All Forum Posts by: Victor Warnsley

@Victor Warnsley,

    I am certainly no expert at buying vacation properties so please take what I have to say with a grain of salt.

I have recently been doing research on this very topic and in the same area that you have been considering. I have a college friend who happens to run a vacation property management company in the Gulf Shores and Orange Beach areas. I have been picking his brain while doing my research to get a better idea of what to look for and what to expect. Vacation properties are much more complicated, in my opinion, than SFR when it comes to trying to analyze them. There are a lot of assumptions that have to made. They are educated assumption, assuming you have the right information, but assumptions none-the-less.

With vacation properties you have to consider the price, the financing, the maintenance, and the carrying costs. You are responsible for electricity, water, gas, phone service, cable, furniture, HOA/Condo fees, and most importantly ASSESSMENTS. None of these, or very rarely, are factors in SFR properties. Additionally, vacation properties are rented daily/weekly and can be very susceptible economic fluctuations.

When looking at condos, you have to keep the HOA/Dues in mind. An older condo will more-than-likely have a higher monthly fee than a newer condo which has been built to newer codes and thus is cheaper to insure for the condo complex. Amenities will need to be factored in because families will want to have access to pools, parking, etc. while they are staying in your property. Elevators will also be important for your rental considerations. It can be the difference between cutting out a large segment of potential renters (i.e.: eldery/retired folks, people who don't want to walk up a bunch of stairs, etc.) The amenities can make or break your rental if you do not keep that in mind.

Management is one of the biggest factors that you have to consider also. The management fees will be higher than a SFR due to the daily/weekly turnover. The management company also will probably manage many other units in the same complex which means you will need to make sure that the management company is one who will treat you fair and not push renters toward other units which are owned by someone in the company or someone who owns multiple condos that are managed by that management company.

    Another thing that you have to look at are what properties are renting well and what properties may not be. For example, in one area there may be an abundance of 3/2 condos for rent and therefore bring in less rent versus cost than a 2/2 or 2/1 which are less abundant and have a higher demand due to daily/weekly rate for families. The other could be the case also where a 3/2 is a better rental than a 2/2 or 2/1. You also need to be sure to buy what other people want rather than what you want. Being across the street from the beach or on a canal/river/lagoon may be fine for you but the potential renters will want to be on the beach or facing the beach. The things is the properties may be the same purchase price and get the same rent but the beach front property rents more frequently than the other. You also have to keep in mind that the rental amount changes with the seasons and your expenses need to be covered during the high rent season. That way everything else is your profit or covers the maintenance. "Profit" seems to be very hard to achieve when buying a vacation property unless you find one that is deeply discounted or you put a large amount down on the property and have very good financing in place.

I am not saying that vacation properties are not profitable and should not be considered. I am just saying that there are many more factors which need to be considered before buying a vacation property as an investment. If you are looking for one for you to use periodically and rent out to cover most of the expenses then the factors are different. If looking for this property strictly as an investment, then it may be better to get some experience with a/some SFR before jumping in to vacation properties.

If you are looking for vacation rentals then Ohio isnt the best location...Florida is a good spot for sure...I know that the Florida Panhandle, Tampa, Orlando, & Miami are good spots for that....

@Victor Warnsley

For your financing, check both the residential and commercial options. They each have their own advantages and disadvantages.

If this will be one of your first four properties, you can still take advantage of the Government sponsored mortgages from Fannie and Freddie. You may still want to put 20% down to avoid PMI and to put more margin in your cashflow numbers. Getting the better rate from here instead of a commercial mortgage will make a large difference in your bottom line.

Once you used those four, then step into the commercial loans where you will need 25% down or so, plus usually a slightly higher rate.

Of course, your rate and terms will vary based on your specific circumstances.

 Hey Victor,

Good for you. This is a huge accomplishment! I think it was mentioned before, but for an investment property you will need to put down at least 25%. Property Management will be a huge factor and will call for a more in-depth group than the normal PM's. Vacation rentals tend to have high turnover, which requires more frequent inspections, cleaning, tenant placement, etc. If buying a condo, be sure to read up on the HOA regulations pertaining to renters. I spent a lot of time researching in Palm Springs, CA and came across a lot of HOA communities that force renters to stay a minimum of 1 month.

Furthering on what I said earlier about Vacation Rental Property Management, they tend to charge a lot higher than your usual PM's.  I had a quote in Palm Springs as high as 25% of annual rent!  For that rate, it might be a better solution to find a steady, long-term renter and a cheaper (but still good!) PM.  Best of luck to you, feel free to give me a shout if you have any questions and I'll do my best to help you out!

-Matt