Inherited beach condo with negative cash flow?

Question

can anyone tell me of any benefit to have a rental vacation home that loses $10k per year?

PITI & HOA fees = $25k per yr

Rents = $22k per year

Less management commissions, upkeep, cleaning and amenities.

Leaves $15k per year.

Runs in the hole $10k.

Any tax benefits?

Am I missing something?

I could understand if it was $2-4 k but $10?

Jon Holdman · Answer

Well, 2007 was pretty much the height of the bubble.  Lots of folks though the bubble would keep inflating forever and made lots of speculative plays.  Unfortunately, the reverse happened.  In your shoes I'd see if there was any money from a sale.  If not, I'd think about giving it to the lender (deed in lieu of foreclosure), unless there's an estate the lender could come after.

Doug Scarano · Answer

@Jean Bolger you're not kidding! The place is nice.  3 BR 2 BA. First flr. End unit. 40 steps to pool, 70 to beach. Oceanfront. Relaxing. Unless we can get more rent though, it's not worth it.

@David Krulac in laws were preparing to retire and wanted to be ale to get out of town on a whim. But mom got brain cancer and dad already had enlarged heart. He only lasted 3 months after she passed. Very sad.  It's hard to give something up they were so dedicated to but the only positive I see is its on the beach.  The only way to look at it if I were to keep it is like this: my half of the losses are $5k. If I were to rent a place on the beach during the season it would be $2-2 1/2k per week. So if we can sneak down during the off season for a couple weeks then in theory it's a break even.  Even though I still lose money, I don't have to put out more to be there.  However, with the deed changing ownership, the bank is going to want a new note. That will tie up my DTI ratio for buying properties hat actually make money.

David Krulac · Answer

@Doug Scarano

I've owned Atlantic beach properties, and know from experience that its hard to make money there.  Most are bought on emotion and the thrill of owning beach property.  But your OP was about the numbers, and your experience is not unusual by any means, and is in fact quite common.  The people who are making money at the beach have owned their properties for decades, own the property free and clear or were given the property without debt.

The mid-Atlantic season is so short 12 weeks from Memorial to Labor Day, and even then the last few weeks trail off due to schools starting before Labor Day.  I've found that there are two basic ways to rent these properties by the year lease to a permanent resident or by the week.  If renting by the week sometimes you don't get all 12 weeks filled for one reason or another.  But I've found that the gross rent for the 12 individual weeks is about the same as the gross rent for a year.

If it were me I'd sell and take the money and get a better investment and rent a place when you want to go to the beach.  There are great rates after Labor Day and the water is warm, the crowds are down and the weather is great.

I think that some people mix business and pleasure, then wonder why neither was satisfying.

Jean Bolger · Answer

Holy frijole... that's a lotta beans. Must be a swanky place. 
	But with what you'll save by selling it you can definitely have a nice vacation somewhere else!

Doug Scarano · Answer

@Jon Holdman yes I think it was bought on sentiment. And yes they upgraded bathrooms and kitchen. I think he could afford the loss and he went with it to have someplace to spend time with the family. I could also afford the loss but why would I want to? I want to retire in 10-15 years and even though the losses would be split with my brother in law, that $75k could be making me more money somewhere else. Like couple more duplexes. Then just rent a vacation spot for couple weeks. Or buy spot without HOA fees and by it outright. Thanks for sharing your brain.

Jon Holdman · Answer

I'll give you 100 to 1 odds it was purchased for one of the two reasons I listed:  personal use or speculation.  Its actually not even as good as your math, unless you're adding in maintenance and improvements and other costs incurred by rentals.

Doug Scarano · Answer

@Jon Holdman yes there is an estate.  Will probably sell but was looking for a reason why property was purchased in first place.  Maybe some advantage I'm not seeing. If we could hold out until it was paid off then live there to retire would be one thing but seeing my wife has a brother, it would have to be split 50/50.

@Frank Uzzi the condo is in surfside beach, sc. It is rented by the week from third week of may until Labor Day. One week is blocked out for my brother in law. September and October are hit and miss so is April and May. The rest of year is usually rented by the month at $1000.

Frank Uzzi · Answer

Doug,

I noticed you said it was a beach condo.  Is it possible to rent the property short term during summer (assuming it is somewhere in NJ).  If you rent it weekly or even daily during the peak beach months you may see a decent boost in rental income.  Naturally, though, you must also then contend with getting a winter rental once the season is over.

Doug Scarano · Answer

@Jean Bolger good thought. I need to do comps on the rents.

@Bryan L. No, it's a 30 year note @ 6%.

It's already rented for the season. So if the rents are in line with the area, we will sell it. Even it was paid off it would only gross $3k per year. The HOA fees are $700/mnth

Matthew Paul · Answer

Sorry for your loss  ,But  lots of people spend their own money and end up with negative cash flow  . If the house is paid off soon great ,if not look at all avenues , rent , or sell it

Inherited beach condo with negative cash flow?

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