Author Topic: buy a "part-time" rental property while still renting main residence?  (Read 3498 times)

tahoe_throw

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US, california, bay area. couple in early 30s. total net worth is ~$260k. $130k in 401k/IRA, $130k in cash. no debt. current living situation is renting at $2,600/month -- we feel that home prices in the area where we live are just too damn high ($650k and up for a decent-size townhouse similar to the one we are occupying now). total combined take-home pay is ~15k/month with IRAs/401k-s maxed out.
the idea is to purchase a property at a nearby ski resort (~4 hour drive from where we live) for $300k by putting 20% down and financing the rest through a 15-year fixed-rate loan. this property will:
a) be rented out on airbnb for ~$100/night when we are not there (thus, calling it a "part-time" rental). this should help us partially off-set the mortgage payment which would be ~2k/month
b) be used by both of us often -- we love skiing and doing things outdoors (thus, saving us money on hotel stays)

do you think it's a good idea? why?

larmando

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Re: buy a "part-time" rental property while still renting main residence?
« Reply #1 on: September 21, 2014, 03:23:06 AM »
What can also happen is a lot of expenses and headaches in the form of repairs, taxes, cleaning services and property management for the airbnb rental (you'll need someone to clean it up, check it, handle the check ins), work you have to do when you go there that is taken from your skiing time.

Of course you don't know what property prices will do, but they might be highly correlated to how much people feel rich in the bay area due to the current tech boom.

All in all it *might* work if you really want it to, but perhaps you should consider that 60.000 in your stash is about 2400 per year "theoretical" withdrawal power at the start, plus 1000 (500?) per month from what you "would" have spent on the mortgage after the airbnb income/expenses/taxes. If you manage to spend less than that per year in skiing you win big, with increased full safety! ("no/little snow year? no problem.",  "repairs? what repairs?", "financial crisis? cut 50% on the skiing for two years, no impact on income, no debt to service")

So personally I would say "no". But then again, it's your choice in the end.


SnackDog

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Re: buy a "part-time" rental property while still renting main residence?
« Reply #2 on: September 21, 2014, 03:45:36 AM »
Terrible idea. If you want a real estate investment, read the boards here and elsewhere for advice on where and how to buy a rental with the best chance of providing you some income.  It may or may not be in Tahoe but it will not be a vacation rental.  VRs typically are rented for only 30% of the time, which is not nearly enough to cover costs.  This means you will have significant expenses to own the place which will far exceed what it would cost you to just visit Tahoe several times per year and stay in a fancy hotel.  The other aspect of a vacation rental is the huge number of people coming and going and the potential for wear, tear and liability.

I would look around the bay area for a rental if you can find one that meets the 1% rule.  There is plenty for sale under $400K, just hard to charge the rents you would need. 

waltworks

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Re: buy a "part-time" rental property while still renting main residence?
« Reply #3 on: September 21, 2014, 08:43:33 AM »
@$15/mo net you should be FI in a few years. Buying that place will delay it significantly. Just rent a hotel room when you want to go ski.

Also keep in mind that resort towns (I live in one) are MUCH stricter about AirBNB type stuff - typically you will need a short term rental license and to pay the hotel tax which can be a LOT. And property taxes may be higher on a property that isn't occupied year-round, as well.

But regardless, it's a bad idea. You are making crazy money, save it up. In 5 years you will be done.

-W

tahoe_throw

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Re: buy a "part-time" rental property while still renting main residence?
« Reply #4 on: September 21, 2014, 12:22:25 PM »
hi all, thank you for your replies -- especially the "consider that 60.000 in your stash is about 2400 per year "theoretical" withdrawal power at the start" -- this is a valuable insight.

i do realize that this will be a bad investment property, but this purchase is not really designed to be an investment property per se. what i had more in mind is to diversify my investment holding into real estate by purchasing this unit. if renting it out turns out to be too much of a hassle/wear-n-tear/not enough bang for the buck, we'll just go there ourselves when we can. my other line of reasoning was that if, [god forbid] another major earthquake hits the bay area, this will be a place where i would be able to go with the family as my current job allows me to work remotely and i am the major breadwinner in the household. i do want to purchase a unit like this eventually, i am just torn between doing it now or saving enough money in the next 3-4 years allowing me to purchase it outright and thus saving on the interest expense. i do, of course, plan to pay it off early, even if i end up buying it for a 15-year loan.

the worst part [just like all of you pointed it out] is that this purchase still looks like an overall net loss -- it's like i am diversifying into an asset and it'll yield -$5k per year or whatever. it just seems so counter-intuitive -- i thought it's good to own real estate. and now it looks like -- well, not so much, better just dump the $60k into a vanguard index fund or something like that and reap the $2,400 per year and ski it all out... just counter intuitive, i guess... plus, i really wanted to have this warm fuzzy feeling of owning a small ski-in/ski-out unit...

larmando

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Re: buy a "part-time" rental property while still renting main residence?
« Reply #5 on: September 21, 2014, 02:08:06 PM »
Yes, you got it. By buying that you're not "diversifying" into real estate, you're buying an expensive toy that might appreciate or depreciate while costing you money. Would you diversify into fancy cars? No? Same thing here, actually.

Diversifying into real estate is done by purchasing an *investment* property, which has *some* return (we can discuss about the various "rules" on this forum, but for sure this wouldn't fit) and/or some REIT. The "bay area earthquake" thing is an excuse you're finding for yourself to justify the expense: MMM's facepunching alert would start flashing like crazy for that one. The real reason is that you'd "love" to have it and it gives you a good feeling.

Well, you can probably afford it, if you want, but don't consider it an investment and don't find excuses and mix things up. That's worse than saying "I have the money and I'll buy it" but knowing what you're up to.

And well, if you save up and retire early in a house in the mountains, why not, go you for making so much money and being able to do that. In that case it becomes your residence and you can choose that based on a lot of things including your passions.

waltworks

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Re: buy a "part-time" rental property while still renting main residence?
« Reply #6 on: September 21, 2014, 05:50:36 PM »
I'd think of it as a delayed gratification situation, too - unless you are *miserable* not having a ski-in ski-out place, waiting 5-10 years and saving up will mean you can buy it outright, be FI and go live in the mountains full time.

-W

arebelspy

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Re: buy a "part-time" rental property while still renting main residence?
« Reply #7 on: September 21, 2014, 07:12:23 PM »
Vacation homes are almost always bad "investments".  You could instead invest in something that makes sense and use the proceeds from that investment to pay for many vacations annually.

Say, for example, you invest your 150k cash into rentals earning a net of 8%.  Now you're getting 12,000 each and every year to rent out where you want to vacation.  That place goes for 100/night?  Then you be the one renting it for a full month, and still have 9000 left to save/invest/spend/whatever.

A much better plan, IMO, is always to invest in good investments, and use the proceeds to play with, not invest in something for play, and have it come out much worse, financially.
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tahoe_throw

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Re: buy a "part-time" rental property while still renting main residence?
« Reply #8 on: September 21, 2014, 07:27:00 PM »
thank you all for your advice. well, i won't be buying it -- it does, indeed, look like a bad idea.

instead, i want to invest $50k into a low-fee vanguard mutual/index fund or something like that. i envision this to be a long-term investment -- similar to the 401k/IRA, but i want to be able to to quickly withdraw money, if needed (say, for a down payment on a primary residence, if we ever decide to buy one, that is).

can you recommend a specific low fee mutual/index fund or should i create a new topic in the relevant sub-forum?

cchrissyy

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Your current job allows you to work remotely ... So, how about move somewhere that gives you that good feeling and where buying is affordable? Maybe even Tahoe.

Dicey

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Re: buy a "part-time" rental property while still renting main residence?
« Reply #10 on: September 21, 2014, 11:04:53 PM »
Funny, I read your post before looking at your handle. I figured you might be talking about Tahoe and voila! you were. I vote with the majority that it's a bad idea, don't do it.

Here's another option. My brother's in-laws live in Napa and love Tahoe too. They didn't want another house to maintain and they didn't want a traditional timeshare either. They bought a one-tenth interest in a good-sized Tahoe condo. They have it five weeks a year on a rotating basis. Should they want additional weeks, they can trade or buy from the other owners. I don't know how common these arrangements are, buy they are out there. I'd start with CL or post your own ad. These deals can have pitfalls, so do your research. They are trickier to get in to and out of, so cash in hand is king in these deals.