School me on owning a vacation rental

[wdfifteen]

We rent cabins in Tennessee a couple of weeks a year. Mrs WD is from down there (that's why one leg is shorter than the other - growing up walking on those hills ). She loves it down there, I like it too.
She wants to buy a place down there and rent it out 80% of the time. I don't have a problem with the concept, but I've already got a single family rental here that I can't sell, a commercial building, and some raw land. It doesn't seem like they should take up a lot of time, but they do indeed burn up an unbelievable amount of my time just on diddly schnit. The time I spend talking to plumbers etc about repairs does not show up on a spreadsheet.
Does owning a rental make sense? At this point all I know is she is looking at $250k cabins that bring in $35-$45k a year in revenue. I'm afraid mortgage payments, management fees, utilities, cleaning, maintenance, and taxes will eat that up in a hurry. What are the pitfalls that might not show up in a spreadsheet analysis of such an investment?
Does anyone have any experience with this?

[MRM]

No, the numbers never pencil out to even coming close to breaking even. The expense to manage the property and renters, risk of vacancies at high season, real estate price fluctuations, etc. all will overwhelm your actual revenue. You'll always come out ahead by renting your vacation home for whatever weeks you want it. And you have the flexibility that comes with you being the renter instead of the other way around.

[LWJ]

The numbers can come pretty close to break-even assuming a down-payment is not factored in. . It is market dependent. I know people who have done ok. I know fewer that killed it. Most lose big time. If you find a secret formula, please post it.

Good luck,
Larry

[LakeCleElum]

Our local place to manage a vacation Rental wants 40% off the top;
.http://www.allseasonsvacationrents.com/

Frack that. I know VRBO and AirBnB are cheaper, but I don't want no one sleeping in my bed.......Cabin sits empty most of the year........

[tevake]

Probably not a big money maker.
Until you factor in equity gained and $s saved on your vacation costs when you stay there.

Vrbo works well but is raising their rates just now.
An important key is having the right folks helping turn it around between guests.
Folks that are able to care well for your property and can locate the needed service providers when needed.

Cheers Richard

[jwasbury]

Originally Posted by LakeCleElum

Frack that. I know VRBO and AirBnB are cheaper, but I don't want no one sleeping in my bed.......Cabin sits empty most of the year........

^for me...this.

Wife and I bought a vacation/weekend home 4 years ago. No regrets, we love having it. If our financial situation required it I would consider doing VRBO/AirBNB, but more likely would sell it off at that time. We bought it pretty low, market wasn't strong and the place needed TLC (still does). I don't view it as a money maker investment, rather I see it as a relatively safe place to put some money, that I also get a lot of enjoyment from at the same time. I don't get that kind of enjoyment out of mutual funds, or whole life insurance policies. Part of the value is intangible, the experience itself. If that math works for you, its a nice thing to do. One of the keys for us is that our 2nd home is 1.5 hours from our primary, which means we get to use it frequently (almost every weekend). For me, it wouldn't work if I only visited a few weeks per year.

[nvr2mny]

We turned our Idaho cabin into a vacation rental after having it on the market (to sell) for 5 years. We built it as our retirement home about 12 years ago then life / plans changed. We now only use it @ 2-3 weeks per year. I tend to have the same problem with personal real estate that I do with Porsche's, I end up putting way more into them than they're worth. I overbuilt for the neighborhood, for now but we built it that way for us NOT as an income producing property. Anyway, it's getting fairly good traction as a rental, until we do sell, AND we get a partial write off on expenses and depreciation. But, I completely agree that until you want to permantly live in the area you're considering you're money ahead by being the renter. The other issue we ran into was the increased (in our case SIGNIFICANT) cost of insurance. Most carriers will not cover a rental income property if they are unaware of its use as a rental, even on a very part time basis and charge according to the potential liability they are incurring. Check your policy carefully, or contact your agent.

[recycled sixtie]

As mentioned above it is a good place to park your money but one drawback is the distance of it from your home. Who will look after it and clean it between tenant stays?
How often will the place get trashed? Do you get references on all guests?(I doubt it).

If it was close to your home then maybe. Perhaps you can get a place there with long term tenants you can get references on. More stability plus less cleanup plus steady rent cheque. Something to think about...

[nvr2mny]

As Jacob mentioned, living in close proximity is or would be a game changer for us too. In our case we moved from being 900 miles from our cabin to 1600. The further away, the more challenges.

[Seahawk]

How far away would you be from your vacation rental? Time and distance getting to the vacation home is a huge factor.

My sister has a vacation rental in the Smokies, under 3 hours drive. She only rents to friends and family and families of friends. For family she charges a cleaning fee and $20.00 a day. For friends of family she charges cleaning fee plus $100.00. She has yet to have a bad experience.

The house is designed so that the master bedroom/bath/suite is not rented and remains locked. No one stays in that part of the house. That was key to her...as LKE mentioned

She spends a lot of time there because the drive is under three hours. That seems to be the sweet spot.

[wdfifteen]

Good information all. The two big issues in my mind are the distance (it's 6-7 hours to that area from here) and maintenance.
I know myself. I'll spend my time down there fixing, cleaning, and painting instead of relaxing and pursuing my hobbies. I have a bad case of "I can do this myself so why pay someone else" disorder. What I like about renting is I can't do any maintenance and I spend all my time there living a different lifestyle than I do at home. It's a real vacation.
Mrs. WD had a great comment this morning. "After we're fully retired and we can go stay for two weeks at a time it would make more sense." I might be able to live with that. I like the idea of having an entire bedroom that is locked away from renters.

[911JeffS]

Good Morning-
Starting to look into some of these options myself so don't quiz me on it. Please research for yourselves. Have you considered a "1031 tax exchange" for the commercial building? Without knowing what property "A" is worth. I can only type what I believe I understand about the topic. So if the commercial property is worth less than the rental property you can keep the equity you've earned tax free, if not you pay the difference. But if you sold it, you get rid of prop A tax free or pay a little bit up to you. You would be getting Vacation rental property as a trade, easing any financial burden to at least what you hav going now. Not sure if this works for you but you did not mention it, so my 2 cents for ya. Or find something better a "1031 TE" is a sale and purchase of a like kind property. Good Luck

[911JeffS]

Good Morning-
Starting to look into some of these options myself so don't quiz me on it. Please research for yourselves. Have you considered a "1031 tax exchange" for the rental or the commercial building? Without knowing what the other properties are is worth. I can only type what I believe I understand about the topic. So if the commercial property is worth less than the rental property you can keep the equity you've earned tax free, if not you pay the difference. But if you sold it, you get rid of prop A tax free or pay a little bit up to you. You would be getting Vacation rental property as a trade, easing any financial burden to at least what you hav going now. Not sure if this works for you but you did not mention it, so my 2 cents for ya. Or find something better a "1031 TE" is a sale and purchase of a like kind property. Good Luck

[wdfifteen]

Originally Posted by 911JeffS

Not sure if this works for you but you did not mention it, so my 2 cents for ya. Or find something better a "1031 TE" is a sale and purchase of a like kind property. Good Luck

Selling the commercial building would definitely not work. It is a cash cow in a high rent, high demand area. In 21 years I've only had one tenant leave and one month of vacancy/no income. It figures as a significant portion of our retirement income.

[Dantilla]

My parents did well.

Bought a new condo at a resort. Location, location. location. Centrally located within easy walking distance to amenities, and while these condos were normally outfitted to sleep six, my parents outfitted ours to sleep eight. That kept it in high demand.

When we wanted to use it, one call to the resort is all it took. All other times it was available to rent through the resort's normal reservations, and included normal housekeeping.

When us kids were entering college age and we were no longer using it as a family, it was sold for nearly double what they originally paid.

[lonewolf]

Something to consider. Check sales in the area. See how long it takes to sell the average vaca home in the area. Depending where you look some can take quite a while to sell and some only sell after big discounts .
It goes without saying that if you buy something everyone else wants chances are when it's time to sell it's easy. If you don't it can be a nightmare
The purpose of a vaca home that you rent out is to get everything paid for and have your vaca for free. Then down the road you sell for a profit. You REALLY need to do your homework if that's what you hope for and expect.

[asphaltgambler]

What has been advised to me on the past: owning vacation properties(s) is great if your income is at a level where you need some loss / risk write-offs. If you're an average Joe who can barely afford the costs in order to build long term wealth, there are 'safer' investments.

[Salty Springs]

WD
If I were you I would go on VRBO and do a little research on rates & occupancy. A $250,000 cabin might rent for $800 per week. It would be very difficult to reach $45k in income in an at max 5 month rental window even at 100% (probably more like 50%). I have been on VRBO for 15 years and it does work well (they just got bought by Expedia and are turning what used to be an owner friendly site into a money churning machine !)
Our place in Cocoa Beach rents at about 65% in a year around climate. I actually do quite well compared to others, I net about $12,000 per year. Our taxes and monthly maint fees would be much higher than yours.
Dave

[recycled sixtie]

I don't know if time share has run out of legs but it is a thought. Easy to sell timeshares to users. Hard for them to sell. The initial investor - who knows? Just a thought...

[asphaltgambler]

Main problem with timeshares is you don't own anything ( upside) but have all the same costs ( downside)