Author Topic: Tempted to buy home for shorter term rentals (1 month +)  (Read 2433 times)

Rollin

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Tempted to buy home for shorter term rentals (1 month +)
« on: July 03, 2015, 06:40:45 PM »
I am looking at a home that really needs almost nothing (built in 88, AC and roof 2 years old, newer appliances) and sale price of about $220,000 (finance $176,000).  Would fully furnish it and offer it for $3,000/month for 5 months and $1,600/month for 7 months.  It is a few houses from the water (Intracoastal) very near a cool downtown (1.5 miles via a rail trail), and 6 miles from Gulf of Mexico beaches).

These typically are full in the 5 months winter (month at a time to different renters) and the getting longer stays during the off-season (3-6 months to one person).

Average rent $2,183
$5,000 to furnish nicely
$3,600 Property taxes
$1,500 flood insurance
$2,000 home owners insurance

I'd cover power bill up to $75/month, all cable at $100, and water up to $75/month for the higher rent months.

So:

$19,500 in expenses (financing 80% at 4.25% for 30 years)
$26,200 in income
$6,700 gross before maintenance and vacancy added in.

I compare this to a 1% rule single family home ($1,500/month for 3 bedroom, but unlikely to get high rent) and I could buy a cheaper property ($170,000 purchase and finance $153,000) and rent it with 1-year lease and end up with $5,800.

Anyone do the short-term deal?  Any advice overall?
« Last Edit: July 03, 2015, 06:51:46 PM by Rollin »

Rollin

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Re: Tempted to buy home for shorter term rentals (1 month +)
« Reply #1 on: July 06, 2015, 01:45:37 PM »
I know on occasion posters get a little pushy when someone doesn't answer a post in a few minutes ;), but this one is a few days old and I'm wondering if it is simply not replied to because no one has any suggestions (possible) or that I need to rephrase my question.  Any ideas?

waltworks

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Re: Tempted to buy home for shorter term rentals (1 month +)
« Reply #2 on: July 06, 2015, 09:27:37 PM »
Overhead for short term is way, way higher. And it's way more work/management cost. Why would you settle for a <1% property that is going to be a huge headache?

-W

MgoSam

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Re: Tempted to buy home for shorter term rentals (1 month +)
« Reply #3 on: July 07, 2015, 04:22:01 AM »
I agree with W.

5 months lease followed by a 7 month lease doesn't equate to any time being spent to clean up the place. Carpets get ruined over time, walls need re-painting, and appliances or other things need time to fix. Sometimes they have to be done only when there isn't a tenant living there, which means a month or maybe more at a time without any rental income. Plus, having a minimum of 2 tenants a year, likely would indicate a higher than average budget for cleaning up after they move out. A tenant that is only staying for 5 months likely won't take as good of your property as would a full-year tenant who may want to renew their lease and stay longer. This also heightens the importance of screening your tenants, which may be difficult to do if you want to rotate them to move in as soon as the previous tenant's time is done. If hiring a company to help with this, their fee could eat a huge chunk of your rental income, maybe as much as a month's rent.

The numbers may still add up in your favor, but these are some things that come to my mind.

MillenialMustache

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Re: Tempted to buy home for shorter term rentals (1 month +)
« Reply #4 on: July 07, 2015, 08:19:30 AM »
Even changing over someone once a year is pretty intense for me personally. I am hoping our current renter stays longer than one year. I posted because I would recommend you read Afford Anything's experiences as an Air BnB place. It was shorter term than you are thinking, but it is interesting and insightful. http://affordanything.com/2015/03/10/10-lessons-ive-learned-as-an-airbnb-host/

P.S. - I live in a tourist area and was originally thinking about doing more of a short term rental. I was steered off it by people on this forum and Afford Anything. I am so glad I did not do that! A regular rental is plenty of work.

Rollin

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Re: Tempted to buy home for shorter term rentals (1 month +)
« Reply #5 on: July 07, 2015, 05:31:27 PM »
You three are hitting on the same things that I am hung up on, and bringing even more reality into the picture.  More day to day stuff, bookings, issues, cleaning, etc.  MilenialMustache you are up my alley, as I have a year lease on another property and I'm good with that, but really don't care for the turnover in a year, let alone every month!

Going to talk with my Realtor right now and will post when i return.  I'm inclined to go with a nice 3-bedroom that might just exceed the 1% rule.  That is, it is a little pricy right now for purchase and rent has not quite equalized yet.  Probably get $1,500/month rent, but I'd consider up to a $170,000 home at the moment.  If I could find a $150,000 then all the better!

Thank you all (3)!

UPDATE - decided it was a no.  It really is not a terrible deal, but the iffiness of the renters coming and going and the extra work just don't sit well.

On the affordable rental idea we are going to have a hard time finding that here, as it is a good valued area.  I will keep looking though.

Thanks again.
« Last Edit: July 07, 2015, 08:27:47 PM by Rollin »

cjl98

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Re: Tempted to buy home for shorter term rentals (1 month +)
« Reply #6 on: July 09, 2015, 10:28:16 AM »
I have a short term rental and will most likely be buying another next year.  It currently bring in about $38000 a year in revenue with $28000 in expenses (not including depreciation).  My goal for future rentals is to average $1k a month in profit. We rent our house out nightly which allows us to charge more than furnished monthly rentals.

When we started the vacation rental we lived 10 miles from the house.  I took care of all the maintenance and my wife cleaned it.  Now we live 5 hours away and have a primary cleaner with a backup cleaner to cover vacations.  The primary cleaner is a friend and takes care of most issues in addition to cleaning the house. My wife and I take care of the management and marketing.

We get about 10 inquiries a month through email and spend 5-10 minutes responding to each one.  Once a month or less we get a phone call and spend 30 minutes talking to someone.  Last year we had 53 reservations with an overall occupancy of 54%.

Hopefully this data is helpful.

Rollin

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Re: Tempted to buy home for shorter term rentals (1 month +)
« Reply #7 on: July 11, 2015, 07:46:23 AM »
Thank you cjl98

We have a law that would not allow that short of a term more than 3 times per year.  Essentially, it is a single family neighborhood.  The other way to look at it is that a rental needs to be 30 days or longer (with the exception of the 3 shorter periods per year).

On another note, if a place is rented for less than 6 months there is a total of 12% taxes.