I think this is a bit of an unanswerable question! I want to buy a holiday home for myself somewhere nice for the odd weekend, but I live in Glasgow so won’t be travelling up and down to tidy up between rentals. I have an idea of a few locations, but whats the best way to get the property managed? Im struggling to find companies who operate in these places so is it just a case of buying somewhere then assuming itll be easy to find a local person to do it? Seems a bit risky!
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Why not? Plus, there is a lot more to do than simply “tidy up” between rentals.
You know what is said about “assuming”…
There is a lot more to successfully managing a STR property than simply buying it and then hoping for the best. If you can’t find someone to co-host/prepare the property then it’s down to you.
I’d suggest you research your location, market and your own motives before spending any money.
JF
@Kevin_Loder - best wishes to you, and welcome to this forum.
We purchased in a location that we adored, but it is 5+ hours from us. I purposely chose this home because it already had a rental history (only for a few months but I knew something was at least possible) and because there was a neighbor that was more than happy to partner with me to clean and watch out for issues.
Maybe in your search you could try to find a place with a similar history - either to purchase for yourself, or find out what someone else is doing in that area?
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Are you doing STR because you need to cover mortgage payments for your second home. If so, then you need to choose a location which is popular with your target market.
I would imagine that you wouldn’t have a problem finding cleaners and STR managers in many tourist locations, so are you looking for somewhere in a very remote location ?@Kevin_Loder
If the income generated through STR is not an essential then you could risk finding it difficult to find local support.
Have you done any market research on what’s available in the areas you are interested in, in terms of STRs of the type you want to buy, what they charge and occupancy rates?
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I would definitely need STR to cover the mortgage. It would be great to find a property, travel up to that location and do some research like talking to neighbours. Unfortunately by the time you do that the property will likely have sold. I know it takes a bit of work so with me several hours away it’s unrealistic to be travelling there often.
I know the areas Ive been looking at rent successfully. Ive stayed in plenty of airbnbs across scotland, and obviously ive been checking availability calendars as part of researching this purchase. They do quite well even in remote areas. Its these areas I’m most interested in. I find that even in the middle of nowhere you can find something on airbnb that has loads of bookings in the calendar. Unfortunately that means not many people will live close by.
So this isn’t just a holiday get-away for you in which you can dabble in STR and see if you can supplement – as you say you need the STR for the mortgage.
First, I would suggest that you change up your plans, and instead buy a more modest property you can carry yourself, then try STR to see if it nets you extra income!
Otherwise you need to plan and make projections as if you are seriously starting a new real estate investment business – which is what you will be doing! Is what you want to do legally permitted and do you need a business license? Do you have real estate/landlord experience? Are you ready, willing and able to dash from Glasgow to your property when the heating goes out or your security camera shows unacceptable numbers of guests or partying? How long can you afford to carry the property until you turn a profit? What is your exit plan if not profitable? Have you done pro forma income and expense statement with all costs – insurance, property management, cleaning, repair and maintenance, supplies, equipment and furnishings, property taxes, utilities, mortgage interest, lodging/business tax – and reasonable income projections to see if and when you will break even/make money?
Strictly as an investor, you are looking for a cap rate (annual net income over valuation of property) of 9-10% in a low-mod income area, down to 6-7% in higher income area. Do you have builder/handyperson experience that would allow you to save money by buying more of a fixer upper and doing your own maintenance? In my limited experience, you are unlikely to make money buying a property you have to finance if it’s in turnkey condition or you have to pay retail for construction contractors.
There are significant tax consequences to running an STR with lots of personal vacation day use here in the U.S. As your plans firm up and if you take the plunge in purchasing an STR property, consult a tax advisor.
And don’t fall into the trap of thinking you have to act quickly and forgo research or your ideal property will disappear – if your business model is sound, there is always another property available. Any property that’s “a steal” either is actually not a steal, or will have already been taken up by someone with expertise in the local market.
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Be careful about this assumption. Just because a property is not available for booking doesn’t mean it’s booked. The owner or their friends/relatives may be using it.
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I totally agree here. If you need the rental income to pay the mortgage, then you need a very thorough business plan, and cleaners are a lot farther down the “a bit risky” list.
If you can afford the mortgage (i.e. you are able to acquire a loan without counting the rental income) but you’re really just hoping to cover most or all of the costs through STR, then that’s different.
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All very valid points. In regards to legality, in Scotland using a house as a STR is currently legal under planning law. However, this is changing; allowing local authorities to require planning permission for a change of use. Similarly, a licencing regime is being implemented, too.
A remote investment can be very risky indeed, especially if you need the rental income to make the business plan work.
For this to work, you need someone that you can trust completely for marketing, managing, maintenance, and cleaning. Taxes can be very complicated. There is huge risk there.
For an investment like this to even start to be interesting, it would have to be much better than a super low cost index fund like Vanguard S&P 500.
If you are interested in being a host, I would start with something small, like a room in your house or a local apartment that you own.
@Kevin_Loder is not interested in being a host in his own home @Jefferson. He wants to buy a remote holiday home and use STR income to cover the mortgage.
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