Vacation Home/Rental

[notredomer23]

.....you live in Jersey bruh

Listen, it's fine to talk trash about Jersey, but coming from someone from the white trash capital of America, I won't stand for it.

 

[gkIrish]

If you have that much disposable income you should invest it in something more liquid and with a higher rate of return. You have the disposable income to go rent a hotel room 4 times a year wherever you want. Don't lock yourself into a second property at your age. Too many things can change in your life.

 

[NEIIrish]

When does this stabin cabin come up for rent? I need a place to take the wife to.

 

[wizards8507]

Listen, it's fine to talk trash about Jersey, but coming from someone from the white trash capital of America, I won't stand for it.

There is a hell on Earth, and it's the southbound toll plaza after the George Washington Bridge in Fort Lee.

 

[koonja]

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.

The time and effort part of it is noted. My first home I purchased was a rental that I owned for 3 years and updated throughout. I was always pumping time and money into it, but it was also a 1907 build so it was expected.

3 years later, OOP money I put into it was probably ~$12K. I purchased for $274K, sold for $357K. This was a side gig and I enjoyed the time and effort I put into it. It was a 4 bedroom and during those 3 years, not 1 bedroom was vacant for a single day. This isn't my first rodeo .

Although a house in another location would of course be more complex to update, I also wouldn't be buying a 1907. I like real estate and don't view the required management or occasional investment in upkeep as a hindrance.

 

[NorthDakota]

Listen, it's fine to talk trash about Jersey, but coming from someone from the white trash capital of America, I won't stand for it.

I'm from North Dakota, not the U.P in Michigan

 

[greyhammer90]

Threads like these make me miss Wooly.

 

[RDU Irish]

We have rented beach houses for ten years along the stretch from Wilmington to Myrtle Beach. With the hurricanes last year I have been expecting to see some weakness in the market - not apparent yet but folks seem to think this takes 18 months to sink in (bank action, inability to fund necessary work that may not be covered, kind of takes time for financial distress to sink in fully) As I have started looking at beach houses to buy here are some of my take aways.

1) Gotta be beachfront - not wasting my energy for 2nd or 3rd row. If I am going to use it, I want to be on the beach.

2) Flood insurance - dumb not to have it. Extra two feet of piling height can make a big difference but people fretting over paying $8k versus $12k/year for flood insurance making or breaking their decision have no business buying either.

3) Rental companies - 15% off the revenue but more than worth it. Go with someone specialized on your island, not VRBO. Some might repost on VRBO though. You want that boots on the ground service to manage real time issues - one that includes linen service is a big plus too.

4) Volatile cash flows. Vast majority of income between Memorial Day and Labor Day. Getting ANY renters during 8 month off season can be tough and the month of December rents for about the same as a week in July. Repairs and mortgage eat up your cash at the same time rents are absent - easy to see how distressed sales happen.

5) Taxes - to treat it as a rental property (preferred for tax purposes) you need to use it less than 14 days per year. HOWEVER, days you are fixing/renovating are not included. Adds to the draw for me to find a fixer. Go down for the weekend, paint a room or two and head home, rinse and repeat. With a 15 year old boy - part of the value is teaching him how to fix stuff and renovate (hearing him bitch for the rest of his life about popcorn ceilings would be priceless).

6) Financing - easily treated as a second home with same financing process as first home (i.e. 20% down for no PMI, standard mortgage rates and jumbo options). After closing - easily treated as a rental for tax purposes. IMO - another 20% of liquidity for contingencies and ample FCF to cover 100% of expenses without any rental income is essential to even consider.

In my mind - I want instant sweat equity and improved rental metrics from upgrading in the first off-season. Death and divorce are facts of life that always open the opportunity for a deal. End up seeing a lot of sales go through way below the list price - like listed for $599k and sold for $490k without being a horribly stale listing. Getting a 30 year mortgage at 4.5% is better to me than locking up piles of liquidity you don't have to.

Would never do it if I had to fly there. 2-3 hours by car is about my limit - Easy overnight or long weekend on a whim in offseason.

Some folks swear by Kiawah - looks a bit too yuppie posh for my taste and I-95 sucks balls always. Why opt for a six hour drive when I can get to Wilmington in two.

 

[Henges24]

I'm from North Dakota, not the U.P in Michigan

Hey, leave Michigan out of this.

 

[IrishLax]

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.

Exactly this.

When you have a house, you have full control of the property. Worst case scenario something catastrophic happens you still own the land which is inherently valuable if you're beachfront.

Condos can get really sideways really fast. I would never recommend buying in to a coastal condo.

 

[IrishLax]

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.

All of this. You never want to "stretch" for a vacation home. You want to make sure you're buying it with a specific goal in mind, and it should be considered similar to a speculative asset not a stable investment like a permanent rental in a metropolitan area.

There's a reason why in recessions the first things to be put up for sale are vacation homes, boats, etc. They are at their heart a luxury item not a stable "income property."

 

[ACamp1900]

Don't listen to these fools koon,... do it,... and report back.

 

[Henges24]

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....?

Spoken like a true Dave Ramsey-ian.

 

[Irishnuke]

If you can afford a vacation home you can afford to pay your speeding ticket.

 

[Irish YJ]

whatever you do, know the area well in terms of real estate trending, and rental trending.
i have several friends and family that own properties (both condos and stand alone homes) in the Naples/Marco/Sanibel area. they do perfectly fine.

speaking of the Naples area, if you'r price range is 300ish (which i took from and earlier post), you're not going to get beach front. what you could get is an off beach house (less than a mile from the beach) in the Naples Park area (right in back of the Vanderbilt Beach lagoon. those houses rent well, short and long term. put a little money into it (kitchen, bathroom, floors), and you could also flip it for double in 5 years.

 

[NCDomer]

Quick hijack. In process of buying primary residence in a beach area. Options consist of (1) more affordable, updated old home with somewhat crappy floor plans; (2) new build that's at the higher end of budget and is a 35-40 min commute, plus 25-30 min commute to non-beach stuff for kids; (3) an older home in the upper quartile of budget that has a large lot, larger home that needs a lot of updating, but is probably in the most desirable beach area I can afford; or (4) new/newish build that's inland in a uppity suburb filled with houses that largely look the same and with years of similar new builds to come for the next 15-20 years, but will still be in the upper quartile of my budget to buy.

Really torn between options (1) and (3). With 3, there's a lot of potential to drain reserves within the first 5 years via a needed kitchen update, new roof (though this would greatly lower the insurance premiums), and hvac. Realtor relayed that the seller of 3 is about $25-30k over what he'd buy it for simply because of all the work and risk involved. Meanwhile (1) works well for the immediate future, but something we'd probably want to move on from in like 6-10 years meaning all of those updates could need to be refreshened to command the same premium we'd be paying for it now.

 

[NEIIrish]

If you can afford a vacation home you can afford to pay your speeding ticket.

Lol

 

[wizards8507]

Quick hijack. In process of buying primary residence in a beach area. Options consist of (1) more affordable, updated old home with somewhat crappy floor plans; (2) new build that's at the higher end of budget and is a 35-40 min commute, plus 25-30 min commute to non-beach stuff for kids; (3) an older home in the upper quartile of budget that has a large lot, larger home that needs a lot of updating, but is probably in the most desirable beach area I can afford; or (4) new/newish build that's inland in a uppity suburb filled with houses that largely look the same and with years of similar new builds to come for the next 15-20 years, but will still be in the upper quartile of my budget to buy.

Really torn between options (1) and (3). With 3, there's a lot of potential to drain reserves within the first 5 years via a needed kitchen update, new roof (though this would greatly lower the insurance premiums), and hvac. Realtor relayed that the seller of 3 is about $25-30k over what he'd buy it for simply because of all the work and risk involved. Meanwhile (1) works well for the immediate future, but something we'd probably want to move on from in like 6-10 years meaning all of those updates could need to be refreshened to command the same premium we'd be paying for it now.

#3 as long as most of the updates are cosmetic and you can tackle them slowly. If you're in a desirable beach area, those upgrades will have great bang-for-your-buck in terms of long term resale value.

 

[BeatSC]

How about a nice fixer upper in South Bend? You could buy 2 or 3. Could always look into Montecito or Carpenteria CA but beware the number of USC fans out there.

 

[NorthDakota]

whatever you do, know the area well in terms of real estate trending, and rental trending.
i have several friends and family that own properties (both condos and stand alone homes) in the Naples/Marco/Sanibel area. they do perfectly fine.

speaking of the Naples area, if you'r price range is 300ish (which i took from and earlier post), you're not going to get beach front. what you could get is an off beach house (less than a mile from the beach) in the Naples Park area (right in back of the Vanderbilt Beach lagoon. those houses rent well, short and long term. put a little money into it (kitchen, bathroom, floors), and you could also flip it for double in 5 years.

My friend and his fiance just locked in a house in Destin(not on the beach but about 5 minutes away) for $250k. 3 beds and 2.5 baths. Nice looking place.

If you are looking at full-time rental properties in this area, there is no shortage of airmen that don't want the hassle of owning a home.

 

[Irish#1]

If you're convinced yourself on going this direction, also consider Orange Beach, AL. We rented a condo there a few years ago. Nice beach and not as busy as Destin, FW and PC but the units were renting well.

We rented a home in Destin when our middle son got married. It wasn't on the beach, but it was across the street, so it took 2 minutes to walk to the beach. Prices aren't quite as high as being directly on the beach. Newmann Daley manages a lot of the homes in the area. They can tell you what their fees are.

I will defer to Lax and the others on the investment strategy, but will say to stay away from a condo and only go the house route. That way you have control.

 

[NCDomer]

#3 as long as most of the updates are cosmetic and you can tackle them slowly. If you're in a desirable beach area, those upgrades will have great bang-for-your-buck in terms of long term resale value.

Outside the roof and hvac and kitchen appliances, the remaining updates are mainly cosmetic. The sellers (stupidly) converted their 2-car garage into a 1-car, so that's a non-cosmetic thing I should rectify if I were ever to sell either by converting back or by completing the conversion and building a 2-car garage adjacent to this one. (The lot is huge, so there's space to do this without it looking like crap.) Flooring is in good shape. Some of the updating I can do--remove wallpaper/paint. All of the updated homes on that street go for $100k+ over what I'd pay for this house, but spouse has a tough time seeing the potential of a larger house on a bigger lot (just under .5 acre vs .25 or less for the other houses) in a more desirable area. She also knows I'd tolerate the cosmetic issues indefinitely if I could get away with it, especially if the fixes would require hiring someone. With that said, the other houses are in perfectly fine neighborhoods with equally good schools that to a degree funnel into some of the same middle schools and high schools.

 

[NCDomer]

Having family and friends who rent beach houses, be cautious about buying a house that has features and stuff in it that too nice. Renters blast the a/c, leave doors open, and bury your floors with sand. Renters justify it because they're paying so much to rent the house. I.e., don't be surprised if your house gets worn quickly by renters.

 

[BleedBlueGold]

Spoken like a true Dave Ramsey-ian.

That man saved my financial life almost ten years ago. And while I don't fully support his investing strategies, he knows a thing or two about getting out of debt and building a stable financial foundation. I'll be forever grateful for that.

 

[BleedBlueGold]

Mexico Beach, FL got destroyed last fall. What's the real estate market like down there?

 

[Me2SouthBend]

I think it's a great idea to go to the bank and say "Look, I've been getting some great advice from some guys on the internet, I now have a solid plan, can I get a 2nd mortgage?"

 

[RDU Irish]

I think it's a great idea to go to the bank and say "Look, I've been getting some great advice from some guys on the internet, I now have a solid plan, can I get a 2nd mortgage?"

Banks don't give AF as long as your income covers 45% of debt obligations. If you are basing your decisions on what a bank will allow you are doing it wrong.

 

[RDU Irish]

Having family and friends who rent beach houses, be cautious about buying a house that has features and stuff in it that too nice. Renters blast the a/c, leave doors open, and bury your floors with sand. Renters justify it because they're paying so much to rent the house. I.e., don't be surprised if your house gets worn quickly by renters.

Curious what area are you in? Markets vary dramatically if you are talking near New Bern or OBX or Wilmington or all areas in between.

 

[NCDomer]

Curious what area are you in? Markets vary dramatically if you are talking near New Bern or OBX or Wilmington or all areas in between.

I don't want to be too specific on the interwebs, but on a barrier island that's part of the SOBX that's considered family oriented. It's not a spring break destination by any means, so you're essentially only getting families renting the places, but that doesn't mean some of the renters aren't rather wasteful or careless. Even some of my extended family has caused damage to a rental property in the area. One friend's family house is supposed to be their family vacation home, but gets rented to cover expenses. Lots of custom carpentry work. Really nice house. Rents for close to $20k/wk during peak season. People still damage it each year and clearly leave doors open for extended periods of time with the a/c at full blast. They've grown to accept that fact. Family says they roughly break even on it financially. Somewhat how they planned it though.

 

[Whiskeyjack]

I don't want to be too specific on the interwebs, but on a barrier island that's part of the SOBX that's considered family oriented. It's not a spring break destination by any means, so you're essentially only getting families renting the places, but that doesn't mean some of the renters aren't rather wasteful or careless. Even some of my extended family has caused damage to a rental property in the area. One friend's family house is supposed to be their family vacation home, but gets rented to cover expenses. Lots of custom carpentry work. Really nice house. Rents for close to $20k/wk during peak season. People still damage it each year and clearly leave doors open for extended periods of time with the a/c at full blast. They've grown to accept that fact. Family says they roughly break even on it financially. Somewhat how they planned it though.

Seems to be very common. You can buy your dream vacation home and rent it out to cover expenses; but you aren't going to make any money on it, dealing with renters will be a constant headache, and you'll only be able to use the property off-season. Still a pretty good deal for most people, but not the "can't miss" investment many seem to expect going in.