Author Topic: Vacation rentals i.e., ski condo  (Read 18413 times)

Presley155

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Vacation rentals i.e., ski condo
« on: February 28, 2012, 03:50:58 PM »
Does anyone have any experience investing in and renting out a vacation rental? For example a ski condo or beach condo.

smedleyb

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Re: Vacation rentals i.e., ski condo
« Reply #1 on: February 29, 2012, 09:32:41 AM »
No direct experience, Presley, but I've thought about it endlessly and have come to the following conclusion:  it's the worst real-estate investment you can make, period, as far as ROI is concerned.

That said, if you can arrange a group of investors with a similar desire to share in the cost/maintenance of the property, it could be a fun/cost effective method of vacationing year round.  With the obvious drawback being you're kind of locked into going on the same vacation year in year out. 
« Last Edit: March 12, 2012, 01:23:09 PM by smedleyb »

salmp01

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Re: Vacation rentals i.e., ski condo
« Reply #2 on: February 29, 2012, 10:25:02 AM »
I purchased a villa on an island in Panama (the country) back in 2005 when it didn't make sense to buy in the US. It turned out to not be the best investment.   If you have some money and want to invest in a rental you'd probably be better severed buying something near where you live.

arebelspy

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Re: Vacation rentals i.e., ski condo
« Reply #3 on: February 29, 2012, 09:40:22 PM »
No direct experience, Presley, but I've though about it endlessly and have come to the following conclusion:  it's the worst real-estate investment you can make, period, as far as ROI is concerned.

That said, if you can arrange a group of investors with a similar desire to share in the cost/maintenance of the property, it could be a fun/cost effective method of vacationing year round.  With the obvious drawback being you're kind of locked into going on the same vacation year in year out.

You just described a timeshare.

And yes, I agree, not a great investment.  In general, vacation rentals aren't bought for investment purposes, but for leisure and entertainment purposes.

I've often thought the people investing in them should just invest in a more "solid" investment and use the proceeds to rent a vacation place.
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totoro

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Re: Vacation rentals i.e., ski condo
« Reply #4 on: July 05, 2012, 09:28:25 AM »
I know this is an old thread but I wanted to weigh in with an alternative viewpoint.

I live in Canada and I am sitting in my legally suited lakeview vacation rental typing this reply.   The place cost $380 000 to purchase and another $30 000 to suite and furnish (second-hand except beds, linens and kitchenware).  I put 5% down.  I am on a cul de sac which joins the public beach.  The houses on the other side of the street sell for 1.5 million or more as they are waterfront.

My property is cash flow positive and provides a great getaway for the family for skiing in the winter and the beach in the summer.  We plan our trips during weeks it is not rented in the summer.  During the winter I have one of the suites full-time because I travel here for work one week a month. My parents are here so they keep an eye on things too.  The other suite is leased during the winter until June at $800/month.  Summer rentals are $1350/week suite one (2 bed 1 bath) and $1550/week for suite two (2 bed 2 bath).

My expenses total $24 000/year.  My income totals $30,000/year and I have a very nice place to stay in my hometown for our family and friends.

While this won't work in every community, it is worth it to run the numbers.  It took me three years of looking to find this place and I bought it the same day I saw it.  Needs to be the right place to work well I think.

Secret Stache

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Re: Vacation rentals i.e., ski condo
« Reply #5 on: July 05, 2012, 10:37:32 AM »
I've thought about doing something like this when approaching FIRE.  Maybe buy something where we want to settle and take extended vacations and rent it out in the mean time.  Then when the time comes move there full time.

mechanic baird

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Re: Vacation rentals i.e., ski condo
« Reply #6 on: July 05, 2012, 10:52:05 AM »
Great this thread got dug out. Please read my numbers before you make any decisions. Seriously, I think from investment perspective, you will lose your shirts if not your underwear..

My parents own a ski condo in the wonderful world class ski resort in Colorado. They bought with cash for $260K. The management company they found is a good one, they only take 25% if they found the customers or 15% if we found the customers. Comparing to the big resort management fee of 50%, that's a bargain.

The family uses the place heavily in summer and fall seasons, but winter time is mostly skiers renting from us. W use about 20% of the time in ski season.

The net rental income after taking out fees, cleaning, etc is around $11K for the last season. HOA is $4400 a year, which includes all utility and grounds maintenance, pool and stuff. So it's a reasonable figure. The resort charges $600 a year because our unit is inside of the 'village'. The property tax was $1160 last year.

And keep in mind, we don't have mortgage at all. So with all that,we took in a whopping $4800 for the year, which is TERRIBLE on ROI. If anyone has mortgage, then, forget it..

You are much better off finding a solid rental near where you live and charge a yearly lease.. Vacation rental may work if you live next to itl and don't need housekeeper or management company...

It's good that my parents bought it with cash and they want to leave it for the family and kids and never thought it as an investment.. If I were having that money, I'd do something different with it.

JohnGalt

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Re: Vacation rentals i.e., ski condo
« Reply #7 on: July 05, 2012, 01:41:54 PM »
Great this thread got dug out. Please read my numbers before you make any decisions. Seriously, I think from investment perspective, you will lose your shirts if not your underwear..

My parents own a ski condo in the wonderful world class ski resort in Colorado. They bought with cash for $260K. The management company they found is a good one, they only take 25% if they found the customers or 15% if we found the customers. Comparing to the big resort management fee of 50%, that's a bargain.

The family uses the place heavily in summer and fall seasons, but winter time is mostly skiers renting from us. W use about 20% of the time in ski season.

The net rental income after taking out fees, cleaning, etc is around $11K for the last season. HOA is $4400 a year, which includes all utility and grounds maintenance, pool and stuff. So it's a reasonable figure. The resort charges $600 a year because our unit is inside of the 'village'. The property tax was $1160 last year.

And keep in mind, we don't have mortgage at all. So with all that,we took in a whopping $4800 for the year, which is TERRIBLE on ROI. If anyone has mortgage, then, forget it..

You are much better off finding a solid rental near where you live and charge a yearly lease.. Vacation rental may work if you live next to itl and don't need housekeeper or management company...

It's good that my parents bought it with cash and they want to leave it for the family and kids and never thought it as an investment.. If I were having that money, I'd do something different with it.

I'm by no means arguing that it is a good investment - but ROI in this situation is not as simple as $4400 / $260,000

You say the family uses it 20% of the ski season and "heavily" during the during the summer/fall.  I would argue that this is not really an investment at all based on that.  Really - you need to be subtracting out the value your family receives from the condo from the $260,000. 

arebelspy

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Re: Vacation rentals i.e., ski condo
« Reply #8 on: July 05, 2012, 01:47:39 PM »

I'm by no means arguing that it is a good investment - but ROI in this situation is not as simple as $4400 / $260,000

You say the family uses it 20% of the ski season and "heavily" during the during the summer/fall.  I would argue that this is not really an investment at all based on that.  Really - you need to be subtracting out the value your family receives from the condo from the $260,000.

That's a good point.  Thanks JG.

What would the lodging cost you if you didn't own it but took all those same vacations?

Similarly, assuming you take more vacations because you own it and have it available, what would the lodging be if you didn't have it and took the amount of vacations you would otherwise?
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grantmeaname

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Re: Vacation rentals i.e., ski condo
« Reply #9 on: July 05, 2012, 01:59:16 PM »
Even after that is all added in, I don't think that specific example will mathematically resemble any investment that's even remotely a good idea.

totoro

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Re: Vacation rentals i.e., ski condo
« Reply #10 on: July 05, 2012, 03:25:01 PM »
Hey, am I invisible?

My total investment in this property is $50,000 and I NET $6000/year.  This is after all operating and other expenses.  I have to pay income tax on this though (I'm not taking depreciation), which ends up being another $1200 off the total.  I get $400 a month in my pocket net without including principal paydown or appreciation (it has been appraised recently at $420 000) or the value I receive for my accommodation. 

Not all vacation rentals are the same.  Saying you will lose your shirt without stopping to do the math and relying on my example or, conversly, the ski lodge example, does not make sense.

By the way, my neighbour on my side of the street has three suites and she makes most of her income from summer rentals.  She travels in the winter and rents her house out while she is gone.

totoro

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Re: Vacation rentals i.e., ski condo
« Reply #11 on: July 05, 2012, 03:26:46 PM »
And Matt, that is the plan.  We are going to move to this town full-time once the kids are out of the house.  Our mortgage should be paid down by then.  We will still have income from the suite if we need it and can rent out by the week in the summer if we want to travel.

mechanic baird

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Re: Vacation rentals i.e., ski condo
« Reply #12 on: July 05, 2012, 04:39:17 PM »

I'm by no means arguing that it is a good investment - but ROI in this situation is not as simple as $4400 / $260,000

You say the family uses it 20% of the ski season and "heavily" during the during the summer/fall.  I would argue that this is not really an investment at all based on that.  Really - you need to be subtracting out the value your family receives from the condo from the $260,000.

That's a good point.  Thanks JG.

What would the lodging cost you if you didn't own it but took all those same vacations?

Similarly, assuming you take more vacations because you own it and have it available, what would the lodging be if you didn't have it and took the amount of vacations you would otherwise?

That's a very good point.. Before we helped to manage the condo, we didn't know either that ski condo got no business in summer and fall season.. the first a couple of years when the condo was "full on" as a rental, we made 15% more in non winter season (that's May through Nov). The winter season is a wash, if you rent it out, you gotta either drive on highway for 6 hours and getting all pissed, or suck it up and pay somebody else to stay in the mountain... If you add the "loss"money back, you are still better off buying a 2 bedroom in the city for $200K, rent out for $1750 a month and keep the rest in investment.. that's what I would do if I could touch the money..

fiveoh

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Re: Vacation rentals i.e., ski condo
« Reply #13 on: July 06, 2012, 08:40:15 AM »
I was considering doing this as well.  Looking at it more from a free vacation spot perspective instead of an income producing property.  As long as it made a little positive cash flow.  Insurance might kill me with beach property and the hurricanes around here though....

Secret Stache

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Re: Vacation rentals i.e., ski condo
« Reply #14 on: July 06, 2012, 09:34:49 AM »
Yeah thats what has steered me away from it.  The additional insurance in tropical areas, the higher HOA's, and in some cases higher property taxes (Hawaii for example).

arebelspy

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Re: Vacation rentals i.e., ski condo
« Reply #15 on: July 06, 2012, 10:34:00 AM »
I was considering doing this as well.  Looking at it more from a free vacation spot perspective instead of an income producing property.  As long as it made a little positive cash flow.  Insurance might kill me with beach property and the hurricanes around here though....

Sorry, but this statement seems absurd to me.  Even looking at it from a free vacation spot perspective, what if instead you put that money into a cash producing asset, and took the cash from that asset to pay for your vacation?  You'd still have the "free" vacation with the added bonus of being able to take that vacation anywhere (instead of the same spot year after year, though if you did want to go to that same spot you certainly could).  It'd leave you with extra money in your pocket, and an asset likely worth more.

Example: You have 300k.  We'll ignore mortgages for simplicity's sake.  You can buy a rental house that produces an 8% return (8-10% cap rate is fairly standard) or a vacation rental that is slightly cash flow positive and produces a 1% return (after all expenses, and keeping in mind the fact that you stay there some of the time, so that reduces the return since you aren't paying when you're there).

You make $24,000/yr in scenario 1.  You make $3,000 + free vacations in scenario 2.

To me arguing that scenario 2 is the better one because you are just "Looking at it more from a free vacation spot perspective instead of an income producing property" is ridiculous.  Take scenario one, and go pay for your vacation with all the money it's making you.
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fiveoh

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Re: Vacation rentals i.e., ski condo
« Reply #16 on: July 06, 2012, 10:48:39 AM »
I was considering doing this as well.  Looking at it more from a free vacation spot perspective instead of an income producing property.  As long as it made a little positive cash flow.  Insurance might kill me with beach property and the hurricanes around here though....

Sorry, but this statement seems absurd to me.  Even looking at it from a free vacation spot perspective, what if instead you put that money into a cash producing asset, and took the cash from that asset to pay for your vacation?  You'd still have the "free" vacation with the added bonus of being able to take that vacation anywhere (instead of the same spot year after year, though if you did want to go to that same spot you certainly could).  It'd leave you with extra money in your pocket, and an asset likely worth more.

Example: You have 300k.  We'll ignore mortgages for simplicity's sake.  You can buy a rental house that produces an 8% return (8-10% cap rate is fairly standard) or a vacation rental that is slightly cash flow positive and produces a 1% return (after all expenses, and keeping in mind the fact that you stay there some of the time, so that reduces the return since you aren't paying when you're there).

You make $24,000/yr in scenario 1.  You make $3,000 + free vacations in scenario 2.

To me arguing that scenario 2 is the better one because you are just "Looking at it more from a free vacation spot perspective instead of an income producing property" is ridiculous.  Take scenario one, and go pay for your vacation with all the money it's making you.

Very good point.  My wife and I were looking at it more from a home away from home perspective.  I.e. it would be nice to have a place to go to and be on vacation but still feel like home.  I guess we could probably get close to that by renting the same condo every year and as you point out it would save us a lot of $$$. 

I haven't really looked into the hard numbers for this and it was just an idea we'd thrown around.   

arebelspy

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Re: Vacation rentals i.e., ski condo
« Reply #17 on: July 06, 2012, 10:56:16 AM »
Very good point.  My wife and I were looking at it more from a home away from home perspective.  I.e. it would be nice to have a place to go to and be on vacation but still feel like home.  I guess we could probably get close to that by renting the same condo every year and as you point out it would save us a lot of $$$. 

I haven't really looked into the hard numbers for this and it was just an idea we'd thrown around.   

Right, and keep in mind that my numbers were just pulled out of... thin air.  For illustrative purposes.

In any case, it's always best to run the numbers than just assuming X is better than Y.  However, in general, I feel that purchasing assets that kick off money and paying for vacations with that money (and then having some leftover) almost always does work out mathematically superior to purchasing the vacation home.  (And other factors may be more relevant than the math.)

It's just something to consider when comparing the "free vacation" idea.
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mechanic baird

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Re: Vacation rentals i.e., ski condo
« Reply #18 on: July 06, 2012, 12:36:51 PM »
Very good point.  My wife and I were looking at it more from a home away from home perspective.  I.e. it would be nice to have a place to go to and be on vacation but still feel like home.  I guess we could probably get close to that by renting the same condo every year and as you point out it would save us a lot of $$$. 

I haven't really looked into the hard numbers for this and it was just an idea we'd thrown around.   

Right, and keep in mind that my numbers were just pulled out of... thin air.  For illustrative purposes.

In any case, it's always best to run the numbers than just assuming X is better than Y.  However, in general, I feel that purchasing assets that kick off money and paying for vacations with that money (and then having some leftover) almost always does work out mathematically superior to purchasing the vacation home.  (And other factors may be more relevant than the math.)

It's just something to consider when comparing the "free vacation" idea.

Also, don't overlook the psychological burden of owning a vacation rental. It's very stressful especially if you are a few hours away from it.
I just made $1000 from a small $36000 portfolio in only one month!  I will much rather use that money to pay for a vacation. Plus, I am not stuck with just one spot.

richschmidt

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Re: Vacation rentals i.e., ski condo
« Reply #19 on: July 07, 2012, 07:20:00 AM »
Hey, am I invisible?

Nope.  :) Thanks for sharing your example! Sounds like it's working out well for you!

totoro

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Re: Vacation rentals i.e., ski condo
« Reply #20 on: July 07, 2012, 11:21:48 AM »
Whoa - the cloak of invisibility has been penetrated! :)

To be balanced, we have a ski mountain 30 minutes from town and I ran the numbers for that and they are terrible.  Way better to just rent.  The problem is the long season of vacancy and the HOA fees. 

So, I would say that the beach rental works out way better in a town like mine where you get way high prices in the summer and there are students to take the rental furnished from Sept-June.  Pick the tenants carefully.  The fact that I am there one week a month works out perfect too.


arebelspy

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Re: Vacation rentals i.e., ski condo
« Reply #21 on: July 07, 2012, 06:48:38 PM »
Whoa - the cloak of invisibility has been penetrated! :)

Sorry, didn't mean to ignore you.

I think your example is much less common than the other way around.

Definitely, if you can make the numbers work.  It just doesn't make sense in most cases, IMO, and people don't look at all the factors, so they emotionally convince themselves that it does make sense (usually by overvaluing the vacation time they spend there).

But that is awesome that you were able to find that place, patient enough to wait for a good deal, and smart enough to jump on it when you found it.  Well done!
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totoro

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Re: Vacation rentals i.e., ski condo
« Reply #22 on: July 07, 2012, 07:29:54 PM »
Thanks.  Bit of luck with it.  Was a neighbour who mentioned it was for sale by owner at a party we were both at.  I left the party and bought it that night - even with a couple of glasses of wine under my belt.

I think a lot of good real estate investing is based on knowing your market really really well. I wouldn't feel as comfortable in an unfamiliar market.

And, I am just a beginner with other types of investing...  lots to learn here.

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Re: Vacation rentals i.e., ski condo
« Reply #23 on: October 12, 2012, 11:42:29 AM »
There are tax advantages to owning your preferred vacation spot vs. taking profit somewhere else and spending it on vacations.  It's not a slam dunk, but a consideration.

grantmeaname

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Re: Vacation rentals i.e., ski condo
« Reply #24 on: October 12, 2012, 12:01:22 PM »
That's more like a mitigating back-pat in a big old bucket of terrible choices than a significant mitigating factor, though.

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Re: Vacation rentals i.e., ski condo
« Reply #25 on: June 01, 2013, 04:29:35 PM »
Usually doesn't make financial sense but, as many have mentioned, each may have his own mitigating factors which tip the balance.  A couple which haven't been mentioned here include buying a place which one intends to retire into (purchased when working in order to secure mortgage approval), locking in a price at a dip in prices (potentially also locking tax assessment depending on location), locking in a rate below inflation on a property which will see rents inflate going forward.

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Re: Vacation rentals i.e., ski condo
« Reply #26 on: June 01, 2013, 05:22:46 PM »
But it's only clear whether it's a dip or the start of a plummet in hindsight, so you could also be doubling down on a bad choice by buying a battered asset whose price has further to plummet.

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Re: Vacation rentals i.e., ski condo
« Reply #27 on: June 01, 2013, 07:11:55 PM »
No direct experience, Presley, but I've though about it endlessly and have come to the following conclusion:  it's the worst real-estate investment you can make, period, as far as ROI is concerned.

That said, if you can arrange a group of investors with a similar desire to share in the cost/maintenance of the property, it could be a fun/cost effective method of vacationing year round.  With the obvious drawback being you're kind of locked into going on the same vacation year in year out.

You just described a timeshare.

And yes, I agree, not a great investment.  In general, vacation rentals aren't bought for investment purposes, but for leisure and entertainment purposes.

I've often thought the people investing in them should just invest in a more "solid" investment and use the proceeds to rent a vacation place.
No, what he is describing is a fractional.  Tons of people doing that to control 10-50 times more than they could control on their own.  Lots of them in Lake Tahoe, San Francisco, Honolulu.  They are very lucrative. In general a vacation rental can be a veritable gold mine.  Think about the supply and demand.

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Re: Vacation rentals i.e., ski condo
« Reply #28 on: June 03, 2013, 08:25:41 AM »
The trick for us is having dual seasons.  Lakefront for summer renting.  Skiing 10 miles away.  It grossed 45k last year.  And that's after blocking out a few weeks for family traditions.

But it's not for the faint heart.  Took 3 years to break into the business ... meaning, to develop a repeatable customer base and great referrals.  Those years were negative cashflow to the tune of 20k. 

Then there's 3-4 days wo power/heat a few times ... twice in the dead of winter.   Freeze alarm calling the house.  Hope you didn't have anything planned for the rest of the week ... get in the car.

totoro

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Re: Vacation rentals i.e., ski condo
« Reply #29 on: June 03, 2013, 08:59:52 AM »
We have only one high season: summer. There is a ski hill close by in the winter but only places on the mountain rent out at high rates.  In winter, one of our two suites is rented out at low monthly rates on a lease.

Our place nets $6000.00 per year and provides a completely free vacation home for us which we use one week a month.

AlexK

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Re: Vacation rentals i.e., ski condo
« Reply #30 on: June 03, 2013, 09:51:34 AM »
I stayed in a small house inside Yosemite NP and paid $350/night. It was our honeymoon so we splurged. I talked to the owner and she has about $180k into the place.  Those numbers sound great but good luck finding a house inside Yosemite for sale.

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Re: Vacation rentals i.e., ski condo
« Reply #31 on: June 03, 2013, 02:37:52 PM »

Not all vacation rentals are the same.  Saying you will lose your shirt without stopping to do the math and relying on my example or, conversly, the ski lodge example, does not make sense.


Fully agree.

A friend bought a vacation rental on the island of Kauai as an investment.  As such, he had to put 35% down and included some minor repairs.  He's all in for about $110k.

His net income, after including all management, cleaning, HOAs, vacancy, repairs, mortgage, etc, has been over $20k each year for a couple years.  So roughly 18% cash on cash return.  This doesn't include the benefits of mortgage paydown, tax benefits, or appreciation.

So - as with everything else - run the numbers, make sure you are realistic & conservative, and understand there's a difference of buying for personal use or investment.

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Re: Vacation rentals i.e., ski condo
« Reply #32 on: June 03, 2013, 02:45:10 PM »
Yeah thats what has steered me away from it.  The additional insurance in tropical areas, the higher HOA's, and in some cases higher property taxes (Hawaii for example).

Actually, property taxes are VERY low here.  Property taxes on a $750k house are around $2400/yr.