Vacation Rental, What to Consider?

17 Replies

Hi all

Thanks for all your support! You guys have been awesome and since I have been here.. my investment portfolio and opportunities has exploded!!!

Let just say, because I have your backing, I am not longer "AFRAID" to try new things.

Ok, this is more a BUCKET LIST, than investment.

Well, I want to make it both, an investment and bucket list.

I have done residential, commercial, and multi-unit rentals. I would like to try VACATION RENTAL.

Now, if I HAD to do a vacation rental, it had to be a WATERFRONT. Living in the Carolinas had cured me of beach/ocean-front homes. So I am looking for a ALL SEASON lakefront. Something like an affordable LAKE TAHOE kind of deal.

Ok, so... I found one about 2 hours from me. We vacationed there through VRBO last year. It has a small ski resort and other entertainment. It services big metropolitan areas such as DC and Pittsburgh.

I have found a few possibilities..

I always had put this project in the back burner, b/c of the $$$. I just recently came back from HAWAI, and seeing the insane prices there and other popular vacation spot prices, $400-600K for acreage and waterfront is not a bad deal.

First of all, I had spent the last for few weeks learning how to buy WATERFRONT.

and BOY is it complicated: Buffer zones, Buy downs, Easements and Right of Way. Depth of Lake, Wake Zone, Conservation Restriction, Deeded Dock Slip, Lake Access...etc!!!

That aside, I am having trouble making this deal make SENSE in the REI point of view.

I got a conservative projection: for a 550K 4 bed house, projected Gross Rental Income is 25K? 5% before expenses

I spoke to my accountant yesterday, and he said if you stay 14+ Days, this is considered SECOND HOME, (no tax deduction). 0 Day, it's investment (you can deduct a lot), and Under 14 Days, it's Vacation Rental (some deductions). That's not a big deal, just sharing what I learnt.

We are going to see the properties tomorrow.

Part of me just want this for our enjoyment and have rental pay it off. Breakeven... but at $550K that's a lot of $$$ to invest to Breakeven.

I am considering managing it myself. but would like to go with a rental company first.

I haven't researched that part yet.

For those of you who have VACATION RENTALS....

WHY DID YOU DECIDE TO DO IT? Own Pleasure/use or Income Stream

WHERE DID YOU BUY?

SELF MANAGE or RENTAL COMPANY? Cost?

PROS and CONS?

Thanks in advance, as always

Jenn

Are you seeking a long term tenant, like a retired type or an employed tenant in that area, who is the target market?

Are you seeking vacation rentals, daily, weekly or seasonal?

Big difference.

Know who regulates the water and waterfront and know the regulations, look closely at environmental issues like a septic tank! :)

great point!! I don't have answers to that, YET

Thx

I want to use it too.. so vacation

@Jennifer Lee

It will be extremely hard to cashflow this type of property. Vacation homes are often bought on emotion not cashflow. And most such vacation homes never make any money.

First problem is that the season is short. The winter has been long in PA, this year but this has been the worst winter, worst in cold and snow in probably 20 years. In some recent past years the ski resorts have been hurting because the weather is too warm.

Who is the target renter and what is the target rent both gross & bet for the year?

Have had vacation properties and have had both PM and self management. The PM was 12%, which cut deeper into an already negative cashflow.

At another small lakefront community, we didn't even try to rent because of the thin market and negative cashflow. But we did flip for a tremendous profit to a buyer with stars in their eyes.

At another vacation home community we had a current pending sale, where we are selling for less than 50% of appraised value, and have had tons of showing very few real buyers. It in the woods in a PA mountain community.

Mid Atlantic beach properties have a 12 week season where you have to make essentially all your yearly income from Memorial to Labor Day. Even August trails off as school kids have to be back in session before Labor Day. The other option is to rent to somebody on a 12 month lease. Surprisingly the gross rent for the 12 week 12 leases and the 12 month 1 lease are about the same gross. If you do the 12 month lease, then you can't ever have any personal use. If you do the 12 week lease and rent for all the prime weeks, then you can never use it during the prime season. 12 weeks might be the entire season at a ski resort in PA. so you'll own a ski property that you can never go skiing at if you rent it for the entire prime season. Then what's the point of owning a ski place if you can't ski there and have negative cashflow?

Besides the 14 days personal use, you can also have a open and closing "work" trip to your vacation home that does not count in the 14 days, a little bonus.

And if you rent it out for 14 days or less total for the year, you do not have to declare the income, though you can't deduct any expenses except taxes & interest as a personal residence.

For me emotion has to be separate from business. PA is not Hawaii, there its all year season and the prices are much higher, and rents are much higher, and the cost of living is much higher than in PA. I've been to Nemocolin, Seven Springs, Hidden Valley, Blue Mt and even the defunct ski resort at Bear Mt, as well as Deep Creek, so I am familiar with the area resorts. I have not been to Treasure Lake or Indian Lake. PM me if you want to discuss this off line.

hi David

I'm looking at deep creek lake.. what are your thoughts.

I'm worried bc home price keeps dropping....

Yes this is emotional, which I don't usually do...or know better not too.

I'll let this develop more as it sounds like you're exploring without a plan.

But, like David, been there done that in the lake areas.

You do not want daily, weekly rentals, that is a labor intensive business.

I agree with David, you need to find what you want first, type and location then to your target market.

Month to month, you need to identify the target market. Construction workers, pass through, air line employees take rentals short term, some school teachers, traveling nurses might be a part time tenant. Full-Part time workers in the area, the may run a business during a season and then go to FL or where ever.

I suggest you not just jump in on some deal, know the area and the labor force, seasonal areas have high employment turn over.

Can't get specific until there is something to build on. :)

@Jennifer Lee , my wife and I are doing the total opposite of you. We started with our vacation rental property and now looking into buy and hold properties.

We have a great 1bd/1bth condo in Kihei, Maui that is not exactly water front, but we are directly across the street from Kamaole II beach (about 50 yard walk or so). We bought this place because we loved the area and wanted a place in Maui. Although we went into it as an investment, it was more an emotional purchase for us. We really only wanted to get enough rental income to cover 1/2 the mortgage.

That being said, there's really no "down season" in Maui and we have far surpassed our goals and bring in between $28K - $30K gross a yr. With expenses we bring in on average 6-7% cash on cash.

We do have a property manager, which is onsite at the complex. They charge $5/nt for owner bookings and we do 99% of our bookings ourselves through our VRBO listing site. If they book any reservations, then they charge 18%. Being out of state, their services come in real handy if something needs to be repaired or a guest has any questions or concerns.

Pros, well it's been a better investment than we imagined, so far. Because of our location, we've been able to keep an occupancy rate of 89% for each yr (we've owned it since 2012).

Cons - Expenses are much more than on your run of the mill buy and hold property. Here's a recent thread where a member asked to list our expenses: Vacation Rental Expenses. Since we provide the unit furnished, there's also the extra cost to replace items due to wear and tear. We are replacing our sleeper sofa this year and it's only about 5 yrs old. We buy new sets of sheets, towels, beach chairs and other items every year. We had a new water heater put in this January. Because of the climate there, most of our fellow owners there change out the water heater every 4-5 years. Don't want a water heater to leak or blow while a guest is staying there. So lots replacement and preventative costs.

As you accountant mentioned, tax classification is important and the amount of days you personally use it is very important. You can use the property 14 days of the year or 10% of your occupancy days and have the property classified as an investment/ transient property. Lots of great tax breaks such as mortgage/ mortgage interest, expenses to maintain, travel expenses to maintain, insurance, PM fees, credit card fees, etc... If you let family or friends stay for free, that counts towards your 14 days. If you rent it out lower than market value (giving 50% discount to friends for example) also counts against your 14 days. If you break the 14 day/ 10% rule, then your property is classified as a second home and there goes all your tax breaks. I'm no accountant, so please make sure to go over these numbers with your accountant.

I hope this info is helpful. This is our only vacation rental we own and we've only had it since March 2012, so we are far from being experts on this subject. Let me know if you have any further questions and I'd be happy to answer them!

I was thinking weekly rental.

Work with a local company, and get my network in place.

Then do my own vrbo. (OR start with vrbo, if $$ doesn't make sense)

I have idea of rental from when I was trying to get rental for a week.

The community is exactly what I'm looking for.

Affordable lake community, enough to do for 1 WK.

I'm currently wrapping my head around what im actually buying. There are a lot of permits (dock and rental) And fees (HOA, lake access maintenance)

I'm also learning what my lake access is or where water frontage is.

It is not necessarily the one in front of your lot!!

That aside, I am now looking into the income stream part of the equation.

I was given an estimated income projection for one of the house and it was MUCH LESS than I thought.

Also half the homes have been on mkt since my last vacation 2 yrs ago.

For me this will be a LONG TERM hold.

I originally wanted to hold off for later in life, BUT my kids are still young and we will have a lot more use for it now than later when they are in college etc.

Also when I chk vrbo 2014 calendar, some homes are already fully booked for summer 2014... of course the ones that rents have wonderful reviews and provide summer lake front fun filled homes.

Thanks for your help

as for rental:

The home we rent was on the upper end, lake front.

We brought our own linen. Blankets are provided. For extra fee they will provide linen and towel ($60)

There was a $100-200 cleaning fee.. but you have to still "clean" before you leave.

I think this is a vrbo culture. Bc we know it a owners and not hotel. We get a long contract of what is expected of us.

We throw out our own trash.

In Hawaii we paid the extra tax for renter, and daily fee for use of common area. And a huge housekeeping fee which included 10 days of linen. And add'l fee if you need extra cleaning to be charged accordingly

In Breckenridge, CO, there was mandatory cleaning fee, they provided all the linen too.

JEREMY: like you I just want be able to pay some mortgage.

And what you said about tax is what my accountant said too.

If it's a Corps of Engineers lake, make sure you have a mowing permit and what size trees or shrubs can be cut. No, your water frontage access has nothing to do with your property line. Usually set a water level, you may own to a water's edge but it may be highly restricted as to use and maintenance.

Setting your property in service with a vacation rental:

Don't expect high occupancy, if the own units those will be rented first, you can become more of an overflow.

Insurance. bonded employees (theft can be high) maintenance contract?

You can take it from there. :)

Each area and each community within VRBO is different.

We try not to give our guests a long laundry list of things to do before they leave. We do ask that they throw out any trash/ recycle, clean any dirty dishes or put them in the dishwasher and run the cleaning cycle, put all dirty towels in the laundry basket and turn off all ceiling fans and air conditioner. All similar to what each owner in our complex asks of their guests.

We only charge a cleaning fee if the guests stay less than 7 days, which is the policy that most owners in our complex uses with their VRBO listing. However, there are many owners that will charge that fee even if you stay longer than a month.

As for taxes, Hawaii has the general excise tax and transient accommodations tax that is passed on to each renter (total of 13.42%). Tourism is the big business in Hawaii, so some other states/ cities may not charge the transient tax.

@Jennifer Lee

I have a friend that lives full time at Deep Creek. I like it, but as I said before, not sure that you can make cashflow there. Its not Maui. Its not even Ocean City.

If you want it because you want it to use for yourself, then do it. But it will be more like buying your personal residence than buying an investment. It's sort of like mixing business with pleasure, sometimes one interferes with the other.

thanks

We are meeting with our agent tomorrow.

You guys have helped me with a lot good questions to address.

I think I'm cant wrap myself around the emotional buying. I don't usually buy because I want it.. it has to make sense.

Also, I have to buy a commercial office space too soon. So priorities!!

My interest was sparked bc of very interesting listing remark, but it turned out to be nothing like the listing agent said. In fact the agent doesn't even know what he is even selling.. I m waiting to hear what is going on

My agent is confused too... I don't know, I always have a nose for finding something out of the norm...

Tomorrow is a visit to see similar units and comps.

hi all

thanks for everything, we decided to put an offer. it's a long shot.

most likely going to be rejected, but this can't be an emotional buy for me.

if this doesn't work out, I'm going to focus my attention on other opportunities in my area.

If it miraculously works out, I will post details... but I highly doubt.

Thanks a bunch

@Jennifer Lee  Since this thread is almost a year old, would you be able to give us your impression / details about your purchased vacation rental?

Thanks in advance!

Flavio

@Jennifer Lee Since this thread is almost a year old, would you be able to give us your impression / details about your purchased vacation rental?

Thanks in advance!

Flavio

@Flavio Zanetti  the offer was rejected... And things came up, like a restaurant lease that require us to outfit....

The lot was also not as marketed as mentioned in previous post. So Thx BP for helping me through this

Besides finances... a few other things to consider... Please note that I don't have property there, I am just a casual observer and have been to both of these locations.

http://www.savedeepcreek.com/ "We are a group of concerned Deep Creek Lake boat and dock owners who have, in recent years solely because of low water levels, lost the ability to use our boats..."

http://www.knoxnews.com/news/local-news/low-water-levels-fontana-lake

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