Vacation Home/Rental

[NDRock]

This is such a great thread w Koyackesque potential. Every time you offer advice, he shoots it down after advice was exactly what was asked for in the OP. The thread title should've been "I want to buy a vacation/rental property, please be supportive"

Yep. Wash, rinse, repeat. I say go for it. Why not? You only live once.

 

[IrishLax]

What are real estate prices like in South Carolina where you're buying freestanding beachfront homes as starter investment property? My mother-in-law just bought an ocean front condo in Ocean City, NJ and it was $800K. A freestanding house would have been well over $1m.

Like smart people, my family bought during the recession when everyone else was selling for bottom dollar. Paid all cash, and have already seen a massive uptick on value not to mention the steady stream of rental income.

I would not recommend anyone be buying in this current market, and if I were buying I'd be looking for a beachfront lot or a teardown.

 

[Veritate Duce Progredi]

Like smart people, my family bought during the recession when everyone else was selling for bottom dollar. Paid all cash, and have already seen a massive uptick on value not to mention the steady stream of rental income.

I would not recommend anyone be buying in this current market, and if I were buying I'd be looking for a beachfront lot or a teardown.

This x100

The market is hot and people are spending freely. I don't usually espouse 'market timing' strategies but real estate has basically reached/surpassed the pre-recession pricing.

I will likely look into real estate when the next big economic downturn occurs.

 

[Whiskeyjack]

Based on my experience--some personal but most vicarious through clients, since almost all of them own at least two properties--I'll 2nd Lax and wizards here. Assuming you do your research, real estate as an asset class is one of the best long-term investments available to you. But in the short- and medium-term, it's very challenging to make most properties cash flow reliably.

Being a landlord is a day job, and it doesn't sound like you're looking for another one of those. And if you're going to outsource that, property management fees will usually make your margin disappear.

Lots of people here in Arizona buy a vacation property in the mountains (2 hours north) or in SoCal (6 hours west). Though it's not something most young families can afford. As wiz mentioned, taking on a 2nd mortgage is a huge amount of risk; most people taking that plunge here are at the height of their earning potential, or are nearing retirement and have saved for it specifically.

Some buy and put it up on vrbo for rental. If you do it right, your renters will basically pay the mortgage, taxes, etc. while still allowing you to use it off-season "for free". You'll benefit from the slowly accruing equity down the road, but it's not going to produce much (if any) income for you, and having to deal with renters is a significant headache (even with a property manager involved).

 

[wizards8507]

Based on my experience--some personal but most vicarious through clients, since almost all of them own at least two properties--I'll 2nd Lax and wizards here. Assuming you do your research, real estate as an asset class is one of the best long-term investments available to you. But in the short- and medium-term, it's very challenging to make most properties cash flow reliably.

Being a landlord is a day job, and it doesn't sound like you're looking for another one of those. And if you're going to outsource that, property management fees will usually make your margin disappear.

Lots of people here in Arizona buy a vacation property in the mountains (2 hours north) or in SoCal (6 hours west). Though it's not something most young families can afford. As wiz mentioned, taking on a 2nd mortgage is a huge amount of risk; most people taking that plunge here are at the height of their earning potential, or are nearing retirement and have saved for it specifically.

Some buy and put it up on vrbo for rental. If you do it right, your renters will basically pay the mortgage, taxes, etc. while still allowing you to use it off-season "for free". You'll benefit from the slowly accruing equity down the road, but it's not going to produce much (if any) income for you, and having to deal with renters is a significant headache (even with a property manager involved).

So his attorney and his accountant have both told him it's a bad idea.

Let's see what he does...

 

[ACamp1900]

So his attorney and his accountant have both told him it's a bad idea.

Let's see what he does...

When your wife AND mother in law both align against you,... you're toast.

 

[wizards8507]

When your wife AND mother in law both align against you,... you're toast.

Well my mother-in-law is the one with the beach house, so I have to play nice...

 

[BleedBlueGold]

Like smart people, my family bought during the recession when everyone else was selling for bottom dollar. Paid all cash, and have already seen a massive uptick on value not to mention the steady stream of rental income.

I would not recommend anyone be buying in this current market, and if I were buying I'd be looking for a beachfront lot or a teardown.

Very smart move. I don't hope for market crashes and recessions but currently stock piling a little side money for when the next one happens, I can grab some cheap real estate (just maybe not a beach house).

Nothing like an HOA. They just take a cut of the rental revenue.

Koon, the main point I'm trying to emphasize is that HOAs are out of your control and can change rapidly. If you own a condo, you are legally obligated to pay them... and if the situation changes in a bad way you can get absolutely screwed. Owning a condo for a primary residence has its pros and cons, owning one for vacation rental income and capital gains is extremely risky.

Imagine buying into a place and then a few years later getting a letter in the mail saying you're being charged a $10k assessment because they have to do widespread concrete repairs to the building due to corrosion from the slat laden seawater. That is a reality hundreds of condo owners in Florida face every year.

100% true.

Based on my experience--some personal but most vicarious through clients, since almost all of them own at least two properties--I'll 2nd Lax and wizards here. Assuming you do your research, real estate as an asset class is one of the best long-term investments available to you. But in the short- and medium-term, it's very challenging to make most properties cash flow reliably.

Being a landlord is a day job, and it doesn't sound like you're looking for another one of those. And if you're going to outsource that, property management fees will usually make your margin disappear.

Lots of people here in Arizona buy a vacation property in the mountains (2 hours north) or in SoCal (6 hours west). Though it's not something most young families can afford. As wiz mentioned, taking on a 2nd mortgage is a huge amount of risk; most people taking that plunge here are at the height of their earning potential, or are nearing retirement and have saved for it specifically.

Some buy and put it up on vrbo for rental. If you do it right, your renters will basically pay the mortgage, taxes, etc. while still allowing you to use it off-season "for free". You'll benefit from the slowly accruing equity down the road, but it's not going to produce much (if any) income for you, and having to deal with renters is a significant headache (even with a property manager involved).

Second this. View this as a long term investment, not something that will get you "extra chedda" every month.

 

[BleedBlueGold]

So his attorney and his accountant have both told him it's a bad idea.

Let's see what he does...

Does he have you guys on retainer?

 

[koonja]

I'll say it again, we are not looking at this as an additional source of income.

We may rent it out ~March through June because why not, but we are not expecting rental income. Like I said, we'd purchase if and only if we're ready to take it on without $1 of rent coming in, which we're close to doing.

And like in the OP, I'm interested in people who have done this (like Lax, apparently). Not the chicken sh!ts like wiz who give advice out of their mom's basement.

 

[Whiskeyjack]

So his attorney and his accountant have both told him it's a bad idea.

Let's see what he does...

Does he have you guys on retainer?

 

[NorthDakota]

I did look there, I also looked at a beach a little bit down from Virginia beach. On Fort Walton, I did not find anything in our price range, but it's worth keeping an eye on.

IIRC, there's an airport that goes to FW too, which would be a draw as a rental. Thanks for the recommendation.

Also check out Santa Rosa Beach and the other little towns between Pensacola and PCB.

Pensacola, Fort Walton, and PCB all have airports. There is a toll bridge that allows Destin folks easy and quick access to the airport too so that shouldn't be a deal breaker.

 

[Whiskeyjack]

I'll say it again, we are not looking at this as an additional source of income.

We may rent it out ~March through June because why not, but we are not expecting rental income. Like I said, we'd purchase if and only if we're ready to take it on without $1 of rent coming in, which we're close to doing.

And like in the OP, I'm interested in people who have done this (like Lax, apparently). Not the chicken sh!ts like wiz who give advice out of their mom's basement.

Lax's family did it with cash the last time the real estate market bottomed out. Having to borrow completely changes the calculus here. His advice isn't going to magically produce hundreds of thousands in liquid capital for you.

 

[koonja]

Lax's family did it with cash the last time the real estate market bottomed out. Having to borrow completely changes the calculus here. His advice isn't going to magically produce hundreds of thousands in liquid capital for you.

I get that. Paying cash would be wonderful, but that's not an option for us.

We do have enough disposable income however, to take on a 2nd mortgage without being strapped. I also work remote and can be there more often than most, so we'd get a lot of use out of it. I don't believe investing in real estate is a bad idea, especially real estate you get use out of, and can virtually rent out whenever possible. But you still have to be strategic, so I'm curious who else has done this. Lax's anecdotal advice is the stuff I'm looking for.

 

[BleedBlueGold]

I'll say it again, we are not looking at this as an additional source of income.

We may rent it out ~March through June because why not, but we are not expecting rental income. Like I said, we'd purchase if and only if we're ready to take it on without $1 of rent coming in, which we're close to doing.

And like in the OP, I'm interested in people who have done this (like Lax, apparently). Not the chicken sh!ts like wiz who give advice out of their mom's basement.

You literally sited a $600k condo making $3200 per week as extra cheddar in your second post.

 

[Ndaccountant]

Haha yeah we own on Seabrook right next door... when you get to the island take a right at the circle not a left

Our house is not a 9 million dollar mansion though, obviously.

I like both, but Kiawah amenities for the kids is top notch. Once we don't need that for them, we will take the right.

 

[koonja]

You literally sited a $600k condo making $3200 per week as extra cheddar in your second post.

Which is good context to understand the renter potential of the locations we're considering.

But I'll say it again - we would not be banking on any rental income. If it comes, great.

 

[NorthDakota]

I will talk to people at work who own multiple homes in town.

 

[IrishLax]

I'll say it again, we are not looking at this as an additional source of income.

We may rent it out ~March through June because why not, but we are not expecting rental income. Like I said, we'd purchase if and only if we're ready to take it on without $1 of rent coming in, which we're close to doing.

And like in the OP, I'm interested in people who have done this (like Lax, apparently). Not the chicken sh!ts like wiz who give advice out of their mom's basement.

OK but you also said -- "Where do you get started trying to understand what you can get for airbnb rent?" and "But we still want to get into a place that maximizes that rental income."

So here are the things you really need to nail down:
1. Is this an investment in an asset where you are looking to see a return on that investment either through rental income or appreciation?
2. If the answer to #1 is yes, what are your goals? $X/month in rent? Y% appreciation over Z years? You want to model all of that to determine how much you're willing to spend. Typically, you can determine expected rental income by looking at comps on VRBO or AirBnB and then talking to owners about the occupancy rate during "peak season." Alternatively, you can look at comps on VRBO and see when they are booked to determine a rough approximation of the occupancy rate... but you are best off talking to people or management companies for more accurate numbers.
3. If the answer to #1 is no, and you really want to focus on it being a "family vacation home" then you need to evaluate the following:
3A. Accessibility. Directly affects how much you will use it. Driveable? Easy/cheap flights? The main reason people don't use timeshares, vacation properties, etc. is how hard it is to get to them.
3B. Affordability. Does the constraint on your finances preclude you from doing other things? Does it preclude you from taking other vacations and are you OK with that? What are the financial risks associated with the purchase and how may they affect your "normal" life?
3C. Purpose.How do you envision using the property in the short term? What about the long term? Is there any extended family that would use it? Why *this* place and not another place? What is the exit strategy, if any?

IMO, the most important thing is finding a property that is financially viable. Ideally you want to be able to pay all cash, if that's not realistic you want a mortgage that is not more than 50% of your expected "rental income." There are so many costs associated with a property beyond HOAs that you need to mitigate your risk of taking direct losses on the property. After you've figured out what kind of property will be financially viable from an investment/rental standpoint, make sure it is accessible, affordable (i.e. taking vacations there will not "put you out"), and serves a purpose for your family.

For our property, it checked a ton of boxes... beachfront (so long term that's great for kids and aging adults getting out there with minimal difficulty), great golf and activities, driveable from primary residence in Virginia, very close to Charleston for flights as well as going into the city... and then financially the equation worked. Don't just get something to get something, get something that fits specific goals of yours and fits your family.

 

[BleedBlueGold]

OK but you also said -- "Where do you get started trying to understand what you can get for airbnb rent?" and "But we still want to get into a place that maximizes that rental income."

So here are the things you really need to nail down:
1. Is this an investment in an asset where you are looking to see a return on that investment either through rental income or appreciation?
2. If the answer to #1 is yes, what are your goals? $X/month in rent? Y% appreciation over Z years? You want to model all of that to determine how much you're willing to spend. Typically, you can determine expected rental income by looking at comps on VRBO or AirBnB and then talking to owners about the occupancy rate during "peak season." Alternatively, you can look at comps on VRBO and see when they are booked to determine a rough approximation of the occupancy rate... but you are best off talking to people or management companies for more accurate numbers.
3. If the answer to #1 is no, and you really want to focus on it being a "family vacation home" then you need to evaluate the following:
3A. Accessibility. Directly affects how much you will use it. Driveable? Easy/cheap flights? The main reason people don't use timeshares, vacation properties, etc. is how hard it is to get to them.
3B. Affordability. Does the constraint on your finances preclude you from doing other things? Does it preclude you from taking other vacations and are you OK with that? What are the financial risks associated with the purchase and how may they affect your "normal" life?
3C. Purpose.How do you envision using the property in the short term? What about the long term? Is there any extended family that would use it? Why *this* place and not another place? What is the exit strategy, if any?

IMO, the most important thing is finding a property that is financially viable. Ideally you want to be able to pay all cash, if that's not realistic you want a mortgage that is not more than 50% of your expected "rental income." There are so many costs associated with a property beyond HOAs that you need to mitigate your risk of taking direct losses on the property. After you've figured out what kind of property will be financially viable from an investment/rental standpoint, make sure it is accessible, affordable (i.e. taking vacations there will not "put you out"), and serves a purpose for your family.

For our property, it checked a ton of boxes... beachfront (so long term that's great for kids and aging adults getting out there with minimal difficulty), great golf and activities, driveable from primary residence in Virginia, very close to Charleston for flights as well as going into the city... and then financially the equation worked. Don't just get something to get something, get something that fits specific goals of yours and fits your family.

To expand on "affordability," I find it important to consider some things: are you debt free, are you maximizing your Roth and other tax favorable accounts, do you have an emergency fund, do you have kids (if yes, do you have a college plan), if you buy a vacation home - can you afford the routine maintenance as well as unpredictable maintenance costs, property taxes, insurance, liability insurance (if you rent), disaster plan in event of hurricane/flood....?

Most people who successfully invest in real estate do so from a well established foundation within their own personal finances. And only then do they diversify into RE, having considered all the risks involved, of course.

 

[ACamp1900]

Lax's family did it with cash the last time the real estate market bottomed out. Having to borrow completely changes the calculus here. His advice isn't going to magically produce hundreds of thousands in liquid capital for you.

Next thread started by koon "Which bank robbery plan should I go with?? (poll)"

 

[Ndaccountant]

Next thread started by koon "Which bank robbery plan should I go with?? (poll)"

I was thinking more "Has anyone helped a Nigerian prince come to the US?".

 

[notredomer23]

Why not just move somewhere not miserable rather than live like a poor most the year because you have two mortgages

 

[NorthDakota]

Why not just move somewhere not miserable rather than live like a poor most the year because you have two mortgages

.....you live in Jersey bruh

 

[ACamp1900]

.....you live in Jersey bruh

NORTH Jersey.......

 

[Wild Bill]

I'll say it again, we are not looking at this as an additional source of income.

We may rent it out ~March through June because why not, but we are not expecting rental income. Like I said, we'd purchase if and only if we're ready to take it on without $1 of rent coming in, which we're close to doing.

And like in the OP, I'm interested in people who have done this (like Lax, apparently). Not the chicken sh!ts like wiz who give advice out of their mom's basement.

I've looked into buying a vacation home that I considered renting out to cover a portion of the costs and decided against it. The deciding factor was the lack of spare time I have to actually enjoy the place now that I have a child and another on the way. I have a sneaking suspicion I'll have even less time once the second, third and fourth are born and they're all in school and playing sports, etc.

Being a landlord is more difficult than most people like to believe. I have a full time job, own/manage seven rentals, and help my parents manage five of their rentals b/c it's increasingly difficult for them as they age. The income is nice but it's far from easy. I'm constantly doing something - whether it's working on a project, renting out a vacant property or dealing with a tenant who can't change a light bulb.

If you don't mind working, the numbers make sense and you really want a vacation home, make sure the numbers work and get after it. Just make sure you thoroughly and honestly consider both the positives and negatives.

 

[wizards8507]

Next thread started by koon "Which bank robbery plan should I go with?? (poll)"

 

[Irish#1]

I'll say it again, we are not looking at this as an additional source of income.

We may rent it out ~March through June because why not, but we are not expecting rental income. Like I said, we'd purchase if and only if we're ready to take it on without $1 of rent coming in, which we're close to doing.

And like in the OP, I'm interested in people who have done this (like Lax, apparently). Not the chicken sh!ts like wiz who give advice out of their mom's basement.

Koon, I haven't had a decent laugh in a few days, but this thread is coming through.

Thx

 

[Irish#1]

Lax's family did it with cash the last time the real estate market bottomed out. Having to borrow completely changes the calculus here. His advice isn't going to magically produce hundreds of thousands in liquid capital for you.

Calculus? All this time I was using Trigonometry!

 

[RDU Irish]

Will echo the condo sentiment. Had clients stuck with a beach condo they over paid for and never got back above water on. Insult to injury was the massive five year $12k/year assessment (yeah $60K total) to reside and fix all kinds of problems - good luck selling with that assessment coming down on your $300k 2br condo. Ended up pushing tons of the properties in to foreclosure further tanking the prices - plenty trading hands below $150k before taking a few years to rebound worth a squat but still nowhere close to peak.

Then there are the folks I see that end up never using the place as peak season they don't want to miss the top rents and off peak they are busy themselves or scrambling to fix it back up for the next season.

Moral to the story - if it washes away in a hurricane and you recover $0 can you still thrive financially? If the answer is "no" - keep renting.