to make an informed decision on a rental property location.
But there is also more that can be done to max out your vacation rental.
In my situation, there are several different places where my property manager advertises my Las Palmas Resort property, including on AirBNB.com, VRBO.com, and their own website, where they have an established group of loyal clients who shop regularly.
Being listed in those areas keeps my condo pretty full on most weekends. In order to max out occupancy, there is a marketing strategy I am employing. This is how it works.
If I want my property to stand out, I can create a Google My Business (GMB) listing to drive traffic to my specific listing, shortcutting many of the other rentals listed in the area and gaining prominence for that specific listing as I teach Google to bring searchers to my particular listing.
After creating a GMB listing, I can strengthen that listing (make it more prominent) by also listing my nightly rental on websites like Manta.com, Facebook, Foursquare, and in other places where Google gathers data about local places.
I supplement those listings by building a website that targets people who are planning to vacation in the St George area. I am publishing information about local golf courses, the best restaurants in the area, pictures and descriptions of state parks, Zion National Park, local baseball and other sports fields, and other “visitor guide” data for an area that encompasses up to a hundred miles around where my rental condo is located. In fact, on a recent trip down there, I used my son’s drone to get some footage of the area, including some good shots of a couple of the baseball fields commonly used in the big baseball tournaments. I will publish that footage on my condo rental website and use it to drive awareness and interest in my particular rental property.
There are lots of fun elements to having nightly rental properties as investments. Although I’ve only recently begun my nightly rental business, I’m encouraged about what I’ve seen so far, and I’m excited about what can happen over the next few years as I add more properties to my portfolio and make adjustments based upon what I’ve learned.