5.6 VRP Positioning

WEALTH AS A VACATION

20. Busch Gardens Williamsburg in Williamsburg, Virginia (annual park attendance: 2.78 million): Modeled after nine different European cities, this park features the Parisian streets of France and the Oktoberfest celebrations of Germany. It is also known for roller coasters and wild-animal attractions.

5.6 VRP Positioning

Within any geographical area, you can purchase the right VRP in the wrong location. You can change the structure, remodel it, or alter the home’s layout. But generally, you cannot move it, as it’s attached to the land. The most desirable locations with the highest VRP occupancy and ADR values are those in prime spots.

Locations near the ocean, rivers, lakes, or parks hold their value because of the location, providing they are not in the path of a possible natural hazard. People want to be near water or visually appealing settings. Some VRP locations bring top dollar because they provide sweeping panoramic views of the cityscapes, but even a glimpse of the ocean from one window is enough to drive even more demand for your vacation home. Other sought-after views include mountains, greenbelts, or golf courses.

Entertainment and shopping areas are prime locations for VRP. In many cities, you will fi nd VRP developments that are located within short distances to theme parks, sports stadiums, theaters, retail, restaurants, and specialty boutiques. These properties are more expensive than those located further outside of town. Remember, people on vacation would rather not drive if they can walk to nightlife.

Conforming areas where similar properties are grouped together thematically or through a certain design aesthetic can be a good place for a VPR investment. People tend to gravitate toward others who share similar values—and their homes (and vacation homes) refl ect it. VRP guests mostly prefer to be surrounded by similar types of properties in age and construction, where people just like them vacation.

CHAPTER 5

Which Phase? If you are looking at buying a property in a large community with two to fi ve phases, proceed with caution. Anything with more than two phases, I’d avoid unless the property is in the last phase. Here’s why: By the time you’re in your home and you have two years of rental history, this is the year when you could conceivably sell that investment. Or, your income has started to come up. Then, along comes a third phase with brand new homes. So, if you want to sell that this point, get in line. You’re going to have to drop your price. Or, if you want to keep renting your property to vacationers, you’re now competing with properties being marketed as brand-new homes. Yours is three years old.

Go with a property in a development that only has two phases, and try to buy in that second phase. Look at 100–200-unit projects. You typically won’t have as many amenities at this size, but it’s good to be in a smaller community. Your average daily rate will be more secure.

The second non-obvious location consideration I want to address is the fringe area in a given development. When buyers are in the process of purchasing in a large master community, that community might have an area around the periphery. You’ll hear things like, “You may be able to put up a pool, if . . .” That’s a red fl ag—the developer is trying to move inventory when the future isn’t absolutely clear. The worst-case scenario is, the new owner ultimately can’t put a pool in. While everyone waits for an answer, closings are put off , sometimes weeks, sometimes months. Lenders get cold feet and pull out, and this uncertainty can cause a snowball eff ect.

Don’t buy a property if there are open questions about easements, sewer lines, power lines causing brain cancer, or changing zoning. All of these types of considerations need to be addressed before you select a home to invest in. You want to be where everyone else is already, and you need to be a little bit of your own expert. You need to consider Murphy’s Law: what can go wrong will go wrong.

WEALTH AS A VACATION

If I’m looking at a neighborhood and the whole thing is fl at, but it falls off on the sides and there’s a row of homes down that side, and they haven’t sold yet, and I’m told, “Well, you know what? We may have to put a retaining wall up but it’ll all be fi ne.”

No, thanks.

Even if the engineers have assured you everything is going to be just fi ne, I wouldn’t take a chance. I’d rather go a couple blocks in where everything’s selling really well and have a perfectly fl at piece of land with homes all around me. Nothing’s happening to them.

Don’t take the bait on a property that’s giving you doubts. Maybe they even off er a discount. Who cares? If there are 150 homes in this development and there’s a street selling slower than all the rest, something ain’t right. Whether you see it or not, somebody has seen it so stay away.

Consider the positioning of your product within all the rest. Location is one thing—that’s where your development is and what’s around it. Positioning of the hard asset is where the property is situated within the development. Find out: Is there a shuttle service? Is my VRP close to that drop-off spot? How close to the water park is it? Could you walk a block to the water? That’s huge. Is there a golf course and a club house? Is it close to that? Is it clear out in the middle of nowhere on the very edge? What they’ll try to sell you is you’ll have no neighbors: “Look at that view!” You’re looking over a fence into a vacant area. That’s not what you want to buy.

To be successful, VRP must be located in economically stable areas. Neighborhoods that stood the test of time and weathered economic downfalls are more likely to attract buyers who want to maintain value in their homes. These are people who expect pride of ownership to be evident.

Again, pay special attention, within the community and street, to where your VRP is located. It is better to be positioned in the center of the street. Sure, some renters prefer corner locations, but most vacation renters want to be in the middle of the street, because this makes them feel less vulnerable.

CHAPTER 5

Areas to Avoid This should not need to be mentioned, but let me touch on it briefl y: bad areas. It’s almost easier to talk about what constitutes a bad location than to discuss good locations for VRP. That’s because the qualities that make a good location desirable can vary, depending on whether you’re looking in the city, the country, or the mountains. Bad locations, by their general nature, are easier to pinpoint.

Unless you live downtown, commercial buildings on your block diminish VRP values. Part of the reason is because homeowners cannot control loitering. Homes next to gas stations or shopping centers are undesirable because of the noise factor, and nobody really wants to listen to truck engines idling at night or during early morning hours.

Stay away from railroad tracks, freeways, or areas directly below fl ight paths. While some city dwellers have homes close to railroad tracks and endure rumbling and other noise 24-hours a day, excessive noise will kill your guest retention, even when such homes are located in otherwise desirable areas.

Do your research and stay FAR away from high crime areas. People want to feel safe when they are on vacation. When cars come and go throughout the night, and the police visit a neighborhood often, visitors will assume that the area may have a crime problem. This makes renters wary of ever returning to that vacation home.

No one wants to vacation in an economically depressed area. Nor do they want to travel through that area on the way to their vacation home. Check the routes to the VRP you are thinking about purchasing from airports, highways, etc. If the route travels through areas where owners show no pride of ownership in their homes, (as evidenced by lack of maintenance, poor landscaping, and junk in the yard), stay away. Do not invest. Of course, some areas like this are at the center of proposed rehabilitation projects and could thus be intriguing. Remember, however, that rehabilitation is never a guarantee. A great VRP home in close proximity to a depressed area is not a good call.

WEALTH AS A VACATION

Finally, never, ever invest close to hazards. People don’t want to vacation next door to nuclear power plants. Few vacationers want a transformer in their yard either. High voltage power lines overhead? Move on! If the neighborhood you’re considering was built on a landfi ll or was recently swampland, pass. Always order a natural hazard report when buying a VRP.

When Circumstances Change Even when you do fi nd a home in a desirable location at what seems like the right price, it never hurts to look at additional factors such as any new construction close by, or vacant land that could be developed in the future into something that impacts the value of your potential new VRP.

Sometimes, in new resort developments, zoning and building plans change. For example, a buyer purchases in a home allowing for short term rental without studying the current trends and objections to it in the municipality. Then, the local government changed the zoning, outlawing short term or vacation rental in the area, killing any potential for the investor to do business.

New apartment buildings can also change the whole landscape. A VRP investor’s formerly appealing nature views are now obstructed. Later in the year, a seller a few doors down tries to sell an identical square-footage VRP and fi nds that he cannot get nearly the price he would have gotten if he had sold before the apartments were built. The presence of the apartment buildings can signifi cantly aff ect a home’s value.

For the startup VRP entrepreneur, entering the industry may be a bit intimidating. Even in this book, which attempts only to touch on the necessary disciplines and knowledge, the amount of information can be overwhelming. Searching one topic can result in an avalanche of options, information, opinions, etc. While I understand the problem, I still advise you to spend your time understanding the business. Take a close look at the critical components of analysis and revenue forecasting in an area close to you. The big picture of diversifi cation