Experience with owning and renting out vacation homes?

[rnorwo1]

We would love to buy a vacation home in the mountains, possibly Western NC, so we could go several times a year at different times to enjoy summer, fall, and skiing in the winter. We do not have the cash for it, but if we found the right place within our budget ($2k/month max), we'd be able to afford the mortgage payments without a problem.

However, I would love to recoup much of the mortgage by renting it out and was just wondering if anyone else has a vacation home that they rent out and, if so, what have your experiences been like? I know that there will be vast differences in answers depending on location and amounts, and I'm not looking to necessarily make money (although that would be nice) but if the rent could pay for most of the mortgage, then we may seriously look into this. Specifically, is renting a vacation home more trouble than it's worth, even if we could keep it rented enough to justify buying it?

I also have a lot of research to do in terms of taxes, regulations, etc, but just wanted to know others' experiences first. TIA!

 

[eliza61]

a few things to consider.

1) you are still responsible for the mortgage even if you aren't able to rent it out.
2) people will and do trash your property. As many safe guards you put in place, there is an additional cost associated with replacing and repairing.
3) will you try to handle the property yourself or will you hire a managment company to do so. they can cost you up to 20-30% of your monthly rent.
4) It is a long term investment. If you buy today in t 10 years you must update to compete with "newer" properties.

 

[lastminutemom]

Will you want to use it the same time most people want to rent it? (ie school vacations?)

My in-laws own a vacation place they don't rent out and have discovered for what it costs them, they could simply vacation whereever they wanted for lots of weeks of the year. We had a rental until a few years ago and it was a lot of trouble. (And the most popular weeks for potential renters was exactly the time we wanted to go.)

My neighbors have a place in NC and with the exception of Fall, they struggle to rent it much of the year. Your mileage may vary, though.

You could have very high property taxes and there will be no homestead exemption and lots of vacation areas stick it to "investors" who don't live there year round.

Resale can be tough, especially if new stuff is built after you buy.

 

[rnorwo1]

Will you want to use it the same time most people want to rent it? (ie school vacations?)My in-laws own a vacation place they don't rent out and have discovered for what it costs them, they could simply vacation whereever they wanted for lots of weeks of the year. We had a rental until a few years ago and it was a lot of trouble. (And the most popular weeks for potential renters was exactly the time we wanted to go.)

My neighbors have a place in NC and with the exception of Fall, they struggle to rent it much of the year. Your mileage may vary, though.

You could have very high property taxes and there will be no homestead exemption and lots of vacation areas stick it to "investors" who don't live there year round.

Resale can be tough, especially if new stuff is built after you buy.

Good point. Summers would be flexible but we would occasionally want to go around Christmas and spring break, I would imagine. When our kids are grown I would see us using it a good part of the year to justify the cost, but our youngest is only 2 so that's awhile from now.

We would have to use someone to manage daily stuff since we're about 12 hours away, so I know that's another expense to consider, among many others. We don't know anyone who has done this, so I just didn't know if people trashing homes is the norm, or what other headaches may be involved. It seem like if it could be rented 50% of the time it may work, but sounds like that may be unlikely to happen?

 

[Miss Peach]

We own a vacation home. We bought it about fourteen years ago.

The first couple of years we rented it seasonally for nine months during the college school year. And used it ourselves for the three summer months.

After about six years of that, we started keeping it unrented year round and would use it for weekends, etc. in addition to the summer.

Then when the economy went all hinky we started renting it again. Sometimes annually, but this year our tenants will be leaving us in June, so we are listing it for weekly rentals for the summer. Then in the fall we will rent it annually again.

We do all our own repairs and list it on VRBO.com, a vacation rental site for owners.

The house is in a resort area that is about a half hour from Disneyland, so we never have trouble renting it. We also allow dogs, so that is a nice bonus for people that like to travel with their pets.

Some weekly tenants can be a real pain. NO olive pits down the garbage disposal seems to be a difficult concept for a lot of people, Sometimes the vacationers are so NICE and grateful for all our Disneyland tips.

Some are oddly filthy, but we hire a weekly maid service to come between tenants. I take the blankets home every week and wash them myself (we have two sets) just because communal blankets seem weird to me

That adds to the workload, but I need to treat people the way I would want to be treated.

Enough rambling...

Cathy

 

[Hoppy]

We've owned a beach vacation home for the past 7.5 years which we knew we would have to rent out when we weren't there (we live 1100 miles away).

First things first--what are your "goals?" Ours include having built-in family vacays while building equity in this little house. One day we hope to sell the little house and retire to a bigger house. Thankfully we have time on our side. The RE market skyrocketed then plunged. Neighbors are now selling their places for pre-2005 prices (some are taking BIG losses). If you are not prepared to lose money(and perhaps lots) do not buy.

If your goal is just to have a place to escape to a couple of times a year, you might be better off just being a renter. The carrying costs of ownership can be huge. Qualifying for a loan on a second home can be difficult these days. If you do qualify, I don't think you'll get the lowest interest rate (some banks charge a higher business loan rate if you are renting out).

Here are the costs you'll have no matter what: 1. loan pmt; 2. property tax (as these are not going down); 3. Insurance; 4. HOA/Poa dues (not every location will have these.); 5. Utilities; 6. Property manager and/or rental company; 7. Sales/accommodation taxes-you'll be responsible for remitting these to state and local entities; 8. Business licenses-state, county, local; 9. Advertising/marketing--you'll need to be listed on at least one rental site if you "rent by owner"; 10. Snow removal--This is a big expense in upstate NY and other snowy areas. Not sure about NC. 11. Start up costs--household supplies (paper and soap products), furnishings, etc. **When figuring estimates on expenses, make an educated "guess" then multiple by two.

Figure out when your market's high season is. For SC beaches it's June, July, and August. The assumption is if you can be fully rented those 12 weeks plus one extra week, you should be able to cover your mortgage (if your weekly rental rate = your monthly mort. pmt). But guess what? The summer is when my family wants to visit our beach cottage so this assumption does not work for us.

We used a rental company the first 18 months of business. I feel like I paid them money instead of them paying me. The final straw for the $80 I had to pay because some rental guest had broken a toilet seat.

I'm been renting on my own for the past 6 years. It is not for the faint of heart (I manage an apt. complex as my "paying" job). Keeping web listings up to date and responding quickly to inquiries is a must. Be sure to have backup plans in place. My washer broke. I had to arrange for my renters to use a neighbor's laundry. Another time, I paid to send the guests' laundry out.

Not to be a total Negative Nelly, I have had some incredible experiences. Guests who "raised" their firstborn on beach vacations are now bringing baby #2; exchanging holiday cards with my guests who are now more like family.

Bottom line--you will not become the next Donald Trump Plan for the worst (being able to pay ALL expenses out of your pocket if you do not have renters), and hope for the best (you'll make enough rental income to cover your mortgage expenses).

Good luck!

 

[rnorwo1]

Thanks for the info. Our goals are to have forced vacations in a place we love, with maybe us living in the house part of the year when we retire (20-25 years away ). I thought if we could get a good deal now and rent it out enough to cover most of our expenses, then we could basically own a home later for not much more than the costs of a few vacations each year, if we continued to be renters. I guess there's really no way to know which way it'll turn out. We can afford the payment and upkeep, but it would be at the expense of some of our other financial plans (ex, massive retirement fund, lol) if we weren't able to recoup some of the mortgage cost with renters.

So, lots to think about! Thanks so much for your experiences!

 

[lastminutemom]

I would be apprehensive about owning a home 12 hours away, unless you buy something in a planned community or condo perhaps.

Also, keep in mind that as your children age, they may have activities that consume their summers, etc and you will use it less and less.

Maintainence and wear and tear are ongoing costs.

Good luck with whatever you decide.

 

[Cheshire Figment]

If you are planning to rent it for 14 or more days during they year, I would strongly suggest you look at http://www.irs.gov/pub/irs-pdf/p527.pdf for information. It would be especially critical to read the section related to personal stays.

 

[chris1gill]

I would be apprehensive about owning a home 12 hours away, unless you buy something in a planned community or condo perhaps.

Also, keep in mind that as your children age, they may have activities that consume their summers, etc and you will use it less and less.

Maintainence and wear and tear are ongoing costs.

Good luck with whatever you decide.

I would agree with all of this. When your kids are older you WILL want to take other vacations with them or they will have activities that limit the amount of time they can go.

Since you will live so far away you will likely need a company to rent out and maintain the home. We had one and their charge was 40% of some ridiculously low rate, but in the resort we owned that was the only choice, or do it yourself also at a huge cost... HOA, Resort fee's, they all add up significantly (if these are applicable), then you add in the utilities, housekeeping, insurance, and so on.... the price gets high (again if this is just a house not in a development community or resort community). I'd say the upkeep, taxes and utilities without the big ticket items for us were around 8-10 grand a year... those are things you really don't think of when buying. The rentals you get will go towards current upkeep, nothing will go towards the mortgage.... your mileage may vary depending on where you are looking, but be forewarned. Not to mention when you stay it won't feel like vacation, it will feel like your home you have to fix XYZ in.... If you rent the property out more than 14 days per year you will have to report it, but in our case our expenses most years outweighed what we took in, with the exception of this year when we sold it. At the end of the day I'm glad I sold it, it's one more headache off my plate. I miss it, but it was one big headache.

 

[LovesTimone]

We have a friend that own a vaca home in NC, they bought it when their children were little. They got it at a really great price. My DH and I were thinking about buying a vaca home for ourselves, here is the advice that they gave us. You must be able to make the payment and taxes without it causing a hardship on your daily life.

They rented it out through a vacation home company, their percent is 15% of the rent, and they pay for maid service in between guest, or if the guest wants they can have daily maid service at an up charge. They have a strict policy they will not rent to families.... no kids allowed. They market their property for adults only, and they do allow small dogs. They target honeymooners, retiree's, and romantic getaways. They also do weekend rentals, even during the peak season. They have lots of return guest. The cabin is very nicely decorated, warm and cozy, and does have highend finishings. They have everything you need, and it is of very good quailty. The maid service does a inventory after very guest and if she see's something getting worn or not up to par, she gives them a call, for replacement. They do put alot of work into the home, they paint the inside and out every year, carpet is cleaned about every 3 months, They went to hardwood floors everywhere except the bedrooms, which that carpet get replaced yearly or so.

They made a plan and stuck to it, they paid the house off in 12 years. Now all that money goes toward retirement.

 

[sajetto]

We own a second home in North Myrtle Beach. However, if we felt like we had to rent, we wouldn't own one. We've had the experience of renting before and that is one headache I NEVER want to get involved in again. Not only are you constantly making repairs, touching up paint where luggage has banged the walls, etc but, also don't forget you're taxed on rental income. Look up IRS rules for renting over 14 days of the year. Additionally, if you're trying to buy this home with the intent of renting then it is considered investment property and your mortgage rate will be higher (investment property comes with a higher risk.) If you've got the money to purchase and carry the costs for your own personal use though, I say go for it.