My parents have one they strictly rent out, used to have a second in the same complex. They bought both via foreclosure and did rehab themselves. They also manage the property themselves and list on vrbo and similar.

Otherwise it is barely a break even proposition.

New braunfels. They make money because they paid cash and did the rehab without a loan. They make money because they do the cleaning between tenants. They lose money with dues and assessments. In total they've made money but through a lot of work and baby sitting the property.

I think it would be cool if a group of us formed an LLC and bought a couple. Anyone in?

Talon2DSO said:

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I think it would be cool if a group of us formed an LLC and bought a couple. Anyone in?

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Is this an online solicitation for a security?

If by security, you're referring to making sure the lanai is locked before we drunkenly crash for the night...then yes.

Talon2DSO said:

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If by security, you're referring to making sure the lanai is locked before we drunkenly crash for the night...then yes.

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Doesn't paying cash up front make the returns much lower? I thought leverage was the main way to make money on rentals.

Ragoo said:

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My parents have one they strictly rent out, used to have a second in the same complex. They bought both via foreclosure and did rehab themselves. They also manage the property themselves and list on vrbo and similar.

Otherwise it is barely a break even proposition.

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My aunt/uncle owned a couple condos in Vail. For years, they profited largely as it rented most of the year for good money. It paid it's own mortgage, plus the mortgage of the second one they owned and used ~30-40 weekends a year.

But, one year, the association made it to where they would no longer allow VRBO or any type of personal listings, and that all rental must go through the association, and alas, pay 35%. This made it unprofitable/break even. They ended up upgrading it and selling. The profit on the sale paid off the mortgage to the one they still own, so they still made out really well.

We are considering buying a condo in Breckenridge, where we also have a time share at a ski in/skit out resort. We would rent it the bulk of the year, but I will make sure that I am allowed to personally list it, and not be required to go through the association. With our benefits of day use at our timeshare (park in the heated garage, use the ski lockers/pools, ski in/out, etc), it would make for easy skiing.

We have some friends that just sold a condo in Destin after owning for 5 years. All in, it worked out to almost exactly break-even after 5 years. That includes purchase price, all cost of ownership (including a kitchen remodel) and management fees, rental income, and then the sales price. And from a purchase vs. sales price, it saw some nice appreciation in that 5 year span. That sale price is what really brought it back to break-even, because just owning it was a loser.

In the end, the net monetary "gain" was $$$ they didn't have to spend on housing when they vacationed there. If I recall, I think they calculated that to be around $60-70k of value over the course of that time frame.

To the points above, I think it's a tough way to make any $$$ unless you are close enough for DIY management. And even then it can be a grind.

The grind on DIY is the tough part. If you are turning the unit over every 3-4 days or less you are basically tied down. My parents sub it out if they want to go out of town but they mostly travel in the fall and spring when winter Texans are in the unit.

My wife and I own three in Destin. Primarily my wife's project. So far doing pretty well--rentals are paying mortgage/maintenance/upgrades with a little positive net flow. Plus we use them several weeks a year between ourselves and family. My concern is that a downturn in the economy could decrease rentals enough to not cover mortgages, forcing a sale in a down market.

So how does one buy a rental property? I've never done this before but wouldn't mind a crash course.

My parents own a condo in Destin, they bought it around '97 i think.

They rent it out still to pay their dues for the beach but they block off a good portion of July so we can use it and we can go in the winter as well.

The biggest problem has been storm damage. Their condo is on the fifth floor and is located on the beach so the view is nice but when the beach is destroyed by storms each owner must contribute a certain amount of money to have the beach rebuilt.

It is pretty much the same as buying another property. Typically you have to put a little more down and get a slightly higher rate than a primary residence but the process and everything is very much the same.

Talon2DSO said:

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So how does one buy a rental property? I've never done this before but wouldn't mind a crash course.

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Get cash
Buy Rental property
???
Profit

I've been poor most of my life. Finally got to where I'm paying sizeable chunks of student loans down. This seems like something I should wait a few more years before getting into it

I wonder if the new tax bill's elimination of second mortgage interest deduction will have a material effect on vacation home prices? Many are bought with cash, but I have to assume most are financed.

My experience with vacation rentals is that it can be very tough to break even, let alone make money (I've owned a beach house in Galveston for about eight years).

Taxes, insurance, maintenance, etc., all wind up costing more than you anticipate. Plus, the more you rent, the more wear and tear you have (and the less you are able to use it or allow family to use it). People tear the hell out of things. I have lots of war stories.

Obviously location can make a difference in rental income. We chose Galveston so that we could get there easily and use it often. But that's a really competitive market and rental rates have fallen over the past five years. There are so many rental options out there now -- AirBnB, VRBO, Vacasa, and local players, too.

One thing to consider: Make sure you buy a place that's large enough to command a decent rental rate, i.e. three or preferably four bedrooms. People often travel with friends and family and they want a place that can sleep 10-16 people comfortably.

Got one house in Galveston 2 years ago. Making about 25-30% ROI but it's work. Plus it pays the mortgage and we get a place to visit.

Got a second house in Port Aransas... never spent time there, but bought it as a way to diversify location. Port Aransas seems to have a cult following compared to Galveston. Unfortunately we got hit by Harvey the month after we bought it. We got lots of summer bookings last year and this year is already lining up. I believe it's going to be a winner as well with 25% ROI or more.

Both will be great ROI. We take our own bookings on both but outsource most maintenance and all cleaning.

And we are upgrading along the way so increased value in addition to the above... upgrades and time to appreciate.

I will say the first year ROI wasn't really there because we did tons of upgrades on Galveston and Port Aransas is off the market getting remodeled after damages.

We have one in Port A, or had one until Harvey, now its just a shell until we can get it rebuilt.

Vacation Condo's are not cash-flowing assets in the same sense as a rental house. The main difference is that you are renting by the night instead of month/year.

During the school year, you are lucky to get it rented on the weekends. While it stays full during the high season, the rest of the year is hit or miss. The maintenance costs are higher given the people moving in/out all the time, plus you now have to keep up furniture and furnishings, unlike SF/MF rental. People are slobs in Hotels, more so than at home, so they don't take care of your stuff, and often things disappear... Plus you are paying the utility bills yourself

Association Fees and Property Tax can eat you alive, not to mention special assessments. This also has to do with the age/type of building. Ours is a high-rise built in the 80's, so its showing its age. Condo boards are usually run by people who have no business managing a building, and so they do stupid things like spend $500,000 on unnecessary repairs that if you owned the whole thing you wouldn't do, but since the board voted for it, now you have to pay it.

Also, remember, that your time to make money is the high-season dates, which is usually when you want to use it, but you cant because you need the rental cash flow.

Ours basically breaks even each year, which is good enough because it pays for itself and allows us to use it. Ours is paid for, but if we had a mortgage it wouldn't be covering that.

If we used the VRBO method, we could probably do better, but we don't wan the headache of figuring out how to turn it over and repair things from a long distance.

IRS rules permit you to stay in your rental property for a maximum of 14 days per year to treat it as a rental.

If you stay more than that, it becomes a vacation home, and all the rent paid to you is straight income, plus you can't write off any expenses or depreciation. The good news is that time spent in the property "doing repairs" does not count against the 14 days.

Not sure how they know where you spend your nights, but that rule is a factor to consider.