I have started to model buying a short term vacation home in South Lake Tahoe. With all the data that is available to me (occupancy rate, daily rate, taxes, investment mortgage rate, maintence, cleaning fees etc.) I am seeing a high rate of return (over 15%). So what am I missing? It almost seems too good to be true, which makes me highly suspecious. I know one key aspect will be sweat equity with responding to renters and lining up service providers, my partner, who works part time, will be handeling that aspect. Any advice for a potential short term rental investor?
Again, I dont know that market, but I suspect their occupancy would be much less than that without the long term renter.....still if you exclude the capital improvements they have made, they feel it's been a great investment from a cash flow perspective, based on a relatively cheap purchase price. And another thing, their condo is big but was not super expensive, if you are buying an expensive house that warrants a really high nightly or weekly rate, that obviously reduces your target customer base.
It's high because no will touch tahoe. They are constantly on the verge of banning short term rentals or reducing permits which could turn your great business into no business in a blink.
This is similar to the WeWork model. Should work out well
What are you assuming about occupancy? I dont know lake Tahoe specifically, but my family has a vacation condo in Florida and while its regularly rented short term during high season, it either sits empty or they gets a long term renter (at a much lower monthly rate) for 6 months out of the year. Also even though they handle all the coordination of service providers (cleaning etc) they still pay a fee to to the sites for advertising and booking , vrbo or TripAdvisor or whatever). I dont know their rate of return, but of course they also use it themselves so it's not just an investment
Thanks, I was assuming a 35% occupancy (127 days / yr). Good point on the fees to the booking sites. I hadn’t factored that in.
Tahoe is great year around with peaks in summer and winter but again may ban short term rentals at any moment.