By Craig Shawn Williamson
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 always-on-vacation lifestyle. For example, I recently met a father and son on the driving range at 7am. 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 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 financial 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 find 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 financial crisis for you to find deals.
Back to the story: after the kid finished 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 five more lots. Then six more. It just kept going.
These savvy individuals entered the VRP industry not by purchasing a finished home, but by instead getting a great deal on lots, and by then getting construction financing. 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 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 five 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 five 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 financing, 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 as Foursome Fractionals—four-bedroom or eight-bedroom homes specifically 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 cashflow for them that is way above what they would get for just flipping their lots. They’ll end up with a substantial piece of 50 homes as a direct result of buying that first lot in 2013. They were smart enough to see the industry growing, to go out and do their due diligence, find 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 fishing lodges, hunting lodges, places like Las Vegas, New York. What better industry to participate in than this one? It’s filled with people who are living life as a vacation.