Finding Your Investment Property Part #2

Investment PropertyI previously wrote about finding your investment property and this is part two of this series. Part one talked more specifically about my trip up to bend Oregon and how I was looking for vacation rental properties.

To me, vacation rental properties can be a lot more profitable and enjoyable because you also get to enjoy using the property as well as renting it out. There are downsides of course to buying a property you plan on renting out such as faster wear and tear, people not treating the property very well, having things broken or repaired. Having said that the good news is these people renting out your property are paying down your mortgage and usually at a nice nightly premium price.

So the rental property I looked at an Oregon was a two bedroom two bath 1,800 ft house right on the 17th fairway of a nice golf course. It’s a prime location for those looking to get away and it’s also set up nicely as a two-bedroom house so couples can come up together. So my target renter in this instance would be an older married couple usually wanting to get away with some of their good friends who are more likely to take good care of your house versus a couple of college kids looking for a place to party.

I met with the realtor and this property is actually a unique property as its owner is selling a 50% interest instead of the entire property. So this would be a 50/50 partnership with the current owner which would allow both of us six months a year to either rent out or vacation ourselves if we wished.

I asked for a revenue report to see what the monthly gross income is from renting out the property. Since the average nightly rate is about $300 it doesn’t take too many days to be rented out a month to have a nice gross revenue coming in. But the current owner is using a vacation rental company to fill the house which takes a 40/60 share. This of course takes 40% out of the gross revenue which gives us less money coming in each month. But of course in order to get a house filled, you need to work with a vacation property management company since I don’t want to have to market the property myself.

The 50% ownership is being offered at $300,000 and after running the numbers I would be paying almost $400 extra out-of-pocket which means it’s not cash flow positive. Now in most instances for investment property I would walk away from a deal like this but since it’s a vacation home as well as a investment property you have to think somewhat differently.

I still haven’t made my decision and the property has been on the market for a couple months now ( Bend has an excess supply of real estate on the market currently) so there’s no real rush. If the seller is willing to come down on the price and the gross revenue continues to trend upwards, then I might be more interested in jumping on this deal.

As for now though, I’m going to wait it out and see what other deals I may stumble upon in the meantime. It’s important to not always by the first property you come across even though you might think it’s a great deal. It’s always nice to have a couple of options before making your final decision.

24 thoughts on “Finding Your Investment Property Part #2”

  1. I like the idea of owning a vacation property and renting it out when I’m not there but I’m leery of being so far away from the renters. It seems like it would be more hassle than I would want to handle. Any suggestions on how to manage the rentals from a distance?

  2. I agree, owning a vacation properties can be fun. I would also agree that I would not be to happy about being so far from the the renters. Although a good management company would sort that worry out

  3. Hey David,

    I stumbled on your blog and love the content. I’ve been investing in real estate for about 2.5 years and am building up my portfolio of income properties… similar to your strategy.

    Anyhow, I live in Oregon… I used to live in Klamath Falls (you might have drove through it on the way to Bend). I just moved up to Lake Oswego near Portland a year ago. Bend is an excellent town for vacationing… but the real estate prices have gotten crazy. The growth in Bend is heading north through Redmond and into the smaller areas around Bend.

    Right now may be the time to buy in Bend as the prices have softened a bit for that area. I got out of my duplex in Bend last summer just before the prices started to soften to where they are now.

    Regarding what Bill says… his comment isn’t completely true. As with any market (west coast is very general) there are hot spots and soft spots. The pacific northwest is still strong and suburbs around Portland are still seeing 12%+ appreciation rates. There are markets still strong on the west coast. Yes, there are some that are still on the downturn… but there are some extremely strong areas to invest in.

    Bills statement is somewhat correct when looking at the market in Bend. However, in the outerbounds of Bend, they are still growing heavily and appreciating at good rates.

    Anyhow, enough of my boring stories..

    Great blog!

    I’ll keep checking back.

    Thanks,

    Trevor Mauch
    thereibrain.com/realestate-blog

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  6. Did you make an offer to see if the Seller was willing to budge a little? I think your right if you give him a little time he’ll be more motivated. I’m in North Georgia and our market has slowed down quite a bit particularly on higher end homes. With the overall slow down I think now would be a good time to find a vaction home at a good deal. Thanks, Shane http://www.georgiabuyer.com

  7. The market in my area in Kentucky seems to be transitioning from a strong buyer’s to a soft buyer’s market. There are still some decent deals – but they are starting to dry up.

  8. I would need some contact or family member in the area of the vacation home to be confident that it is taken care of. A partnership with someone in the area where I just hand him money and he hands me more back after a certain amount of time would be a great deal! Especially if I could use the house whenever i wanted.

    C Hamberger
    Elizabethtown KY Real Estate

  9. Having someone close-by is definitely a plus if you are planning to rent our that vacation home. I don’t have one but know a lot of people who do and they have either contracted a cleaning service locally to make sure their place is taken care off after tenants/visitors leave (and before they get there), or they do it themselves. If they do it themselves it means many hours of driving back and forth from their main residence to the vacation home which kind of takes the fun out of having that place in the first time. But hiring someone costs $$$ and reduces the cash flor further.

    In any case having a vacation home and renting it can work but it is not without work.

    Have you ever thought about having other investments pay for that vacation home? Meaning focussing on profitable deals and selling property on terms (buying cheap and selling high), and using the profits to finance that vacation home? that way one could buy the place and have it paid for fast without having to rent it out and have someone else sleep in YOUR vacation bed 🙂

    Just a thought.
    Jack Bosch – landforpennies.com

  10. Hi Trevor-

    Thanks for your comment and I’m glad you got out of the Bend market before it dipped. It’s true, houses are staying on the market much longer than last year or even the year before. You can really undercut prices and lowball your offer. I almost made a couple offers on a Bend property but decided to hold off b/c I think the market will come down even more.

    ~Dave

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