Vacation Homes for Investment

lulie___wayneAugust 26, 2006

My husband and I would like to buy a vacation home for our use, to rent, and also use as an investment.

Have any of you done this? Where have you bought or recommend someone buying as far as being the most lucrative as an investment? What are the pros and cons of the idea?


Lulie Cosby

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I think it depends a heck of a lot of where it is you want to buy. I know people who bought and rent out condos in Hawaii and Bend Oregon. Both of these are high demand areas with vacation possibilities all year long. Another friend bought a house in Arizona with the idea of renting it out when she wasn't there. It didn't work at all because she wanted to stay there herself during the winter and nobody wanted it at any other time of year.

    Bookmark   August 27, 2006 at 11:06PM
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Some people do great with this, some don't. As devorah above stated, it depends where you want to buy, and when you would want to use it yourself. Also, will you depend on the rental income to help pay for this, and what happens if it doesn't rent or some tenants party and trash the place? Also, who will handle the rentals - a management co. takes a big cut and may not screen tenants carefully. I would think long and hard about this before plunging in.

    Bookmark   August 28, 2006 at 10:12AM
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Generally, a vacation home implies that the 2nd house will be some distance from the primary residence. Also vacation home rentals are generally of short duration (a week or two). If that's what you're talking about, you're looking at a LOT of work.

First of all, just having a vacation home (forget about renting it for the moment) means you have 2 houses to clean. 2 homes that need maintenance (lawn work, painting, appliances replaced as needed, roofs to replace, etc). When you have a vacation home, and you go to spend a weekend or week, a great deal of your time is taken up with taking care of the house--it's not the same as going on vacation where you RENT a condo, or hotel room--you have responsibilities.

Taxes in vacation areas are generally out of sight. If you invest in a vacation home, you will feel obligated to use it--meaning a huge expense in gas and wear and tear on your vehicles as you travel back and forth. Also, it means you'll be spending most of your vacations in the same place--obviously, everyone is different, but to me, that spells: B-O-R-I-N-G

Now, renting. People on vacation often think that means they have no responsibilities. They don't think they have to take care of the facilities. Sometimes, you end up with gaggles of young people renting your place (even if your careful, you may rent to a family who then lets their kids invite all their friends to come along). Are you going to have the time and energy to run to the house every Saturday morning during the season to do a major cleaning (and often some repairs) of the place between tennants?, and then dash right home again, not having the time to enjoy your vacation paradise? Will you be close enough to dash over during the week if your tennants have a problem? (the range breaks, the AC stops cooling, the back steps break, the bathroom floods, etc.)?

My family had a vacation home when we were growing up. There are a lot of benefits to a vacation home (not the least is the investment value--Dad bought our lot for $400, he built the home himself, my sis has the place now and it's worth over a half million $$$--She only paid mom about $75,000 when she bought it). But having a vacation home, dealing with the expense, the work, the relatives who come out of the woodwork and expect to be invited down (and fed) for free--well, it can get tired really quickly. Renting is awful--you have to really know your tennants. Letting an agency rent out your home is iffy.

Look, some people love having a vacation home--you may be one of them. I'm not saying don't do it. I'm just trying to point out some of the downside--as experienced by someone who's been there, so you can make your decision based on as much info as possible. Just really think it through, based on YOUR life, YOUR preferences, YOUR financial circumstances, and you'll be able to make the decision that's right for your family.

    Bookmark   August 28, 2006 at 10:51AM
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I just wanted to add a bit more to my earlier post - hubby and I DID buy a "vacation" home last year, which we have just remodeled. Our current home is in Fla., and this one is in Asheville, NC. We originally planned to use it just for the summer, but have now decided that I will move into it full-time, as it is just not good to let a house sit vacant, and there is NO WAY I would rent it out - too big an investment. I know some people like to buy a condo in a beach town, or a cabin in the mountains - those might make better vacation homes that you could rent out. But no matter what, there will be lots of maintenance and costs associated with owning additional property.

    Bookmark   August 28, 2006 at 5:40PM
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I have a friend who bought 2 houses on a lake in Oklahoma. They are both in one cove. She rented both by the week and has done well with them. They have retired now and live there full time.

    Bookmark   August 28, 2006 at 6:39PM
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DH and I own a beachfront vacation rental. During the summer it is a weekly rental. During the winter, we rent it for 6 to 9 months to a single tenant. We use a property manager who takes care of check in and check out and handles the money and middle of the night service calls. Some people aren't happy about mailing a check to someone they don't know which I can understand. Mailing a check to a real estate agent feels more secure. We also live close enough to check on the property between tenants and to do any preventative maintenance that needs to be done.

The first few years, we had many vacancies. When we finally learned how to advertise on the internet, we started being full for the full season. Now we have developed a relationship with some of our renters and they return year after year.

Based on my experinece, you will not make money on a vacation rental unless you put a bunch of money down. They just don't cash flow.

    Bookmark   September 1, 2006 at 3:01PM
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Thanks for all your great advice. We may just buy one and forget about renting it. :-) We definitely need to keep in mind the area if we want to make money on it to resale later. A lot to think about.
My husband has 5 more days of work before retiring, so right now, we're just enjoying the moment and have much to look forward to. We won't be jumping into anything anytime real soon. We do plan to do a lot of traveling.

    Bookmark   September 18, 2006 at 1:21AM
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Congrats on your husbands retirement!!! Hope he finds a lot of things to keep him busy and happy!! He'll miss that daily routine at first.

    Bookmark   September 19, 2006 at 1:16AM
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We bought a vacation home for investment 4 years ago. It is 90 minutes away, which makes it easy to get to for repair work as well as going off even for a quick overnight. We plan on selling it next year as my hubby is still working and 2 houses is almost too much to care for with a big yard and garden here at our primary house. He has felt a lot of pressure on his shoulders. We do not rent it so it remains in good shape and now that there are year-around neighbors, they keep a close eye on it.

It has been wonderful to escape too, and we can use it year-around. It is log, and the upkeep has been expensive and we didn't anticipate logs requiring so much care.

Next year we will probably sell it. I doubt we will make as much as we had hoped. It is hard to say if we would do over again. We did realize that we would not want to retire to the mountains as it is sooo quiet up there and it would be easy to become snow bound. Lots of luck with what you decide.

    Bookmark   September 25, 2006 at 8:48AM
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Lu, Azzalea makes some very good points. My husband and I own a cabin rental business. We own some of the cabins and we manage 20 for other cabins owners.

For a vacation home to be profitable it needs to be in a great location; beachfront, beautiful mountain views, or other waterfront (river, lake). It needs to be in a "resort" type area. Prices for this type home are going way up, so it is becoming harder to cover all your expenses through rental. And if you are buying after the prices have gotten high, you may not make the big bucks in equity.

As a manager we talk to guests over the phone, and occassionally we get a "feeling" that the prospective guest is going to be trouble. In that case we don't hesitate to decline taking a reservation. That's the kind of rental company you want (if I do say so myself ;~)). If you still want to buy a vacation home and rent it out, there are ways you can reduce the likelihood of having it "trashed". (I have heard of other companies having this problem. Knock wood we haven't yet):

1) Keep the maximum occupancy low. Just because you can cram 20 people in your home, you really shouldn't. (Think mob mentality). If you have a management company, don't let them put more people in the cabin than you say.

2) Make your rental agreement strict, and post it on your website. Yes, it will scare away some potential guests, but those are usually the ones you want to scare away ;~).

3) Rent adult only.

Management fees can be high. In our area it's a very reasonable 30%-40%. Having a management company takes away most of your headaches. But I guarentee, when you are at your second home, there will be lots of things you will want or need to take care of.

If you would like more detailed information, please e-mail me.


    Bookmark   October 18, 2006 at 4:37PM
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