Buying vacation homes in the US

[TorontoRaptorsFan]

I think you're basically better off going on more vacations and seeing the world versus buying a vacation home.

It's enough work dealing with one home why deal with another one. If you have money to spend just travel better (upgrading seats, staying in a nicer hotel, eating at great restaurants)...

And spend the money and do some renos at your home...

[CorpRaider]

Man I've been thinking about buying a beach house on the east coast, but based on my lazy due diligence it seems like they don't really cash flow typically.  I suppose that makes sense with the non-economic buyers who just want to own a beach house and have the costs defrayed and/or are banking on appreciation.

 

Take rates for property managers seem to be quite high.  Like 20- 30% from what I gather, but I suppose they have to do a lot more work turning basically a hotel versus a long term rental.

[Cigarbutt]

^The story behind the Florida Keys' main road is interesting. Henry Flagler, one of John Rockefeller's initial oil partner decided to retire from day-to-day oil refinery activity in order to enjoy (and develop) Florida. He built various accommodations and infrastructures, including a railroad (which was eventually extended to the Keys) and the railroad (so the story says) was punctuated by mile markers that served as an inspiration to the mile markers that appeared on the road built thereafter.

 

It's an interesting area but the landscape may change over time, given the relentless sea level rise (9 inches over the last 100 years). It depends on which scenario to believe in, but within the next 10 to 30 years, the intermittent flooding will become a progressively larger nuisance (infrastructure, including roads, land 'disappearance', habitat changes etc).

[muscleman]

Do you guys know if a vacation home can be cash flow break even if I live there for 2 months and rent it out via airbnb for the other 10 months?

[gfp]

Do you guys know if a vacation home can be cash flow break even if I live there for 2 months and rent it out via airbnb for the other 10 months?

 

Yes, of course.  Just don't overpay  ;)

[Gamecock-YT]

Airbnb will give you pretty nice discounts on monthly rentals (I think technically it is 28 days), that might be the ticket to allow you to scout out a few different locations to see if it's just an itch you want scratched or want to jump in deeper. I just did a sample scan for St. George, Utah for September with multiple places offering 45% discounts.

 

Wow 45% discount? That's insane! I'd love to do that! So if I just go to airbnb and put in a reservation of over 28 days, I'll get this discount?

That sounds really good.

I was initially thinking of buying a vacation home and then later convert it to an airbnb property while I am not there.

No, it's not Airbnb that gives you the discount. It's all up to the hosts whether they want to give a discount or not. But generally most do and generally it's in the 15-20% range. The 45% discount that Gamecock is seeing is most likely something like 15% normal discount +30% COVID discount.

 

So if I try to book something like 28 days, do I have to contact the host to negotiate the discount or does airbnb automatically applies the discount?

 

It will apply it automatically. I've been scouting out doing some locations for digital nomadding myself and it's common throughout the world.

[LC]

Do you guys know if a vacation home can be cash flow break even if I live there for 2 months and rent it out via airbnb for the other 10 months?

 

Like a senior citizen without a commode, it depends.

 

Some vacation homes literally pay the years bills in 3 months. Of course those are the most desirable months to live there yourself, so that’s the trade off.

[Gregmal]

LOL yea, was looking at a Jersey Shore property last year. Memorial Day through Labor Day you're ripping $4-7k a week. Rest of year? $2500 a month.

[jhcap]

Do you guys know if a vacation home can be cash flow break even if I live there for 2 months and rent it out via airbnb for the other 10 months?

 

This depends on what you pay, how much you can rent it for and what your costs are. I live in a Rocky Mountain resort town in the U.S. and own vacation rentals. They can be very good investments however, if you are renting remotely you will need a property manager and, at least where I live, they take 45-50% (might be less if you do all the booking) of rental income to market the property, book renters, clean the home, repair stuff, deal with renter's needs etc...That doesn't cashflow for me so I manage my own, but I live in the same town as my rentals.

 

As far as the 28 day discount, this is because in many towns a rental period of one month or more is considered long term and is not subject to sales and lodging taxes as well as other restrictions. Anything shorter is a vacation rental and subject to taxes, local short term licenses and zoning rules. Properties can only be rented short term in specific areas (to prevent displacement of local working communities/neighborhoods).

 

Owning a vacation rental is owning small business. If you are going to buy a home some place anyway the rentals may offset some of your mortgage and tax costs, but to make it cashflow and provide good returns you will have to treat it like a business.

[BG2008]

Love topics like this on CoBF.  I recently bought a beach house and we are moving there in a couple months.  The carry cost is less than my rent after my upstairs tenant pays me.  But of course, there is that pesky down payment.  :)

 

Gregmal, how many properties do you own?  Damn. 

[BG2008]

I think you're basically better off going on more vacations and seeing the world versus buying a vacation home.

It's enough work dealing with one home why deal with another one. If you have money to spend just travel better (upgrading seats, staying in a nicer hotel, eating at great restaurants)...

And spend the money and do some renos at your home...

 

Muscleman's family is Chinese from his previous posts.  This is why the Chinese wind up owning most of the real estate.  Because we have had 5,000 years of dealing with land scarcity.  Americans has this wide open land mass that allow them to continue to build outward.  So Americans tend to think of renting.  Either that or Americans are lazy people who spent all their money.  They make fun of the Chinese people for speaking bad English and working in the Chinese take outs.  The kids winds up saving money and buying the RE who they rent to the Americans.  I'm half joking and half serious.  But I have seen enough of these stories play out that it's got an ounce of truth to it.  Ask any Asian parents for $50k to start a hedge fund and they will scold you for gambling.  Ask them for a $250k down payment and they will re-mortgage their primary residence to help you out. 

 

Muscleman's quest to look to buy a vacation rental and your response are very telling of the different philosophical approaches to real asset ownership.  My $0.02 

[LC]

Every immigrant group from day 1 has used home ownership to build and store wealth. It makes sense for a lot of reasons but ultimately in my opinion is a less attractive investment, requiring massive leverage to match other asset class returns.

[gfp]

I suppose by Americans you are referencing North Americans.  I would assume from the handle that the poster was living in Canada - although I am sure there are Raptors fans in the USA.  As for the advice - this is exactly the advice I used to always give the type of people that would ask a question like Muscleman did.  For most of my friends with more money than sense - it was always the right advice.  Fly first class to a wonderful private villa or the 4 Seasons and you will still be ahead of what your beach house fantasy was going to end up costing you and you have zero stress and can change it up every time you feel like it.  If you find yourself gravitating to vacationing in the exact same spot every year - by then you will know the market and exactly where you want to buy and you won't be asking vague questions about what might cash flow on a message board.  For some people flying private to a rental home was still going to be cheaper than what they were wanting to buy and how much free time they actually had available to "vacation."

 

Since Covid, that has changed and now people appreciate owning a spot they can take over and escape to.  There are a lot more arguments lately for owning your 2nd home even though for some markets the rental rates for the rest of the year are depressed by the tourism decline.

 

Still, for the newly wealthy people that I know it is almost never a good idea to own the vacation properties.  They just seem to change their minds too often and gravitate towards the most overvalued spots.

 

I think you're basically better off going on more vacations and seeing the world versus buying a vacation home.

It's enough work dealing with one home why deal with another one. If you have money to spend just travel better (upgrading seats, staying in a nicer hotel, eating at great restaurants)...

And spend the money and do some renos at your home...

 

Muscleman's family is Chinese from his previous posts.  This is why the Chinese wind up owning most of the real estate.  Because we have had 5,000 years of dealing with land scarcity.  Americans has this wide open land mass that allow them to continue to build outward.  So Americans tend to think of renting.  Either that or Americans are lazy people who spent all their money.  They make fun of the Chinese people for speaking bad English and working in the Chinese take outs.  The kids winds up saving money and buying the RE who they rent to the Americans.  I'm half joking and half serious.  But I have seen enough of these stories play out that it's got an ounce of truth to it.  Ask any Asian parents for $50k to start a hedge fund and they will scold you for gambling.  Ask them for a $250k down payment and they will re-mortgage their primary residence to help you out. 

 

Muscleman's quest to look to buy a vacation rental and your response are very telling of the different philosophical approaches to real asset ownership.  My $0.02

[muscleman]

I think you're basically better off going on more vacations and seeing the world versus buying a vacation home.

It's enough work dealing with one home why deal with another one. If you have money to spend just travel better (upgrading seats, staying in a nicer hotel, eating at great restaurants)...

And spend the money and do some renos at your home...

 

Muscleman's family is Chinese from his previous posts.  This is why the Chinese wind up owning most of the real estate.  Because we have had 5,000 years of dealing with land scarcity.  Americans has this wide open land mass that allow them to continue to build outward.  So Americans tend to think of renting.  Either that or Americans are lazy people who spent all their money.  They make fun of the Chinese people for speaking bad English and working in the Chinese take outs.  The kids winds up saving money and buying the RE who they rent to the Americans.  I'm half joking and half serious.  But I have seen enough of these stories play out that it's got an ounce of truth to it.  Ask any Asian parents for $50k to start a hedge fund and they will scold you for gambling.  Ask them for a $250k down payment and they will re-mortgage their primary residence to help you out. 

 

Muscleman's quest to look to buy a vacation rental and your response are very telling of the different philosophical approaches to real asset ownership.  My $0.02

 

I am actually open to renting a place for a month and then move to the next place. I am also open to buying a vacation rental and living in it for 2 months a year and renting it out for the rest 10 months if the cash flow makes sense and it won't keep me too busy.

[ZenaidaMacroura]

its the mile marker as you drive down US 1 towards key west.

 

Ah,  Thanks. I've never been to the FL Keys.  I've got to get down there someday.

 

Yea, everything down there is referenced by mile marker since the entire collection of islands is only accessible via one road, which is US-1.

 

oh man your description of the Keys sounds legit, never even considered it previously  :D

[DooDiligence]

its the mile marker as you drive down US 1 towards key west.

 

Ah,  Thanks. I've never been to the FL Keys.  I've got to get down there someday.

 

Yea, everything down there is referenced by mile marker since the entire collection of islands is only accessible via one road, which is US-1.

 

oh man your description of the Keys sounds legit, never even considered it previously  :D

 

Nice place to visit but the whole one road in, one road out thing is rough during hurricane season.

 

+

 

High humidity, all year round, invites wood rot. Wood boring insects are a plague in the Keys. Salty air tends to eat up metal, think aluminum in particular (brutal on A/C units). Hard water is lousy to bath in.

 

That said, Duval street is a ton of fun. Hog Fish Grill is a Keys dining experience. 5 Brothers Grocery makes a kick ass Cuban. No Name Pub on Big Pine is a great hang, and there's tons of beautiful, out of the way spots up & down the keys.

 

Why own when you can kick around the Keys & the entire world for that matter, with no obligation other than enjoyment.

 

I 2nd gfp's idea that if you find yourself visiting a particular place & making solid friends there, think about buying.

 

I've been selling a lot of my stuff over the past year & am likely to stab a sign in front of my house & hit the road before too long. Might sell if the price is right & might just rent until the price gets right, but I want to become like water & find the path that leads me.

[SharperDingaan]

You have at least 4 decisions here - all overlapping.

 

Digital nomadism may be great, but are you required to be in the same time zone? (Seattle, PST).

The US states that follow PST and PDT are California, Idaho, Nevada, Oregon, and Washington. Canadian provinces where PDT is used during summers and PST the rest of the time are British Columbia and Yukon.

 

Time limited engagement?

You may be OK with this, but if there are to be kids or you would like to have a significant other - you need to stay in one place. How many years can you do this, or is it just months.

 

Minimum holding period?

Commission/closing paid on entry/exit, divided by average NET annual cash flow. For most opportunities this is going to be 5-7 years, or longer if you're paying someone to manage the property & get the bookings.

 

What is the purpose?

Buying a place ties you to one location - and is anti digital nomadism (freedom). Doing it because you can? - renting is a lot more in sync with the whole concept of digital nomadism.

 

If you just want to buy a property, invest your money with siblings &/or parents. Low risk, trusted partners, you're still on the property ladder, and still free to do the nomadism thing. When you need the money back to buy your own house - they just take out a new mortgage equal to the market value of your % ownership of the property. In the meantime, just rent wherever you happen to be, and for as long as it continues to make sense.

 

SD

 

 

 

 

[Jurgis]

If you just want to buy a property, invest your money with siblings &/or parents. Low risk, trusted partners

 

You seem to have limited knowledge of families...  ::)

 

 

 

Worst idea ever for non-trivial percentage of people.  :-X

[rkbabang]

If you just want to buy a property, invest your money with siblings &/or parents. Low risk, trusted partners

 

You seem to have limited knowledge of families...  ::)

 

 

 

Worst idea ever for non-trivial percentage of people.  :-X

 

+1,  no +100000000000

 

That is just about the worst idea I've read here in a long time.

 

[Jurgis]

To be fair to SD, there seems to be (at least) two universes of friends/families:

 

1. The ones where it's a great/good experience to invest/manage money/properties/etc. together. These exist as SD claims. Also can be seen from all the investors starting to manage friends/family money.

 

2. The ones where it's a recipe for disaster. There's definitely non-trivial percentage of these.

 

There's likely a spectrum between 1 and 2.

[Gregmal]

If you just want to buy a property, invest your money with siblings &/or parents. Low risk, trusted partners

 

You seem to have limited knowledge of families...  ::)

 

 

 

Worst idea ever for non-trivial percentage of people.  :-X

 

+1,  no +100000000000

 

That is just about the worst idea I've read here in a long time.

 

Eh, it depends, IMO.

 

I am the oldest of 5 siblings. I have had great situations with several, where rather than paying $1000 a month for shitty student housing, they scout the area, I supply the downpayment, they pay the mortgage, and then after 4 years or whatever, the property either gets rented or sold. The beauty being, many of these are great growth/rental areas, IE Gainesville, Philly, Orlando, Long Island, etc(this is obviously personally relevant but not the same for everyone). The kicker is you have(had) depending on the government programs available, the ability to get on the title via a first time home buyer program, at 3%. So Gainesville for instance, 2012, $15k down(including closing costs) gets a you in the door on a $150k home that is infinitely nicer than the comparable student housing unit. 4-6 years later, with no outlay other than the downpayment(remember the other part of the deal is the family member living there takes care of it), you've got a $250k place with the option to rent at $1500 or cash out and divvy up the gains. The downside is always there, but IMO limited when school controlled housing is "$x" and right next door is "your unit".

[rkbabang]

To be fair to SD, there seems to be (at least) two universes of friends/families:

 

1. The ones where it's a great/good experience to invest/manage money/properties/etc. together. These exist as SD claims. Also can be seen from all the investors starting to manage friends/family money.

 

2. The ones where it's a recipe for disaster. There's definitely non-trivial percentage of these.

 

There's likely a spectrum between 1 and 2.

 

Same could be said about the general public.  1 is rare, both in humanity at large and in a family.  The key is finding those people and partnering with them.  Sometimes it's easier when they are not family members.  No expectations not involving simply the business relationship.

 

[Spekulatius]

If you just want to buy a property, invest your money with siblings &/or parents. Low risk, trusted partners

 

You seem to have limited knowledge of families...  ::)

 

 

 

Worst idea ever for non-trivial percentage of people.  :-X

 

+1,  no +100000000000

 

That is just about the worst idea I've read here in a long time.

 

+2. Never ever ( and I use this sparingly)

[SharperDingaan]

Hate to say it, but if you can't trust your own family - you have far bigger issues than digital nomadism!

Have to assume that you can't trust your current/future spouse either?

 

SD

 

 

[Gregmal]

I think a general rule of thumb is to never mix business and friends/family. That is largely true, but RE is pretty darn simple and easy and also passive. Doing a hands on operation is fertile grounds for failure of the personal relationship though. Ive hired a couple "friends" before and you often run into an issue with entitlement and envy. Better to avoid. But going in on a property where the only major decisions are "dont overpay" and "how will it be managed", is pretty easy.