Physician Investing: Vacation Home Rentals - Part 2

In my last post I discussed the pros and cons of vacation home rentals.

By way of example, I will tell you about our experience. 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 lives.  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.

The first step was converting part of our primary residence to a rental.  The guest house was originally designed to house friends and family when they came up from Southern California or points beyond for a visit. We wanted that extra space so our guests would feel comfortable and so that we didn't have to give up our living space to accommodate them.  A planning point - when we asked our architect why the closet in one of the guest bedrooms in our main house was so small, he said that if our guests are staying longer than a couple of days, then they should be staying in the guest house.  

Our guest house is connected to the main house by way of our recreation room.  But to provide privacy for our guests and once again, to lessen the impact on us, the guest house has its own private entrance and parking.  We also built in a small kitchen. There are two bedrooms, one and a half baths, fireplace and living and dining areas. Immediately outside is an eight-person ocean-view jacuzzi spa. 

So when we decided to rent the guest house to the public, we felt that we already had a good start.  But it was also obvious that we needed to make some modifications to make it appropriate for public guests versus personal friends and family. The first thing was privacy. To enhance the ocean view, we had originally designed the bedrooms and living space without doors and no window coverings.  After all, the deer didn't mind us looking at them.  So we installed privacy shades on the windows.  We then installed screens for the upstairs loft bedroom and sliding doors for the downstairs bedroom. We also installed a built-in combination lock on the guest house front door.  For each guest, we re-program the combination to the guest's zip code. That way it's easy for them to remember it.  

We would give the guests access to all the outdoor amenities - jacuzzi, firepit, barbecue, tree swing, horseshoes, bocce, basketball, ocean view benches and all the walking trails. And we would go out of our way to stay out of their way, unless they want to contact us.

Now we felt it was time to market our new rental. We knew that the internet was the obvious choice, and after much research agreed upon using the VRBO.com (Vacation Rental By Owner) site.  They are also linked with Home Away.  There are other internet vacation home rental sites that we may soon explore and start using, but we've have tremendous success with VRBO.  Costs per year are several hundred dollars but you'll never find more cost-effective marketing.  You create a description of your property, download digital pictures, and set up your rates and your reservation calendar. You change all the above at any time with a click of the mouse.  The guests make an email inquiry. You can email them a reservation contract and arrange payment.

We have been renting our guest house now for about a year and a half, and it has overwhelmingly been a positive experience.  We have had guests from 18 states and 3 countries.  With very few exceptions, the guests have been delightful and have all appreciated opening our house and property to them. We've had many return guests and they can easily post their comments on our VRBO site.  Check us out at "VRBO.com" and look at Listing # 213704. View our listing here. 

Maybe, we'll even see you on Mendocino Coast as our guests!

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.