Buying vacation homes in the US

[Jurgis]

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

 

Why would you assume things?

[rkbabang]

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

 

 

 

 

I picked my spouse.  I didn't choose my family and she didn't choose hers.

Sturgeon's law applies to everything, including people.

 

 

width=500https://images2.minutemediacdn.com/image/upload/c_fill,g_auto,h_1248,w_2220/f_auto,q_auto,w_1100/v1555926662/shape/mentalfloss/sturgeons_law_wider.png[/img]

[Pelagic]

It's interesting seeing how the specter of hurricanes is viewed outside of FL. If you're right dead center in the 15 mile or so swath of a major when it makes landfall, it's not going to be pretty and you should absolutely evacuate. But the chances of that being the case are actually pretty low. For instance Key West has only taken one direct hit since the mid 1800s, Hurricane Floyd as a Cat 1 in 1987.

 

A fascinating graphic of all recorded hurricane tracks, I filtered down to Monroe County (Florida Keys) and filtered hurricane intensity to include everything over Cat 1.

 

https://coast.noaa.gov/hurricanes/#map=5.64/24.499/-78.342&search=eyJzZWFyY2hTdHJpbmciOiJNb25yb2UgQ291bnR5LCBGbG9yaWRhLCBVU0EiLCJzZWFyY2hUeXBlIjoiZ2VvY29kZWQiLCJtYXRjaCI6InBhcnRpYWwiLCJvc21JRCI6IjEyMTA3NDYiLCJjYXRlZ29yaWVzIjpbIkg1IiwiSDQiLCJIMyIsIkgyIl0sInllYXJzIjpbXSwibW9udGhzIjpbXSwiZW5zbyI6W10sInByZXNzdXJlIjp7InJhbmdlIjpbMCwxMTUwXSwiaW5jbHVkZVVua25vd25QcmVzc3VyZSI6dHJ1ZX0sImJ1ZmZlclVuaXQiOlsiTWlsZXMiXSwic29ydFNlbGVjdGlvbiI6eyJ2YWx1ZSI6InllYXJzX25ld2VzdCIsImxhYmVsIjoiWWVhciAoTmV3ZXN0KSJ9LCJhcHBseVRvQU9JIjp0cnVlLCJpc1N0b3JtTGFiZWxzVmlzaWJsZSI6dHJ1ZX0=

 

20 storms since 1852. Yes there's a risk but it should be put into context, and modern construction techniques have gone a long way toward mitigating that risk.

[LC]

My issue with owning Florida RE is everything is in the flood zone except I think St. Petes.

 

I'm no expert but I think this means your flood insurance rates are astronomical.

[thepupil]

Flood insurance is not bad in my experience,  but wind can be really bad.

 

My parents house is worth 2x mine and is 3x the size, but their home insurance is 25x in cost (that’s not a typo).

[Gregmal]

My issue with owning Florida RE is everything is in the flood zone except I think St. Petes.

 

I'm no expert but I think this means your flood insurance rates are astronomical.

 

Most of the homes, especially in the Keys are built to avoid that. For instance where I'm at is roughly 8 ft above see level. And the units are an additional 10-12 ft elevated.

 

Most of the complexes and homes look like the one in this link:

 

https://blog.iese.edu/doing-business/2016/08/22/climate-change-and-the-florida-keys/

 

 

End of the day, if you are hugely concerned about global warming and not bullish on dredging/seawall type engineering solutions, its probably not the place to buy property. If you arent, there is hardly anywhere like it IMO, especially of you like fishing, scuba, island life, etc.

[BG2008]

My issue with owning Florida RE is everything is in the flood zone except I think St. Petes.

 

I'm no expert but I think this means your flood insurance rates are astronomical.

 

Most of the homes, especially in the Keys are built to avoid that. For instance where I'm at is roughly 8 ft above see level. And the units are an additional 10-12 ft elevated.

 

Most of the complexes and homes look like the one in this link:

 

https://blog.iese.edu/doing-business/2016/08/22/climate-change-and-the-florida-keys/

 

 

End of the day, if you are hugely concerned about global warming and not bullish on dredging/seawall type engineering solutions, its probably not the place to buy property. If you arent, there is hardly anywhere like it IMO, especially of you like fishing, scuba, island life, etc.

 

Gregmal,

 

When are we going to have a blow out CoBF party at your Keys house?  I'll fry the fish and make Mahi Mahi tacos. 

[Spekulatius]

My issue with owning Florida RE is everything is in the flood zone except I think St. Petes.

 

I'm no expert but I think this means your flood insurance rates are astronomical.

 

Most of the homes, especially in the Keys are built to avoid that. For instance where I'm at is roughly 8 ft above see level. And the units are an additional 10-12 ft elevated.

 

Most of the complexes and homes look like the one in this link:

 

https://blog.iese.edu/doing-business/2016/08/22/climate-change-and-the-florida-keys/

 

 

End of the day, if you are hugely concerned about global warming and not bullish on dredging/seawall type engineering solutions, its probably not the place to buy property. If you arent, there is hardly anywhere like it IMO, especially of you like fishing, scuba, island life, etc.

 

So, Gregmal how much is the approx. property insurance ( including wind and flood) for your ~ 500k condo?

 

Risk perception is subjective, but insurance rates aren’t, imo.

[Cigarbutt]

My issue with owning Florida RE is everything is in the flood zone except I think St. Petes.

I'm no expert but I think this means your flood insurance rates are astronomical.

Most of the homes, especially in the Keys are built to avoid that. For instance where I'm at is roughly 8 ft above see level. And the units are an additional 10-12 ft elevated.

Most of the complexes and homes look like the one in this link:

https://blog.iese.edu/doing-business/2016/08/22/climate-change-and-the-florida-keys/

End of the day, if you are hugely concerned about global warming and not bullish on dredging/seawall type engineering solutions, its probably not the place to buy property. If you arent, there is hardly anywhere like it IMO, especially of you like fishing, scuba, island life, etc.

So, Gregmal how much is the approx. property insurance ( including wind and flood) for your ~ 500k condo?

Risk perception is subjective, but insurance rates aren’t, imo.

Here, simply an insurance-related addition for the thought process that may go into buying property in the Keys, the value of which is unrelated to the possibility of a hoax or human ingenuity (which can go both ways).

Flood and wind insurance are heavily subsidized in Florida (complicated but social net both at the state and national levels) in order to keep rates 'affordable' with the side effect that the subsidies are considered now a permanent fixture and many people with feet on the ground evaluate that these subsidies are actually slowing private investments to deal with expected material increases in true insurance costs going forward.

In 2020, the public entities supplying the 'catastrophe' insurance markets are meeting massive rises in private reinsurance rates and are deciding to retain the risk..

Public subsidies to encourage ownership in high(and getting higher)-risk areas means that tomorrow may never come.

 

[Gregmal]

@BG, once COVID is done and we're out of Hurricane season. February is my target as King Mackerel fishing on the Gulf really heats up. Its only a 3/2 but there'd probably only be a half dozen folks here anyway as most are turned off by my frivolous engagement with the politics. Win/win for the thick skin!

 

@Spek This depends on what your own perception on "risk" is. I have HO6 and wind coverage, run a little over a $1000 a year. But the main thing, and benefit is, that most of the typical stuff you'd think of is covered by the HOA policy. I mean you really dont even need wind coverage as when you leave you throw up the storm shutters and you're good. But most carriers in the area won't sell you a policy without wind coverage. All in, condo carry cost is about $14k a year. Includes HOA, insurance, taxes etc. In NJ just my property taxes are $14.5k and the home is in a similar value range.

 

Two side notes.

 

If you like the Keys or just want to explore, Cheeca Lodge is the shit. Used to be so much better a decade or two ago. Got really touristy/catered to the business travel, wealthy finance dude with a flair for European style after that. But still great and a gorgeous resort. MM 82. Yes, be forwarded, there's pictures of Clinton, Bush Sr, Ted Williams, etc catching massive Tarpon and playing golf there all over the walls in the entrance to the lobby. Stay away from Worldwide Sportman as there's a pic of Don Jr(among many others) out of a flats boat with a massive tarpon. Otherwise Worldwide is basically an aquarium that sells fishing/outdoor stuff with an awesome life-size replica of Hemmingway's Pilar in the center of the store and a sick second level bar/lounge that is great to watch the sunset from. Also cool is the Tarpon frenzy at the docks when boats come back around 3pm.

 

Second side note. As the current hurricane rips through NJ/NY, its crazy thinking about how homes here get damaged(often badly) with 30-50 mph winds, while the ones in Florida can withstand 4x that no problem.

[Jurgis]

My issue with owning Florida RE is everything is in the flood zone except I think St. Petes.

 

I'm no expert but I think this means your flood insurance rates are astronomical.

 

Most of the homes, especially in the Keys are built to avoid that. For instance where I'm at is roughly 8 ft above see level. And the units are an additional 10-12 ft elevated.

 

Most of the complexes and homes look like the one in this link:

 

https://blog.iese.edu/doing-business/2016/08/22/climate-change-and-the-florida-keys/

 

 

End of the day, if you are hugely concerned about global warming and not bullish on dredging/seawall type engineering solutions, its probably not the place to buy property. If you arent, there is hardly anywhere like it IMO, especially of you like fishing, scuba, island life, etc.

 

So, Gregmal how much is the approx. property insurance ( including wind and flood) for your ~ 500k condo?

 

Risk perception is subjective, but insurance rates aren’t, imo.

 

Isn't Florida flood insurance subsidized by NFIP?

 

https://www.sun-sentinel.com/opinion/fl-op-com-flood-insurance-fix-20190102-story.html

[Gregmal]

 

4:40 mark is pure awesomeness! Yea, those are 100+ lb fish.

[Read the Footnotes]

Isn't Florida flood insurance subsidized by NFIP?

Perfect example of coastal liberal elites expecting handouts from the government.

;)

[Pelagic]

My issue with owning Florida RE is everything is in the flood zone except I think St. Petes.

 

I'm no expert but I think this means your flood insurance rates are astronomical.

 

Most of the homes, especially in the Keys are built to avoid that. For instance where I'm at is roughly 8 ft above see level. And the units are an additional 10-12 ft elevated.

 

Most of the complexes and homes look like the one in this link:

 

https://blog.iese.edu/doing-business/2016/08/22/climate-change-and-the-florida-keys/

 

 

End of the day, if you are hugely concerned about global warming and not bullish on dredging/seawall type engineering solutions, its probably not the place to buy property. If you arent, there is hardly anywhere like it IMO, especially of you like fishing, scuba, island life, etc.

 

So, Gregmal how much is the approx. property insurance ( including wind and flood) for your ~ 500k condo?

 

Risk perception is subjective, but insurance rates aren’t, imo.

 

Isn't Florida flood insurance subsidized by NFIP?

 

https://www.sun-sentinel.com/opinion/fl-op-com-flood-insurance-fix-20190102-story.html

 

It creates an interesting dynamic in Keys real estate to say the least. The list price is identical whether you're buying as a primary residence or vacation home but the price of flood insurance varies significantly as does the allowable rates of increase per year. $10K+ a year for flood coverage for a second home in the Keys is not uncommon.

 

It's a complicated issue since if you advocate for what many view as the logical course of not extending any subsidies to second home buyers, you limit the pool of properties covered significantly and concentrate risk.

 

Like with most other risks associated with storms, new construction practices limit the risk significantly but there's plenty of older houses built on wood stilts that have survived flooding in the keys too.

 

EDIT: This site is kind of interesting, plug in a random address in the Keys from Zillow or something and see the flood risk it assigns. https://floodfactor.com/

[John Hjorth]

@BG, once COVID is done and we're out of Hurricane season. February is my target as King Mackerel fishing on the Gulf really heats up. Its only a 3/2 but there'd probably only be a half dozen folks here anyway as most are turned off by my frivolous engagement with the politics. Win/win for the thick skin! ...

 

[ ; - D ]

[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...

 

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 don't get the fascination with tying the majority of one's net worth in an asset class like housing. The majority of Canadians are in that boat right now which doesn't bode well for the future. I would rather live in one primary home that has a lot of nice stuff - couch, chairs, bed etc that I'm going to spend the majority of my time living in than having multiple homes and dwelling with all the upkeep costs associated with it. I think it's much easier to have an diversified investment portfolio comprised of dividend paying stocks that will provide you with multiple streams of income that requires very little effort to maintain. And it's liquid in case you need to raise some cash quickly.

[thepupil]

I thought the same, but then covid happened and my diversified liquid real estate stocks went down 30-50% and my illiquid levered and concentrated suburban single family home went up in value by 5-10%, so what the hell do i know?

[TorontoRaptorsFan]

I thought the same, but then covid happened and my diversified liquid real estate stocks went down 30-50% and my illiquid levered and concentrated suburban single family home went up in value by 5-10%, so what the hell do i know?

 

Covid is a temporary event. Humans are creatures of habit. In 5-10 years this will all be forgotten like SARS.

[Jurgis]

I thought the same, but then covid happened and my diversified liquid real estate stocks went down 30-50% and my illiquid levered and concentrated suburban single family home went up in value by 5-10%, so what the hell do i know?

 

Well, yes. Also, as you know, REITs != RE.

 

If you get into a superwave of RE appreciation in some local market (SoCal for last 50+ years? NYC from 70s? Canada RE?), RE might outperform stocks with little effort. Especially considering leverage, etc. So, yes, it is opportunity for not-stock-savvy people to make (a lot of) money.

 

OTOH, even OK markets, especially without accounting for leverage, usually give meh results. Boston is an example of a market where RE has done "well". And unleveraged returns still are in 3% annualized range. We could probably check Buffett's house appreciation since his purchase to see how Omaha did. Lithuania is pretty much zero for last 10+ years. So for non-stock-savvy people there it's pretty much crap return.

[SharperDingaan]

Comes back to ones options, and the time horizon thing: Short, Medium, Long.

Short-term (0-5 yrs) the economics point to rent. Change in lifestage, commission/closing cost recovery, freedom restriction, etc.

Medium-term (5-15 yrs) the economics point to RE management. Primary residence only, &/or a string of rentals.

Long-term (15 yrs+) the economics point to FI investment only - REITs, bonds, prefs, div payers, etc.

 

If you come primarily from the trades, &/or real estate - RE investment is a natural extension of what you already do (you have lower operational risk). If you come primarily from the professions, it's a different game. Trades vs Professions is not mutually exclusive -but in NA, the number of people who successfully straddle both worlds is small. North Americans have professionally managed pension plans - in many other parts of the world, your personal RE is your pension plan.

 

RE as a vehicle to wealth and/or a risk management tool, is one thing - RE to use is quite another.

It pays to be clear on your purpose.

 

SD

 

 

 

 

 

[Spekulatius]

@BG, once COVID is done and we're out of Hurricane season. February is my target as King Mackerel fishing on the Gulf really heats up. Its only a 3/2 but there'd probably only be a half dozen folks here anyway as most are turned off by my frivolous engagement with the politics. Win/win for the thick skin! ...

 

[ ; - D ]

 

[thepupil]

https://www.wsj.com/articles/why-your-house-could-be-your-best-performing-asset-class-11596629101?mod=hp_featst_pos4

 

Darin LaFramboise used to think of a house as a liability. He and his fiancée lived in an apartment in San Francisco, where they could go running in a nearby park, see a movie a block away and eat out regularly. The money saved on housing expenses went into the stock market. “All that changed when Covid hit,” said Mr. LaFramboise, a product manager for an identity-management software company. He and his fiancée, a legal analyst, worked from home, trying to insulate themselves from each other’s calls. They didn’t feel safe running on crowded paths. The living room became their gym. The kitchen suddenly felt too small.

 

So they went “looking for a space where we could live without a mask on: a backyard, a front yard, a kitchen to cook in.” Their Redfin agent found them a house in Lafayette, 25 miles east of San Francisco, with two spare bedrooms to serve as home offices, space for a Peloton exercise bike and a big backyard.

 

it's all kind of particularly funny for me, because I've always been the "don't buy a house, buy stocks" guy amongst my friends/acquaintances, but then Federal Realty Trust tried to raise my rent from $3,100 -->$3,500 and the personal circumstances allowed for a house purchase and I begrudgingly bought in a bidding war and that's done much better than any other pre-covid investment.

 

Anyways, I thought America (and to a much greater extent Canada, Australia, certain parts of Europe) were WAY too crazy about housing and I feel like covid has put steroids into that mentality, not to mention record low rates. there's massive unemployment, but for the well-off/employed, I feel like SFH is going to be ridiculously well bid. Obviously that's already playing out, but what I mean is that covid is going to reinforce the american (and world) psyche of being obsessed with allocating too much $ to their houses.

 

I bought my house for a 2% cap rate, so it's a double with only 100 bps of cap rate compression  ;D

[muscleman]

https://www.wsj.com/articles/why-your-house-could-be-your-best-performing-asset-class-11596629101?mod=hp_featst_pos4

 

Darin LaFramboise used to think of a house as a liability. He and his fiancée lived in an apartment in San Francisco, where they could go running in a nearby park, see a movie a block away and eat out regularly. The money saved on housing expenses went into the stock market. “All that changed when Covid hit,” said Mr. LaFramboise, a product manager for an identity-management software company. He and his fiancée, a legal analyst, worked from home, trying to insulate themselves from each other’s calls. They didn’t feel safe running on crowded paths. The living room became their gym. The kitchen suddenly felt too small.

 

So they went “looking for a space where we could live without a mask on: a backyard, a front yard, a kitchen to cook in.” Their Redfin agent found them a house in Lafayette, 25 miles east of San Francisco, with two spare bedrooms to serve as home offices, space for a Peloton exercise bike and a big backyard.

 

it's all kind of particularly funny for me, because I've always been the "don't buy a house, buy stocks" guy amongst my friends/acquaintances, but then Federal Realty Trust tried to raise my rent from $3,100 -->$3,500 and the personal circumstances allowed for a house purchase and I begrudgingly bought in a bidding war and that's done much better than any other pre-covid investment.

 

Anyways, I thought America (and to a much greater extent Canada, Australia, certain parts of Europe) were WAY too crazy about housing and I feel like covid has put steroids into that mentality, not to mention record low rates. there's massive unemployment, but for the well-off/employed, I feel like SFH is going to be ridiculously well bid. Obviously that's already playing out, but what I mean is that covid is going to reinforce the american (and world) psyche of being obsessed with allocating too much $ to their houses.

 

I bought my house for a 2% cap rate, so it's a double with only 100 bps of cap rate compression  ;D

 

Charlie Munger: "We made most of our money waiting"

Jesse Livermore: "It is my sitting tight that made me the most money"

 

Real estate investments tend to work out better than stocks because it is so hard to buy and sell. You can't just wake up one day with a bad mood and log onto your app and close the position in seconds. It forces people to sit tight.

[muscleman]

Do you guys know if buying a vacation home in San Diego may work out better than FL? I am concerned with FL's hurricane problems.

Does anyone own a vacation home that you use airbnb to rent it out during times that you don't live there?

[rkbabang]

Do you guys know if buying a vacation home in San Diego may work out better than FL? I am concerned with FL's hurricane problems.

Does anyone own a vacation home that you use airbnb to rent it out during times that you don't live there?

 

I own a vacation home that I rent out most of the time.  I've owned it almost exactly a year.  I used it about 4 weeks in the last year and rented it out 194 days of the last 12 months. It has paid for the mortgage, taxes, insurance and all bills + about $15K extra.

 

The bad news is that I put $100k down on it and spent about $40k on one time improvements.  But the house is pretty much the way we want it now and almost everything has been fixed, redone, or replaced, so unless something breaks the one time costs should be very little per year going forward.  Also we have started to increase our prices and have not had a hard time getting bookings, so we should be able to push that $15K extra up to $20k or more.

 

Some thoughts about doing this is that you need a good local person you can trust.  We found someone before we even bought the house.  She owns a cleaning business and lives 5min from the house.  She cleans in-between guests, does the linens, takes care of the lawn/landscaping, takes the trash to the transfer station, fills propane tanks when they need it, shovels snow in the winter, and will go to check on the house or help guests with anything that comes up.  I don't know how we would manage it without her or someone like her.  I would be constantly driving there to take care of things.  Also, make sure the house is in good condition or you realistically assess what it will cost you to put it in good condition.  I said above that we put $40k in improvements and that was with us doing 90% of the work ourselves.  If we couldn't have stayed there and worked on it ourselves that would have been twice the costs.

 

Our plan is to pay off the mortgage in under 8-10 years by putting excess money from airbnb rentals into the principle.  Then when we are older it will produce income or maybe someday when I retire we will sell our main house and live there.  We love the area, it has a great beach and it is on the prettiest part of Lake Winnipesaukee.

 

Good luck with your search.  And BTW if you are ever looking to stay on Lake Winnipesaukee:  http://airbnb.com/h/TheBungalowAtSmithPoint