Author Topic: I want a vacation home.  (Read 5757 times)

KBecks

  • Handlebar Stache
  • *****
  • Posts: 1531
I want a vacation home.
« on: July 09, 2016, 02:52:37 PM »
We went on a wonderful 4th of July trip up to Madeline Island, Wisconsin.  I came home with a bad case of summer home fever.

I want a vacation home.

In the past I have told myself that a cottage or vacation home is silly, just save the money and rent homes anywhere.
Now, I would like to own a home and rent it out to guests for 11+ weeks a year, essentially having a vacation rental business to cover some of the expenses.

Given our finances, we could swing this (I think)... 

...but it's not without effort and labor. 

Our net worth is around $900k and we have a $100k mortgage on our home.
Our monthly income ranges.  This month is $12k.

I could in theory go score a second mortgage now and pay a large down payment for a second home.
But what we should do is pay off our primary home and then get a mortgage on the second, or...  pay off the primary and then save up for the second.

Can I just add some fancy house photos to sweeten the conversation?   Which home would you like to vacation in?

(my current favorite - in Door Co.)
http://www.zillow.com/savedhomes/for_sale/2111699843_zpid/1_pnd/priced_sort/46.711619,-84.8172,44.56112,-89.112854_rect/7_zm/2_p/1_rs/1_fr/?3col=true

http://www.zillow.com/homes/for_sale/house_type/2101661173_zpid/0-500000_price/0-1755_mp/featured_sort/45.171569,-87.059527,45.103758,-87.193766_rect/12_zm/0_mmm/?3col=true

(on the island)
http://www.zillow.com/savedhomes/for_sale/2111528030_zpid/1_pnd/priced_sort/46.944403,-90.625877,46.681243,-91.162834_rect/10_zm/1_rs/1_fr/

http://www.zillow.com/savedhomes/for_sale/2108561270_zpid/1_pnd/priced_sort/46.944403,-90.625877,46.681243,-91.162834_rect/10_zm/1_rs/1_fr/?3col=true

http://www.zillow.com/savedhomes/for_sale/2112277640_zpid/1_pnd/priced_sort/46.944403,-90.625877,46.681243,-91.162834_rect/10_zm/1_rs/1_fr/?3col=true

Mostly dreaming...



waltworks

  • Magnum Stache
  • ******
  • Posts: 3209
Re: I want a vacation home.
« Reply #1 on: July 09, 2016, 03:34:09 PM »
Would the place make sense as a business/rental if you didn't want to live in it a few weeks a year?

Vacation/tourist destination homes are almost always huge money losers, because everyone has the same idea you do - "I could have a vacation home, like, for free!" 

It might be *worth* losing money on something like this if it makes you super happy, of course.

-Walt

Sibley

  • Magnum Stache
  • ******
  • Posts: 3390
  • Location: Chicago, IL
Re: I want a vacation home.
« Reply #2 on: July 09, 2016, 03:56:51 PM »
Buy a vacation home when you retire, sell the current home, and live in it full time.

Another Reader

  • Magnum Stache
  • ******
  • Posts: 4886
Re: I want a vacation home.
« Reply #3 on: July 09, 2016, 03:59:56 PM »
Rent one for a week every year.  Try different locations.  It's a lot cheaper.

JLee

  • Walrus Stache
  • *******
  • Posts: 5440
Re: I want a vacation home.
« Reply #4 on: July 09, 2016, 04:18:36 PM »
My ideal vacation home has four wheels (and maybe an offroad trailer) - I personally couldn't really justify another house just for vacations, especially since I like to go different places every time. If you can make it pay for itself then it may be a viable option. 

totoro

  • Handlebar Stache
  • *****
  • Posts: 2091
Re: I want a vacation home.
« Reply #5 on: July 09, 2016, 04:23:02 PM »
Ours actually does pay for itself.  You need to analyze the rental market and do a spreadsheet before you'll know the bottom line.  It can work - mostly the numbers do not.
« Last Edit: July 10, 2016, 10:29:40 AM by totoro »

lhamo

  • Walrus Stache
  • *******
  • Posts: 9376
  • Location: Seattle
Re: I want a vacation home.
« Reply #6 on: July 09, 2016, 04:27:35 PM »
Rent one for a week every year.  Try different locations.  It's a lot cheaper.

This.  Vacation homes are usually more trouble (and expense) than they are worth.  My brother bought a beach house in Oregon when they still lived in Portland -- when it kind of made sense.  But then a couple of years later they moved back to Seattle.  They kept the beach house, but were only able to use it a few times a year.  Didn't get the kind of traction with renting it that would have made it worthwhile.  The house was older, and stuff kept breaking.  They couldn't rent it out while stuff was broken.  They eventually sold it a couple of years ago.  I think they probably broke even, maybe.  I don't think they would do it again.

Miss Prim

  • Bristles
  • ***
  • Posts: 365
  • Location: Michigan
Re: I want a vacation home.
« Reply #7 on: July 09, 2016, 04:32:24 PM »
We have had a vacation home for over 30 years on a lake.  It is only 40 min. from our primary residence, so gas to go there is cheap.  I don't think I would buy anything that was far away, as you would be spending most of your time driving back and forth.  It was very cheap at the time and we owned it with my sister-in-law.  My kids grew up having a cottage on a lake and that was worth every penny.  Since my kids are grown now and have significant others and 2 grandchildren, we moved a street over and bought a bigger place.  To offset the extra expense, we are thinking about hosting weekend scrapbooking parties in the spring and fall.  My daughter goes to these and people pay pretty good money to scrapbook together and spend 2 nights.  We are buying mostly twin beds for each bedroom (there are 6) with renting it out in mind. 

That being said, it is a lot of work to keep up two properties, and boats, etc.  We used to have a ski boat, but we now only have a bilgy old pontoon boat that gets us to the sand bar (where everyone parties on the weekend) and back.  Also, grass needs mowing and things need repair/replacement just like your primary home. 

I have to agree with the person who said just rent a week or 2.  It would probably be way cheaper in the long run.  But, for us, we are part of a neighborhood of great lake people we have known for a long time and feel at home here. 

                                                                              Miss Prim

PS.  Did I say it was a lot of work, because it is!  So plan accordingly.

Dicey

  • Walrus Stache
  • *******
  • Posts: 9920
  • Age: 61
  • Location: NorCal
Re: I want a vacation home.
« Reply #8 on: July 10, 2016, 03:21:01 AM »
Here's a wild-ass idea. Apply to be on HGTV's "Vacation Home For Free" Show. I'm sure the lead time is pretty long, which could help you come to your senses. Bonus: the host is cute and seems to have a talent for stretching a buck and sticking to a budget, which makes him sexy, too.

undercover

  • Pencil Stache
  • ****
  • Posts: 881
Re: I want a vacation home.
« Reply #9 on: July 10, 2016, 03:43:23 AM »
I would not personally own a vacation home unless it fit into my investment portfolio. It would have to return an acceptable amount (not simply break even by paying for itself) when I'm not using it for me to want to own it. The reason for this is that I wouldn't want to feel locked into only traveling to the same destination over and over. If the property is a good rental investment, it won't matter if I use it for my own purposes or do my own traveling elsewhere.

Otherwise, there's no way it's worth it. If it didn't make sense as a rental property, you'd have to use it enough for it to actually make sense owning it for yourself. I have a neighbor who visits his property a few times a year. It's his second home of course. He doesn't rent it out. He could pay $500/night at any hotel for as little as he visits and still come out far better.

So, you just have to run the math and figure out if it makes sense financially or not. The less you rent it out, the more you have to plan on being there, thus obligating yourself to one travel destination. Simply "breaking even" is not enough in my opinion for the hassle of owning a second home.

chasesfish

  • Magnum Stache
  • ******
  • Posts: 2992
  • Age: 37
  • Location: Texas
    • Years in the making, I created a journal!
Re: I want a vacation home.
« Reply #10 on: July 10, 2016, 05:53:21 AM »
Vacation homes are usually a crappy investment.  The reason they're marketed as a 2nd home is the property is inherently a crappy rental with a low cap rate (or it would have already been sold to an investor).  I've only seen two exceptions to this:

1) I was working in Atlanta and watched clients go through the Gulf Coast Condo boom/bust.  The people buying them as a vacation home in 2004-2007 took a bath and the vacation homes would never cash flow.  The real estate investors went in during 2009-2010 and have a nice portfolio of rentals out of vacation homes.  There are occasionally times where the vacation home market will completely tank and you can make it work from a cash flow standpoint.

2) Buy a multi-family property in a decently populated area that's also a vacation spot.   These aren't usually in the "tourist" district, but you could rent one side out full-time and put the other on a short-term rental.  I've seen people do this in Wilmington, NC and around Tampa.

KBecks

  • Handlebar Stache
  • *****
  • Posts: 1531
Re: I want a vacation home.
« Reply #11 on: July 10, 2016, 09:40:37 AM »
Hi everyone,  thanks for the replies and most of the vacation home fever has worn off -- but I would like to run some numbers on some properties and see how it is.  Perhaps we will go rent a vacation rental this fall on the kids school break weekend and deepen our familiarity with rentals.  I will make some pretty spreadsheets to help satisfy my curiosity.

A few years ago I was very interested in residential real estate rentals but, decided not to do it for several reasons -- I did not want to take on the debt, I did not want to manage them and my husband felt it was going to be too much work, or that much of the work would fall to him.  I also feel that there is a significant difference in clients between vacationers vs. long term renters, and the vacation business seems more fun, we could start with one property that we like and it could serve as an eventual retirement home / homestead.

As much as I love the idea of a 2nd home as legacy for my 3 kids, it seems that passing down a property to multiple children is very difficult.  I also need to seriously consider exit strategy because vacation homes have a different way of selling.  Many homes I am looking at are on the market for a long time.  Where is the economy going?

I am curious if vacation rental homes is a fad or if it will be an enduring trend.  I've stayed at several vacation homes -- Florida, 2 in California, Arizona, and they have been *wonderful* experiences. I love vacation rentals.  They are fantastic!  I am curious -- do Mustachians like staying in vacation rentals?  We camp a lot but we also have relatives who simply do not camp.  I love having a kitchen and a fridge and privacy -- it's wonderful.

Both areas I am looking at are on Great Lakes, both are seasonal -- you can get to the island in winter -- but it's via wind sled or via a temporary ice road!  The island has some (unstuffy) exclusivity to it -- there are only so many properties available and it's very unique and special.  I love that aspect of it.   The peninsula location is more populated, with more land and more homes, and there are also more businesses, attractions and amenities.  More competition in lodging and camping availability.  It is more practical because we'd be able to drive there and back in one day if needed.  Any property would need to be well marketed and well managed.  The island is truly a 2 day minimum trip and there is a ferry cost each time.

I love thinking about it!  Of the links I posted do any seem better or worse than the others?  I am curious about this community's tastes in rental properties.  Thanks again.


KBecks

  • Handlebar Stache
  • *****
  • Posts: 1531
Re: I want a vacation home.
« Reply #12 on: July 10, 2016, 09:44:42 AM »
I would not personally own a vacation home unless it fit into my investment portfolio. It would have to return an acceptable amount (not simply break even by paying for itself) when I'm not using it for me to want to own it. The reason for this is that I wouldn't want to feel locked into only traveling to the same destination over and over. If the property is a good rental investment, it won't matter if I use it for my own purposes or do my own traveling elsewhere.

Otherwise, there's no way it's worth it. If it didn't make sense as a rental property, you'd have to use it enough for it to actually make sense owning it for yourself. I have a neighbor who visits his property a few times a year. It's his second home of course. He doesn't rent it out. He could pay $500/night at any hotel for as little as he visits and still come out far better.

So, you just have to run the math and figure out if it makes sense financially or not. The less you rent it out, the more you have to plan on being there, thus obligating yourself to one travel destination. Simply "breaking even" is not enough in my opinion for the hassle of owning a second home.

Right the property has to be a rental vacation home first and foremost, and our occupancy would be limited to 14 days maximum.  We want to continue to travel and camp to various places and a second home could not be a drag on that.  We would absolutely have expenses of cleaning, maintenance, lawn care, etc.

waltworks

  • Magnum Stache
  • ******
  • Posts: 3209
Re: I want a vacation home.
« Reply #13 on: July 10, 2016, 10:21:35 AM »
Run. Some. Numbers.

Seriously, nobody can give you any useful advice without hard numbers. At a minimum:
-Cost to purchase/rehab to rentable state.
-How much a night, how many nights/year will it be rented?
-Taxes/insurance - these will be very different from an owner occupied home.
-Maintenance costs - probably very high if the winters are super cold/snowy. Ask owners in the area if you know some of them.
-Management costs - will you try to self-manage? If so, how much time are you willing to put in at what wage? How often are you willing to drive to the property to deal with problems? If not, what will a management company charge you (call a few, they'll generally tell you up front)?

Bluntly, the fact that you didn't do this *before* posting is a huge red flag. I'd run away from the whole idea.

-Walt


totoro

  • Handlebar Stache
  • *****
  • Posts: 2091
Re: I want a vacation home.
« Reply #14 on: July 10, 2016, 10:46:15 AM »
Again, we do it and it works.  I agree that you have to analyze the property and find the right one if you want it to carry itself.  Your great lakes property probably won't given the seasonal nature of the occupation.

Here is why it works for us:

1. The property is a small duplex and both units are rented out.  Winter rates are much lower than high season but there is demand.
2. The land size is small but the location is attractive (across from beach).  Small land size means less maintenance.
3. Vacation rentals are legal.
4. We pay for cleaning and maintenance which means we have less work to do.  We still do work on the place when we are there - like last week.  We fixed a valance, trimmed some branches, weeded a bit, touched up paint and bought a few new things for the place.  We don't mind but if you own even if you pay for maintenance you'll probably have to do a bit regularly on a furnished rental.
5. You'll need someone who can be onsite quickly if you can't.  It is unusual but in the eight years we've owned we've had a blocked toilet and one person locked out.
6.  You'll need to be the organizer - ie. cleaners, maintenance and making sure guests have the information they need.  If you don't like doing this that is going to be an issue.

We use the property 12 weeks a year because there is also skiing nearby and I have work in the area.  Our kids bring their friends and we do too which is great.  In the end we net about $3000 after all expenses, which is great because that doesn't include the 12k a year the mortgage gets paid down and our "free" 12 weeks.  However, the 3k goes to income tax we on the mortgage paydown amount so there is no money in our pocket at the end of the day. 

There will be a paid off appreciating house eventually though.  And you can deal with inheritance issues proactively btw.  I wouldn't have this as a reason not to buy.

Lake161

  • Stubble
  • **
  • Posts: 113
  • Location: NorCal
Re: I want a vacation home.
« Reply #15 on: July 10, 2016, 12:57:39 PM »
We bought a vaca home, but under a unique set of circumstances

It was the bottom of the market in a vacation area and cheap foreclosure abounded.
We wants to retire in this area in <5 years and planned to buy eventually
In the meantime we used the home nearly every weekend and vacation, and rented it during the one year we were abroad.

Our returns were slightly less than we would have gotten from the stock market over the same period, once you subtract our operating expenses. This would not have been true if the market had been less distressed at the time we bought.

tomsang

  • Handlebar Stache
  • *****
  • Posts: 1085
Re: I want a vacation home.
« Reply #16 on: July 10, 2016, 01:26:16 PM »
We looked into it a few years ago.  There were a number of things that convinced us that it was not right for our family.  1)  The luster wore off when I explained to my wife that we could not use it during the peak months as it would be rented.  2)  I would expect all of our family to hit me up to stay in the place for free creating stress.  3)  The upkeep and maintenance from a distance did not seem like something that we wanted to do with all of our other investments.  4)  We love to travel to new places and don't want to be locked down to one place.  5)  If you can do last minute rentals, you can find some amazing deals as landlords would rather get something rather than nothing for last minute cancelations or un-booked weeks.

Good luck! 

Cassie

  • Walrus Stache
  • *******
  • Posts: 5429
Re: I want a vacation home.
« Reply #17 on: July 10, 2016, 01:52:32 PM »
I used to live in WI so have been to the places you listed. Those are beautiful areas. However, the weather is rough in the winter so you will only get summer people.  YOu could get deer hunters in winter.  If you rent furnished people will steal stuff. I know someone that this happened to or damage things.  I would rent where ever you want to be.   Also your kids may have no interest in the home. This happened to my FIL that the kids were not interested so he sold it.

Fishindude

  • Handlebar Stache
  • *****
  • Posts: 2030
Re: I want a vacation home.
« Reply #18 on: July 10, 2016, 02:52:10 PM »
We have two plus a primary residence.  One is a nice lakefront home, the other is a hunting camp and cabin, both are about five hours from the house.   We use the heck out of them, and really enjoy them.

If you don't get crazy, I think you can just about always get your initial investment back if / when you sell, but I would not look at it as a money maker.   Should look at it more like an expensive "toy", and nothing wrong with having some expensive toys if you have your financial act together in all other areas.   I wouldn't recommend going into a bunch of debt for one, especially if your primary residence isn't paid for.

During the course of ownership you will have all of the routine expenses like you have on a home; taxes, utilities, renovations and repairs, lawn care, snow removal, trash collection, etc., so budget accordingly.   Lots of added expenses can come with owning boats and the other play toys that go along with vacation homes too.  Renting your place out can cover much of this, if you choose to go that route.

One thing I was pretty firm about was that all routine upkeep type work; lawn mowing, snow plowing, cutting firewood, putting docks and boat lifts in and out, house painting and remodeling, etc. was all going to be hired out.  I'm not going to travel and then spend the whole time working on the place.  If I can't afford to hire that stuff out, I can't afford the place.   Have enough of that stuff to do on our home.

You only live once.  Go for it if you can handle it.
It's an awesome way to spend time with family and friends.


Pigeon

  • Handlebar Stache
  • *****
  • Posts: 1179
Re: I want a vacation home.
« Reply #19 on: July 10, 2016, 05:39:06 PM »
Both dh's and my step mother's family had vacation homes. 

From what I could see, they sound a lot better than the reality. In both cases, they were fairly close by, one an hour away, the other two hours.  Step-mother's is cottage on a lake and is only usable in the summer.  IL's was a house on some acreage in an area with a lake and skiing, but they were not right on the water, although they did moor a boat.

It's a huge amount of work.  There's household maintenance, cleaning, yardwork, schlepping food back and forth.  You spend a chunk of your vacation time doing this work.  In the case of a house on an island, I can only imagine repairs would be more complicated.

Neither family rented the place out but tried to maximize weekends and vacations there.  Both families felt a sense of guilt if they weren't there because they paid for it, so damn it, they should be enjoying it.

Once kids are into their early teens, they may be less than enthused about spending weekends and vacations isolated from friends.  It became a huge source of bickering in both families.  If the kids are involved in sports, music, theater, etc., they may have obligations to be home.  Once the kids were married, the parents expected that their married  kids would want to spend their vacations with them in the vacation houses, but the new spouses didn't relish spending vacations with the ILs. More bickering ensued.

When the parents got old enough to want to pass the places on, it was a source of discord.  My BIL really wanted us all to buy it from MIL together.  He was the only one who wanted it and he couldn't understand why we all didn't want to pay for it so he and his family could use it.  He's a bit of a bully and there were some ugly scenes.  Something similar happened in step-mother's family and some of her kids feel like the final disposition was very unfair.

We do like renting other people's vacation homes.  Our favorite vacation is a house on a remote lake that is gorgeous.  It's like a little slice of heaven.  We've rented the same place several times, but we've also rented other places.  The rent is much cheaper than a hotel.  If we want to do something else for vacation, it's no big deal.  We love the area, but would not want to be permanently tied to spending all our vacations there.  In this case, there is no way the owners are breaking even on the place, let alone earning money. 

As other people have said, do the numbers.  Don't forget about all the expenses of owning a home and dealing with renters.


Zamboni

  • Handlebar Stache
  • *****
  • Posts: 2254
Re: I want a vacation home.
« Reply #20 on: July 10, 2016, 06:02:15 PM »
I feel you, KBecks, because I get the vacation home bug every time I visit the coast. During 2009-2010 there were a gazillion places for sale, too, which made the fever more severe. But, I have two close friends with vacation homes and here is why I resist:

1) Vacancies . . . they are not just for apt landlords. You have to factor in some vacancies when you run the numbers, and you have to find out the real vacancy rate for exactly your location and type of dwelling. Some places are very overbuilt with weekly vacation rentals and the vacancy rate is much higher than you would think even during peak season (one friend has this problem.)

2) Periodically, miscreants will trash the place. That would bother me.

Fishindude

  • Handlebar Stache
  • *****
  • Posts: 2030
Re: I want a vacation home.
« Reply #21 on: July 10, 2016, 07:23:20 PM »
My neighbor at the lake rents his place a fair amount and gets $3000 per week during summer.  He's not had any renter problems I'm aware of and being next door from what we've seen renters have been decent people.   If I had to count on rental income I wouldn't do it, would consider that a bonus and ease my way into it.  Thus far we've elected not to rent.

totoro

  • Handlebar Stache
  • *****
  • Posts: 2091
Re: I want a vacation home.
« Reply #22 on: July 10, 2016, 08:40:36 PM »
2) Periodically, miscreants will trash the place. That would bother me.

If you buy the right place (near neighbours and nice), manage it and maintain it well, don't rent to students and take a large deposit this is unlikely to occur.  There is risk in everything but this is one you can manage.

We've had hundreds of rentals and no issues knock on wood.  Our biggest issue was with long-term tenants not maintaining things, not short-term renters. 

Pigeon

  • Handlebar Stache
  • *****
  • Posts: 1179
Re: I want a vacation home.
« Reply #23 on: July 10, 2016, 09:42:12 PM »
The point of some of these places is that they are remote. We rent a house on a pristine lake in the Adirondacks. People do occasionally break into these places  in the off season. There aren't many neighbors to begin with-- that's what makes them special.

Pigeon

  • Handlebar Stache
  • *****
  • Posts: 1179
Re: I want a vacation home.
« Reply #24 on: July 10, 2016, 09:49:19 PM »
The point of some of these places is that they are remote. We rent a house on a pristine lake in the Adirondacks. People do occasionally break into these places  in the off season. There aren't many neighbors to begin with-- that's what makes them special.