Vacation rental (3 states and Mother involved)
Athens, GA · Member since 2015 · 2 posts · 1 vote
Situation:
- Looking to purchase a vacation rental.
- Involved parties: Myself and Mother. She is financing and I am doing leg work.
- Property in North Carolina. I live in Georgia. Mother lives in South Carolina.
- Will be using a management company at least for the first year.
- Need advice as to the best way to structure (LLC, Trust, Personal with umbrella)?
- Where is the best place to consult attorney and accountant? Which state or does it matter?
I realize vacation rentals are not a favorite investment but it will be used by my Wife and I at least one weekend a month throughout the year. The main goal is to make a little more for my Mother than she would make with a CD or other "safe" investment. And allow us to give the $300 we would be paying for rent somewhere else once a month to my Mother instead.
In order to get more information on which kind of management structure you should use, you definitely should consult with an attorney. The attorney may be licensed in any state that has a reasonable relation to the business. Some considerations on where you should consult an attorney are; Where any of the parties live, where the property will be located, or where you wish to incorporate the business and do most of the work.
Any one of these places serves as a good state to seek the advice of a Business Attorney in. They will be able to tell you the administrative, legal, and tax costs associated with all forms of corporation available to you.
Bryan, congratulations on taking the plunge into real estate investing with a vacation rental. You should contact an attorney in the state of the property, and your local accountant for advice on the best corporate structure. They will be able to guide you through the tax and liability implications of each, and refer you to any additional professionals as deemed necessary. Good luck!
it will be used by my Wife and I at least one weekend a month throughout the year. The main goal is to make a little more for my Mother than she would make with a CD or other "safe" investment. And allow us to give the $300 we would be paying for rent somewhere else once a month to my Mother instead.
Are you going to own it or is your mother? It's not clear to me if by "financing" you mean she is buying it and getting a mortgage, or if you are buying it and she will loan you the money.
With the amount of usage you are looking at, you may run afoul of the personal usage rules if you own the property, but are using it so much personally. The appropriate rules can be found in Chapter 5 of IRS Publication 527, which can be found at the IRS website.
If she owns it, but you are using it, you'll want to make sure that you are paying her a fair market value or you could run afoul of those very same rules.
Good luck!
Hi Bryan,
You state you are looking to purchase a vacation rental and have it managed perhaps the first year. However, later on you also mention about paying rent $300.
So to be clear. is the home going to be used as a true vacation rental that you will offer to those on vacation or will you be doing some sort of homeshare where you live in the home and then rent out part of it?
To your direct questions yes you should have a someone who is knowledgeable in Estate maters look into how you and your mother should structure.
As for what state it can be done anywhere, but since your mom is financing it most likely should be someone near her or that she knows as it would make sense that she is more in need of estate planning because of her age. Just a thought
Lastly, regarding Vacation Rentals it can be a good investment. However, you will need to make sure that 1) the location you are looking to purchase will allow for short term vacation rentals. This includes the city/county and also if there is some sort of homeowner's association as well. Then I would do some research on VRBO to see what sort of rent is being charged and take a look at the calendars to see that they are well booked or better yet reach out and call some of the VRBO owners and ask them some questions and see if they are willing to give you some insight into the market as far as seasons, etc.
Hope this helps.
Vacation Rentals can be great investments and cashflow well but you really need to do your homework. First finding an area that rents well and renting is allowed(call a local VR Property Manager they will know all of the tricks. Next you need to treat buying the property just like any other investment property, looking for good deals that get you in the right area under market value. And Finally if you really want to make money you should look at alternatives to using a full service PM(30-40% of Rent for most VR). Many times you can handle the bookings using VRBO/Airbnb and just pay a PM 10% to take care of the place.
Thank you all for the replies!
To answer a couple of questions.
This is an investment for my Mother using her funds. I'm not sure what the best structure is for holding the property. We want my Mother listed as an owner and I am not sure if listing me as an owner will be a benefit when she passes or not. (Avoid probate?)
The thought is for my Mother to make some rental income through VRBO or the like while allowing us to use the unit one weekend a month or so and pay her the VRBO fee for that weekend rather than stay in someone else's property and pay the weekend rental fee to them.
I know the fees are going to be higher using a full service management company but I want to do so for at least the first year or so to get exposure on the property for repeat renters. And I thought it might be good to have a management company taking care of it until we can figure out exactly what managing a rental property entails. With this being the first time doing this I want to worry about as little as possible.
The area we are looking in is Bryson City, NC. It is a good rental market for mountain homes from May through mid November. With sporadic rent during the other months.