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  • Vacation Home as Rental Property

    I'm curious if anyone here own a vacation home that they also use as a rental property. If so, I have some questions

     

    - Where is the home and how far is it from your primary residence?

    - How often do you personally use it?

    - Does it cash flow monthly?

    - How big are maintenance headaches?

    - How does the price of the vacation home compare to your primary residence?

  • #2




    I’m curious if anyone here own a vacation home that they also use as a rental property. If so, I have some questions

     

    – Where is the home and how far is it from your primary residence?

    – How often do you personally use it?

    – Does it cash flow monthly?

    – How big are maintenance headaches?

    – How does the price of the vacation home compare to your primary residence?
    Click to expand...


    I was thinking of something very similar.  I have a 2nd/vacation home in the Park City, UT area which is about a 1 hr inexpensive flight from my primary residence in the Phoenix area.  Add in a 30 minute drive up the canyon and my typical total travel time from takeoff to front door is under 2 hours.

    Yes, we use it quite a bit and love going there.  I spend 3-4 weeks per winter (skiing) and 2-3 weeks per summer (getting out of the infernal desert heat) there.  Once I fully retire, I will spend the entire summer there as Phoenix is pretty much unlivable IMO from about Memorial Day to Labor Day.  I've owned it since 2013.

    It's only been recently that I've dabbled with renting it out and only so far to a few people I know (friends, friends of friends, friends of my neighbors there, etc).  I know I can easily make $15-20k/yr just by renting it during high volume times to vacationing families--times like Christmas/NY weeks, Sundance Film Festival time, Spring break ski season, few key weeks in summer, and such.  Last year I made about $5k in rent when I wasn't even looking or trying to rent it.  Going forward, I'm probably going to rent it more during those "key weeks" (when I tend to avoid being there anyway due to crowds) but I'm not looking to turn it into a real business endeavor, just defray some costs that's all.  It's a vacation home primarily and a rental property secondarily to me.

    No, I have had no maintenance issues so far.  I have a property manager guy who checks on it for me, does minor projects, arranges for cleaning when needed, etc.  Our neighbors are full time residents and also keep an eye on it for us.

    I paid $665k for it and did a $45k kitchen remodel/upgrade last year.  Based on what I have seen around the neighborhood and in Zillow, I'd say its market value is about $825k today.  The Park City real estate market has been quite healthy since I purchased it.

    My primary house was a new-build in 2001 and is worth about $1.2m

     

    Comment


    • #3
      I have been thinking of doing something similar in Santa Barbara. Having a place that i use whenever and rent out other times, getting heavier use in the early years to lower costs before spending more time there in a few years. Was going to Airbnb it, but there has been a lot of city fighting lately and its not entirely settled. I dont think it would be that difficult to rent out otherwise, but the return isnt as great nor is it as flexible.

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      • #4
        I thought about buying a 2nd home for years and put it off for years but I'm very glad I finally did what I did.  I truly do love it.  I benefitted from watching and learning from the mistakes of others as several of my practice partners did the 2nd home home thing but did it poorly.  My advice to someone thinking of a vacation home purchase is:

        • Obviously, make sure it's financially feasible and practical first.  I waited until my primary residence was paid off and I had an ample down payment saved.  P&I are easy enough to calculate but also figure on 2.5-3.0% of market value per year in carrying costs (insurance, property tax, maint/repair, utilities, HOA, management, etc).  Figure that rental income, if you want to do that, just offsets some costs.  It's not going to "pay for itself".

        • Make sure it's in a place you/spouse/kids want to go to and keep going to for years and years.  If you and/or the fam loses interest, you're going to end up selling it as soon as you get sick of paying for something you no longer use.  And transaction costs in real estate, unlike index ETFs, are HIGH.  Its ideal if the location has 4-season appeal and will be a place you could see yourself spending more time at when you retire.

        • Make sure the location is accessible.  If the trip, by plane or car, from your primary residence is difficult, long, expensive, or really inconvenient, I can assure you that you will quickly tire of the hassle and cost and quit going.  Then you are paying for something you don't use anymore.

        • Don't take the plunge until you're sure of the above.  Visit and rent until you are.  Don't buy a property unless you're committed to owning it for 5 years at bare minimum.  Residential owner-occupied real estate is NOT an "investment" so don't try to con yourself into thinking it is.

        Comment


        • #5
          We are 2 years into owning our vacation home.

          1 hr 15 minute drive away on a ski hill.  We are up there 3 out of 4 weekends during the winter (girls are downhill racers), and we rent it only when we don't want to use it.  We rent it using HomeAway/VRBO and do the cleaning ourselves (okay... 99% my wife and I pretend to help).

          We use it more than we planned in the summer (hiking, biking, escaping), and love having a place making memories with the kids.

          Its ~1/3rd the value of our primary home.  And we made sure that we could afford all the expenses assuming we didn't rent it at all.

          We did NOT do much research about the rental market in the area - as we were considering rental income a "bonus".  We have been pleasantly surprised, and the rental income has pretty much exactly covered the mortgage payment (P&I and insurance).

          We have had minor repair/maintenance issues pop up, which have not been more than $500 at a time to this point.

          So far, I'm very glad we have done it... but taking out more debt was probably not the smartest thing we could do... but we are pretty focused on attacking it, and have a solid plan that we are sticking to!

          Good luck!

           

          Comment


          • #6
            There was a somewhat similar discussion last year, although it was about buying your retirement home ahead of time and using it as a rental.

            We use our vacation home for ourselves, friends, and family, but HOA rules prevent us from renting it out for anything less than 90 days.

            Comment


            • #7
              Thanks for the replies everyone. It seems like the norm among physicians is to have a vacation home that they periodically rent out rather than have a rental vacation property in a desirable location that they happen to use a few weeks a year. Anyone in the latter category?

              Comment


              • #8
                We have had a lakefront 'cottage' that is 3 hours from our primary residence for 12 years.  It is probably worth about 40-50% the cost of our primary residence but it is hard to know with the way real estate values have increased.  We have never wanted the hassle of renting it out to strangers.  We encourage friends and family to use it when they can but don't accept rent from them.

                Comment


                • #9




                  Thanks for the replies everyone. It seems like the norm among physicians is to have a vacation home that they periodically rent out rather than have a rental vacation property in a desirable location that they happen to use a few weeks a year. Anyone in the latter category?
                  Click to expand...


                  I know a doc who owns a "villa" (it's a townhouse) in Cancun on the grounds of one the major resorts.  If you're gonna go the latter route that would seem to be the way to do it--a condo arrangement with built-in management on site.  I don't think I'd do that with a single family home which is what I greatly prefer.

                  It does kind of raise the question though--if you're not going to go there much why not just rent when you do?  Be a lot cheaper.

                  Comment


                  • #10
                    Had wonderful 3 bedroom mtn house in Frisco Co. when I worked in Denver 1.5 hr away. Used a lot but never rented. Frozen pipe burst when heater malfunctioned= 10k damage but insurance covered then penalized us the next 3-5 years. Sold it and broke even.

                    Timeshare in Whister BC x 20 years. Great the first 10 but getting long on the teeth. Maintenance fees and unexpected capital improvements = bad investment. Better to just try hotels or BRBs for variety and updated amenities.

                    Have also a 500 sq feet lake cabin 1 he away. My escape. Kids are grown and don't come up much. Also they are too busy wish school and extracurriculars.

                    Too lazy to advertise for renting and don't like extra texts, emails or phone calls.

                    Keep the vacation home close since it's a good escape. Use of it depends on interest and age of family. It might prevent you from going to/exploring other place. usually won't be a good $ investment

                    Comment


                    • #11
                      We have a lake home about 5 hours drive away. We go there 2 weeks in the summer and several weekends maybe 8-10 a year. Also 1 week of ice fishing in February. We don't rent it out but we do encourage family to use it when possible. We paid cash for it $350k about 12 years ago. It's probably worth a little more now. We thought that we might retire there eventually but are realizing that it will be hard to live there in old age because of steps down to the lake etc. Planning to keep it for now because we enjoy it so much. Eventually we will have to divest.

                      i have a neighbor guy who cuts the grass and clears the snow. He also does the leaves in the fall and general maintenance like washing windows and cleaning gutters. I installed an automatic whole house generator so I don't have to worry about power (and heat) loss in winter. I also have Blink cameras all over the house that run on wifi and record all movements and measure temperature.

                      We never considered using it as a rental property though I bet we could make 10k a year just from 4 races at the international speedway which is less than a mile from our place. But we have so much of our personal stuff laying around that we want to keep it that way. And I have some really good scotches in the bar! Ain't sharing that with renters!

                      Comment


                      • #12
                        I have a lake cabin one hour from my primary house.  I go there almost every weekend.  My husband owned the cabin when we married.  It is very rural but beautiful views.  I see some issues with extreme old age there due to distance from a medical facility.  I am not extreme yet so not ready to sell it.  Lots of docs in my area own lake places and frequently use them.  I do have friends that own beach condos who rarely use them because of the 6-8 hour drive. My personal opinion is that the vacation home needs to be an easy commute or why bother.

                        Comment


                        • #13




                          Thanks for the replies everyone. It seems like the norm among physicians is to have a vacation home that they periodically rent out rather than have a rental vacation property in a desirable location that they happen to use a few weeks a year. Anyone in the latter category?
                          Click to expand...


                          we looked at the latter category many times and just couldn't make the leap.  we have young kids and would go during the high $ times.  would rather just rent ourselves, even if more expensive, and have the freedom to travel elsewhere if desired.  didn't want the headaches of ownership.  the anticipated value would come from low purchase price and profit would not be realized for long time when we actually investigated.  ymmv.

                          Comment


                          • #14
                            Consider:

                            Have a vacation home in a highly desirable area with high weekly rents.

                            Your LLC/LP/S-Corp  pays rent to the owner (yourself or spouse) while you attend CME or other business related activity in the area.

                            Under two weeks of rental income  is not reported but still deductible as a business expense.

                            Lemons to lemonade.

                            Comment


                            • #15
                              We have a weekend/vacation home that my wife does not let me rent.

                              Technically, rules of the community don't allow for rentals for less than 30 days so it is a bit of a moot point.

                               

                              But in our Investment firm we invest in resort property that we and our investors can use for personal use.

                              So our philosophy is to invest in real estate for the return, and use the money to buy and live how we want to.

                               

                              I often caution our investors to make a clear delineation between lifestyle investing and monetary investing.

                              Just be clear on what you are trying to accomplish and stick to your plan.

                               

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