Sep 19, 2011

In the previous post on where you should buy a Vacation Home if you want to Rent by Owner, we covered features and amenities. Those are important, but hard to quantify. If you're flexible about where within a particular region to buy a vacation home, then there are quantitative things to help narrow down your search. 

We had been staying at various places along the NC coast since 1993. The place we had spent most time was Duck, NC, but we knew that was out of our price range. It was also a little too long of a drive for a place that we hoped to visit several times during the year. So we began to look at other towns along the coast that were within 3 hours of Raleigh, NC. That quickly narrowed it down to the towns between Beaufort, NC and North Myrtle Beach, SC.

Prices and Rates

I started a spreadsheet and wrote down all the towns between these two places. I then visited and searched for how many properties in each town were within my price range. This wasn't always easy, because the searches can often return properties from neighboring areas. For example, when you search for properties in Topsail Beach, you'll also see properties from Sneads Ferry. The Map View can be helpful to narrow this down. You don't need to be precise. You're just trying to eliminate areas that simply don't have properties within your price range, or the kinds of properties in which you are interested.

Once you've narrowed down the areas by proximity and property availability, it's time to start looking at the number of vacation rental by owners. There are hundreds of different listing sites for vacation rental by owner. But the big 3 are VRBO, and (all owned by For the purposes of this analysis you can just pick 1. I used VRBO. Look at each town and write down how many vacation rentals there are.

By now you should have a spreadsheet with 3 columns - town/area, number of properties, number of vacation rentals. And you should have also narrowed down your initial list of areas. In our case we were looking for condos. And we found that some towns just didn't have them, while other towns were clearly more residential than vacation friendly.

Now we need to start looking at prices. Back to For each town/area look at a few properties and their listing price. There will probably be a wide range from low end to high end properties, and based on their size. If the range doesn't seem too big then just pick an average listing price. If the range is big, then try and group them. Perhaps 2-bedroom condos average this much, and 3-bedroom condos average that much. Add a row to your spreadsheet to divide them this way.

Now back to VRBO and look at the rates being charged in high season for those kinds of properties. It's helpful to be doing this just before the high season. Some property owners only list their rates for the upcoming season, and some don't list them at all. Don't worry too much about incidental costs like cleaning and deposits for now. You're just looking for an average high season weekly rate. While high season is the summer in a lot of areas, remember that in mountain areas with ski resorts, it is often the winter. And in those areas, weekly rentals might not be as common. If 3-day weekends are more common, then you should record the average rate for those.

In areas with a winter high season (like Beech Mountain, NC) you'll find that Christmas and New Year are priced differently to the rest of the season, and may require week long bookings. For summer high seasons you might find that July is one rate, and June/August are a slightly lower rate. If all the areas you are looking at seem to be fairly consistent in how they divide up the seasons, then just pick one consistent week to price for all the properties you look at.

Now we need to add a few formulas to the spreadsheet. We want to estimate the monthly mortgage, and the ratio of the average high season weekly rate to the estimated monthly mortgage. I've shared a template spreadsheet that you can use with these formulas already entered. After opening this you'll need to save a copy to your own google account (Save > Make a Copy...) before you can edit it.

As a rule of thumb you should be looking for areas where the ratio of the high season rate to the monthly mortgage is at or above 1.0. Theoretically this means that 12 bookings in high season will cover your mortgage (interest + principal). This leaves whatever bookings you can get in low season to cover your other costs (utilities + association dues + advertising etc.). We'll come back to this in more detail when we discuss how much of your costs you can expect to cover.

Many counties in the US post real estate transactions online. This is useful for checking comparable sales in an area. Your Realtor can provide these too. Often in vacation areas, properties will also provide their rental history for the last 12 months. However, without knowing how actively they were trying to rent the property, this information isn't very valuable.

As I said in the last post on where to buy a vacation home if you want to rent by owner, the first criteria should be to choose an area that you love. But hopefully the advice here is useful for people that love several areas or a whole region, and are trying to narrow it down.

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