CHAPTER 9: The Future of VRP

CHAPTER 9

The Future of VRP

WHAT YOU HAVE MAINLY READ ABOUT up to this point is the long, hard road to VRP success. It takes discipline to wear all hats and have at least a cursory knowledge of all the areas we have covered. Extremely time consuming? You bet it is. The operational management on the Vacation Rental Property business is absolutely a 24/7 gig with no days off , and no vacations. In fact, DIY management is probably the slowest possible method for growing your business. Why? Because if you are spending the time and eff ort required to provide excellent management services to your renter, you will not have time to pursue any growth strategy involving new property acquisitions.

Until very recently, VRP owners had just two choices when it came to running their rentals: do it themselves, or hire a local third-party management company. These fi rms can be found in the thousands and fulfi ll the smaller investor needs in communities where the competition is not a signifi cant impact. They will manage the home for you, keep all the appliances and utilities running, pay your homeowner bills, and do some advertising. They will normally greet the guests and be on call for problems. The service is typically limited to the minimal level to keep the guests and the investor happy.

Today, there’s an additional option.

It’s the next generation of vacation property development combined with a unique management model. In this chapter, we’re going

WEALTH AS A VACATION

to take a close look at this new paradigm. Learning more about this topic will allow you, the VRP owner/investor, to see the future of the industry as this method of operating vacation properties gains traction.

The new model of vacation property operation is all about great service for travelers and great returns for owners. It’s not a new kind of rental management company; rather, it is a new age of vacation home branded resort with every detail considered, right from the point of a resort’s initial conception by a property developer. By creating vacation home resort brands with a strong identity, this new model represents and takes care of both an owner’s vacation home as well as the entire resort experience for their renters.

The rental management operation and the resort brand marketing to consumer is separate under this model, but operates hand-in-hand to the benefi t of VRP owners. This type of company doesn’t own property—it’s a completely standalone entity focusing on providing premier services to VRP owners and their renters. By providing a consistent level of service to guests, owners are able to achieve both higher occupancy rates throughout the year and higher average daily rates (ADRs) on their vacation homes.

But before we dive into these details, I want to share another story from the front lines of VRP ownership to reinforce how fun it can be.

The Father and Son Team Embracing the Potential of VRP The best thing about participating in the exploding Vacation Rental Property industry is that it’s not really “work” in any traditional sense of the word. It’s golf. It’s meeting people. It’s talking about the alwayson-vacation lifestyle. For example, I recently met a father and son on the driving range at 7 am. They were in Florida from Canada and I happened to get into a conversation with them while we were hitting balls. The kid was a really good golfer, like a three or four handicap. The dad was clearly very proud of his son. We got to talking about Vacation Rental Property and they told me an incredible story.

When the kid was in high school, he played golf tournaments around North America, including a tournament in 2013 hosted by

CHAPTER 9

a major resort in South Florida. During this event, his dad walked the course for four days and started to notice all the land and the homes going up nearby. He’d heard that because of the fallout from the fi nancial crisis, there were still a lot of bank-owned lots available, and many people trying to sell. So, at the end of the third round, the two went out to look at some of the land.

It was clearly a beautiful development and the crisis had passed, for the most part. Yet this property was just sitting there at ten or twenty cents on the dollar. Sometimes, you fi nd opportunities like this, even when there is no recession. Maybe there’s a developer who is a little undercapitalized, for example, or perhaps you learn of an individual owner who let a lot go back to the bank. Maybe the individual got in a little over his head, couldn’t make his payments, couldn’t build a home. There are often pockets of opportunity like that in these resorts. It doesn’t need to be the middle of a fi nancial crisis for you to fi nd deals.

Back to the story: after the kid fi nished the tournament (he didn’t win), the two began doing their research in earnest. They stayed in Florida for an extra week and started looking around more seriously. They ended up purchasing three lots from the bank that week. They got excellent deals on all of them. On those lots, they ultimately built three vacation homes and put them all into a rental pool. Those three homes started yielding very good returns—so good, in fact, that the duo took the returns and re-invested them into additional lot purchases.

The next year, they bought fi ve more lots. Then six more. It just kept going.

These savvy individuals entered the VRP industry not by purchasing a fi nished home, but by instead getting a great deal on lots, and by then getting construction fi nancing. Their rental revenue covered the debt and created a lot of income, which they parlayed into additional investments.

Here’s what is interesting about their approach: they didn’t just go out and buy every lot they liked. They were very disciplined. They bought a portion of their lots in an area of the development that had

WEALTH AS A VACATION

homes in the $500k range. They bought some in neighborhoods with homes in the $1 to $2 million range. Then, they bought about 15 lots in the $2 to $5 million neighborhoods. They were very strategic. After looking at fi ve lots, they’d buy one. As a result, what they’ve ended up with is an extremely nice array of potential vacation rental property.

Fast forward to 2019. This father and son have 52 lots in addition to the fi ve homes they own. They got great deals on all of them. Their initial plan was simply to resell the lots and net maybe $3 or $4 million after all the debt and taxes were paid off . But now, after learning more about the VRP industry and where it is headed, they have a better plan. They’re going to develop those lots with VRP Equity.

VRP Equity will take the lots, bring in a developer, get the fi nancing, and build luxury homes with an average price between $2 and $5 million. These large homes, with 12 to 15 bedrooms, will rent for $5,000 per night or more. These are the vacation properties with laser tag rooms, basketball courts, and towers where Rapunzel would feel right at home. They’re completely themed out and will be marketed as Entertainment Homes. The other type of vacation homes VRP Equity will develop for this pair are right on the fairways. They will be marketed to golfers and their families—four-bedroom or eight-bedroom homes specifi cally designed for use by one or two foursomes of golfers.

After all is said and done, this father and son team will go from making $3 million on their savvy investments to much more than that.

This whole package will ultimately be worth $60 or $70 million in built out real estate, and will create cashfl ow for them that is way above what they would get for just fl ipping their lots. They’ll end up with a substantial piece of 50 homes as a direct result of buying that fi rst lot in 2013. They were smart enough to see the industry growing, to go out and do their due diligence, fi nd out what the revenue streams were like, and then build three vacation rental homes. That’s what allowed them to go out and put together a really nice portfolio of lots. Today, they’re set. For life.

I love that I get to meet folks like this on the golf course. And the same thing can happen on a ski slope, in fi shing lodges, hunting