The Internet Changed Vacation Rentals Forever, Take Advantage
Have you been thinking about buying a rental property for investment?
Or maybe you just want your own tropical paradise and want to rent it when you are out of town?
Before you do, read this; it will change the way you think about investing.
Most of the people I know who are considering an investment in real estate down
here are at least considering renting the home out when they are not using it.
Renting out your home when you are not using it is a great strategy, but how do
you pick the right properties to make that work?
Location is certainly important.
But there are other factors that may lead to you finding a tremendous value by
looking at property through a different lens.
Ten years ago, if you had a home to rent in Nosara, you had a few strategies you
One, start your own website and hope people could find it online and book rentals
Two, find a property management company to rent your house for you.
Three, list your home on a few limited websites and hope people came across
Of these three options, a local property management company was the most
effective because it provided someone on the ground to manage the home in
person with little upfront costs.
Property management companies were their own platform for people looking to
rent; their business was leveraging popular properties to rent out to tourists in the
towns where they were located.
If the property managers were good and they liked your home, you could hire
them and make money.
After careful observation I noticed like any business that involves humans, it was
subject to human nature. And human nature in the tropics is generally not the
most ambitious type of human nature.
How this affected the rental market was that the most rented homes were the
easiest for the management company to rent.
Easiest in this case meant proximity to their office, on the beach, or in a certain
section of town.
Unfortunately this left many great homes at a disadvantage if they weren’t in a
location the management companies deemed convenient or cost-effective.
Since property management companies were the most effective choice for the
homeowner to rent out their home, they controlled the market. This resulted in a
playing field that was heavily weighted towards certain areas.
Like all for-profit businesses, their business model was to make the most money
possible. To do this they had to focus on specific areas of town, especially in the
Nosara area with bumpy roads that created longer travel times between homes.
It didn’t make sense to take on a house in Garza if all your other homes were in
Guiones, even if the house in Garza was incredible.
I remember noticing this over and over as I would visit towns in Central America
while looking at investment properties.
If there was a comparison to another industry, I would have compared it to the
music industry when radio stations ruled the airwaves.
At that time, a musician had to get their music played on the radio to get it out to
the public and build a fan base.
Radio stations became incredibly powerful during this time. Labels and artists had
to kneel and pay respect to get air time. There are even stories of death threats
against the people who controlled what was played on radio stations from record
producers who wanted to get their music on the radio.
Since radio stations had access to consumers’ ears, they controlled what
consumers listened to and it was common knowledge at that time that to sell
records you needed to be played in “heavy rotation” on the radio.
This in large part is how property managers have dictated the terms of the rental
market. Because their model dictates what homes they choose and then in turn
rent out, they have determined what homes get into “heavy rotation.”
But just like the music industry, times have changed.
Thanks to Airbnb and other rental platforms, the model is changing and so should
your investment strategy.
On Airbnb their are millions of listings and consumers can decide what they want
based on whatever criteria they have at the time.
If consumers have the power to choose which house they want based on pictures
on Airbnb or VRBO, they will choose rental experiences in Nosara that fit
their version of a tropical dream.
To the degree your property can match that dream, you can expect to compete in
the Airbnb world for renters even if you are farther away than a trail to the beach.
This is relative to the prices of beach property vs. other property. Beach prices are
often 5-10x higher than property farther away, but that doesn’t mean the beach is
better for returning your investment.
If you can find a cheaper property that can provide an interesting experience, you
can expect great occupancy and a better return on investment.
The playing field had been leveled; now properties that look like interesting
experiences online can compete with the places that have been in heavy rotation
for years as part of property managers’ portfolios.
What this means for you is that there are tons of undervalued rental properties
that can be bought and rented at much better ROI (Return on Investment) and
they are flying under the radar.
Does this mean the beach is overvalued?
No, the beach won’t go out of style, but there are now more opportunities for
discerning types that are not on the beach.
Convenience and location will always rule in real estate, but focusing on
experiences can open up possibilities that others just don’t see.
How do I use this information profit from rental properties?
Interesting Experiences Will Drive the Rental Market.
In Nosara the experience most people are looking for is to get away from their
routine daily lives; this can be for a week or forever. In turn, the best investments
will cater to these needs and provide exactly what the people want.
I am responding to this change by creating communities that will provide
noteworthy experiences for potential buyers and renters. From architecture to
views, I spend most of my time in the acquisition phase, determining the
experience and how it will compete with other experiences where I used to try and
find locations that realtors or property managers found convenient to show.
If you are starting from scratch, like buying a lot, it makes sense to design an
experience to cater to the interests of the people who come down here.
You might as well choose land that will provide the most interesting experiences.
Our logic as developers is, if we make it interesting not only will our buyers be happy, but they will be able to rent their homes at a premium because of the experience our