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Thinking of buying a condo - AirBNB question

1,989 Views | 14 Replies | Last: 18 days ago by Tex_Ag_2017
ReloadAg
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The wife and I are thinking of buying our first rental property soon somewhere on Mustang Island either near Port A or further south towards the Corpus part of the island. We'd primarily use it for personal use in the cooler months (not summer!) and AirBNB it out in the summer months. The wife hates the beach when it's blazing hot so that schedule should work out pretty well. We wouldn't plan on the income to cover the mortgage but rather just use it as icing on the cake.

What do I need to know about condos on the beach and AirBNB set up? We're very early in this thought process so probably 2 years out from actually buying something. Thanks.
GooseheadInsurance
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The insurance on the airbnb/ short-term rentals can be tricky. Make sure your carrier is cool with the short term lease situation.
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TX AG 88
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If you stay in it more than 14 nights a year, it's a second home, not a rental property according to the IRS. If I understand the tax implications of that, it means all rent is considered taxable income and you may not claim depreciation nor deductions for repairs.

I may be off a bit on that, but make sure you talk over the tax implications with someone and know what you're getting yourself into before you act.
MAS444
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How realistic is it that the IRS dings you for that (and tries to/can actually prove it)?
SteveBott
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Not a tax guy but second homes can expense interest and taxes as well.

OP you might move up your time line to this fall. There could be buying opportunities after this summer. Probably weak demand the next few months.
ReloadAg
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Yea you could be right.
Jay@AgsReward.com
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AG
Condo financing can be much different then a single family. Especially in the area you are looking as if they allow for short term rentals they will be classified as a "condo-tel". Condotels' are not eligible for conventional financing which means portfolio loans are the only options on a lot of properties. That would be mostly ARM's and larger down payment requirement. We do a lot of them but you just have to know the terms are different.
AgCPA95
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SteveBott said:

Not a tax guy but second homes can expense interest and taxes as well.

OP you might move up your time line to this fall. There could be buying opportunities after this summer. Probably weak demand the next few months.
I don't prepare individual tax for a living as my user-name might imply, but I believe if you rent for more than 14 days per year, you are going to to need to do some percentage application of use to see what you can expense as far as interest and tax. Just consult your tax person...or research IRS Publication 527 as it isn't rocket science but does require some record-keeping and calculations. Plenty of guidebooks also out there specific to this but make sure you are looking at info updated for 2020 as this has changed over the year..

SteveBott
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Makes sense. And 2020 changes are completely beyond me
hortonsc
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Hey, my wife and I bought a place (2nd home) in Port A (sunrise cottages in town) in January 2019, and it's worked out great so far. I agree with an earlier post that there may be some buying opportunities this fall given the current environment. We live in Denver so we only use it once, maybe twice/year. We did a little better then break even last year (including paying the mortgage, travel, and all expenses) and will still do ok this year despite the COVID shut down in March and April.

I recommend buying it as a 2nd home. You get better financing terms/rate and only have to put 20% down (versus 20-30% as an investment property depending on the lender. As a 2nd home, the only rule I'm aware of is that you can't rent it out to a single renter for 6 months or longer...don't think you have to occupy it yourself for 14 days...if you do, you can always have friend or family stay there for part of that time to meet that requirement.

We also decided to purchase a 4 BR home as you can cater more to families and get more rental income. It's worked out well so far and a 4 BR home in Port A is very affordable (at least compared to Denver). You can usually find one in the $350-$450k price range...especially this fall.

Other important considerations, is to find a good property management company, especially if you don't live relatively close. We use Silver Sands, and they are great. RE taxes and insurance is expensive. We pay about $10k annually on just RE Taxes and insurance, so budget for that, but we did gross just over $40k our first year. Operating expenses are another $10k- $15k/ year depending on use. Then you have the mortgage. Our home is booked about 75% in the summer months and 20-30% the rest of the year and we did find some winter Texans that rent it out from late December through March 1st which helps.

As for taxes, it's how the property does on a net basis, not gross, so just have a good accountant and keep track of expenses. You also get to include interest expense as a tax write-off.

Last piece of advice...have at least 3-4 months of operating plus debt service reserves funded in a reserve/savings account at all times do that you can cover your mortgage and expenses during downtimes...like this one. Feel free to reach out if you have any questions. I grew up in central Texas, graduated from A&M in 2001 and love Port A!

Good luck!
ReloadAg
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Very informative! Thanks. We'd be looking at a 2 bedroom 2 bath condo a couple of blocks off the water down on the Corpus end of the island. We stayed in a really nice property last weekend that had units for sale in there under $200k. We'd put at least 25% down and have plenty of operating cash set aside in addition to our normal household savings.
EclipseAg
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hortonsc said:


We also decided to purchase a 4 BR home as you can cater more to families and get more rental income.
I learned this the hard way with a two-bedroom beach house. You just can't charge enough with a smaller place, and the market is more limited, too.


Keeper of The Spirits
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Our goal is buy something in Port A in the fall as well. Hoping to find 4 bedroom but single family home, I've been watching the market for about two years
clobby
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https://www.zillow.com/homedetails/512-Sea-Shell-Dr-1-5-Port-Aransas-TX-78373/2081158896_zpid/
We can all get one!!
Tex_Ag_2017
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Yes. Insurance is tricky. I was only able to find one carrier who would actually insure it. Hopefully with more and more people doing this, it will go down in price and be more available. The company I went with was Proper.

My wife and I started doing airbnb this year with a home in the town we live in. I do not understand how people make it work without living nearby and still do alright with the expense to income. We clean and manage everything ourselves. It would definitely be hard to profit paying 10% to a management company and paying $200 for someone to clean after every stay, change the sheets, etc. I think if the condo place has a cleaning for cheap, it may work out well for you.
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