Vacation Rental Investment Information
Vacation home rentals have been growing in popularity in recent years because of their high demand and profitability. But the high renter turnover means that short-term rentals require more active management than long-term rentals. Not only do you have to constantly find new renters to keep your unit occupied, but you also have to manage the check-in process, cleaning, and re-stocking of essentials for each guest. This demand on time makes it hard for individual investors to keep their short-term rentals occupied and well-managed on their own. With Gatsby Investment, you get a chance to invest in those properties, completely passively, while our team of experts handles the marketing and management for you.
Vacation home rentals are ideal for investors who want the cash flow from short-term rental income plus appreciation growth over time.
Gatsby sources funds from multiple investors, which allows you to own a piece of a desirable vacation property without the financial burden of funding the property on your own. This makes high-value real estate accessible to a wider range of investors.
In addition to the many vacationers who visit Southern California every year, frequent visitors to the area, including actors, athletes, musicians, and business leaders, prefer to stay in a private residence rather than a hotel while they’re in town.
Vacation destinations in Southern California see consistently high demand and low supply, which results in an increase in rental rates and property values year after year.
The benefits of investing in vacation home rentals
High demand.Vacation homes have been growing in popularity for years.
A hedge against inflation.Investing in rental properties can make inflation work for you because you can increase your rental rates as inflation rises.
Cash flow.Guests pay nightly, weekly, or monthly rent, which helps cover property expenses and can provide ongoing income to investors.
Appreciation.The value of the asset grows over time, and investors get to share in those financial gains.
Tax benefits.Certain real estate holding costs are tax-deductible, reducing your income tax burden.
Ownership of a piece of California real estate.Gatsby provides an ownership stake in the underlying real estate (as opposed to other firms, which offer only ownership of the debt held by the property).
The process of vacation home rentals
Gatsby’s vacation home rentals are located in central areas that attract short-term renters. Our team of real estate analysts scouts properties in close proximity to airports, entertainment venues, restaurants, malls, parks, etc.
We focus on vacation destinations throughout Southern California that have favorable regulations for short-term rentals. These include popular areas like Los Angeles, Palm Springs, Lake Arrowhead, Joshua Tree, and Big Bear. And we target homes for under $5 million, which have statistically performed better overall than higher-value properties.
We look for consistency over seasonality. Some properties would be fully-booked during peak season but would experience high vacancies during the off-season. Instead, Gatsby focuses on mature rental markets with more consistent demand and a steadier rental income stream. Los Angeles, for example, is a well-established rental market that people have been visiting since long before the short-term rental market became popular.
Our thorough short-term rental vetting process involves running local comps, calculating rental income projections, estimating vacancy rates, exploring the neighborhood, and determining the value-add potential of the home to confirm that it would be a good investment.
Once we have negotiated and closed on the purchase of the home, we do a light renovation of the property, fully furnish the home, and prepare it for guests. We also consider value-add options, like converting a spare bedroom into a home movie theater or a gym, depending on the preferences of the target audience for that property type in that location.
Our experienced team handles every aspect of the process from start to finish. We find the property, negotiate the deal, secure the financing, supervise any renovations and design, oversee the property management company, and handle the accounting services (including investor distributions, 1065 tax filings, and Schedule K-1s).
The option to sell your share every five years
Gatsby’s goal for vacation rentals is to not sell the property. We want to continue providing passive income, value growth, and tax benefits to investors for the long term.
But because we want to offer as much flexibility as possible, we give investors the option to exit the investment every five years by selling your share in the property. We would then advertise your share for sale on the website, and new investors would have a chance to purchase your share based on the property’s new appraised value.
If you choose to continue the investment for another five years, you will continue to benefit from quarterly disbursement and additional property appreciation over time. And at this point, depending on the interest rate and appreciation growth, we may also refinance the property to pull money out and return original investments back to the investors.
This is a five-year investment, with the option to exit or continue the investment every five years.
The timeline starts the day we open escrow for purchasing the property. It typically takes a few months to get the property ready to receive paying guests. Then we advertise the property to qualified vacation renters. With Gatsby, you’ll receive your share of any rental income each quarter throughout the rental holding period.
Investor distributions are prorated based on the time you invest in a project.
At the end of a five-year investment period, Gatsby will order a new property appraisal and calculate projected financials for the next five-year hold period. You will be able to review the projections before choosing if you want to exit the investment by selling your share in the property or continue for another five-year rental holding.