Vacation Investors: Keep Up or Get Out

I wouldn't say that I'm frothing at the mouth right now while sitting in my vacation rental, but I'm getting close. My bride and I just spent breakfast making a list of why we'll never rent this unit again at one of my favorite beach communities.

I've rented several properties here in the past -- that's why I'm back this year. But this time has been pretty irritating. Not a disaster, mind you. We're still enjoying the beachfront pool club with tennis courts, Olympic swimming and private beach privileges that come with the $2,000 per week rental (after taxes, fees and insurance), as well as the views of a lake with plenty of turtles, cranes and various water fowl.

It's just that when I plop down that much money on a beach rental I have a certain expectation. You know, like there would be remotes for the 5 televisions, 2 VCRs and 4 DVD players that actually work. (And this is just getting started.) Unit L35 is quickly becoming a unit I'll never rent again.

There are two management components to investment property that every investor must take into mind. First is the investor track. Secondly there is a management company track.
Under the investor track, the individual investor has certain responsibilities, such as providing the furnishings, keeping the property in generally good order (painting, carpet, decking, etc.). The property management group is the one that joins the investor to keep the property in daily working order for all the visitors that will pay to stay at the home.

First let's deal with the investor track. A vacation rental can be a cash cow if you set it up right. Purchase with enough cash down so that the rents coming in not only pay your monthly costs (mortgage, insurance, property management fees, etc.), but you also have enough cash at the end of the month to save up for maintenance and upgrades of the unit over the years.

When investing in vacation rentals, keep in mind it's as if you're setting up your own little hotel. The rental not only includes the dwelling, but also all the stuff -- furniture, linens, kitchen utensils, and items needed on a daily basis. It also includes the niceties, i.e., DVD players, hot tubs, bicycles, gas grills, etc.

In residential investing, you only have to make one renter happy all year. In vacation rentals, depending on the length of the season, you could have dozens you have to satisfy in hopes that they will want to come back again and again. Thus, don't be cheap. Cooking wares from the local dollar store will not last long. After the first few uses, they'll look like what they are cheap.

Purchasing electronics on the same basis is really a disaster. While you may not want the top of the line in home entertainment, the cheapest components will break down very quickly. Remember, you are renting to people who are on vacation. They will most likely be watching several movies per week. The $49 component will break down (like the unit in my daughter's room, which has damaged up one of her DVDs).

This brings me to the property management track. Once we walked into the house, we discovered in two days various problems with the property and service of the management team:

• Mildew spewed out of the Jacuzzi on its first use
• Missing light bulbs throughout
• A hot tub that comes on by itself and won't shut off without unplugging it
• The garbage disposal was jammed and had to be cleaned of seashells and pebbles to get it to work.
• Out of the eight remotes in the house, only two work. I've had to purchase batteries for them only to find out some of them still don't work.
• The garage is full of debris
• The outside shower had to be cleaned of pine needles, leaves and twigs before anyone could use it
• The gas grill is a mess (okay, maybe now I'm getting picky, because what gas grill ISN'T a mess?). But the igniter doesn't work and I've purchased a lighter to ignite it for grilling tonight.

The owner next door bemoaned that there used to be two separate companies employed for cleaning and inspecting the properties -- now there's one that cleans and then sends its own crew in afterward to inspect. This may be why the cleaning crew put rugs in the washer and left us note to please move it to the dryer.

If you're going to get in the real estate investment game you must show that you care about the property. Besides, if you don't care how it looks when you're renting it out, then why should the vacationers care to come back?

Published: August 4, 2006