Second home as an investment property - worth the stretch?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:We did it, and are very happy that we did - it worked out exactly as planned to get us a property we love in a place we love to go that we would otherwise not have been able to afford.

OP, it might make sense but realized that (1) renting it out on AirBnB and VRBO does take time and work to manage with renters, cleaners, etc. (2) You will not make quite as much as you think you will on AirBnB/VRBO, so be a bit conservative in your financial planning (3) Wear and tear is real, and you will have unexpected costs to keep everything nice - just like in your own home.

And I bet that after this post, (4) random anonymous people on DCUM will come and yell at me that it is not really a second home if I rent it out.

And they’d be right because it isn’t.

Phew. I was getting worried that something had happened to you, PP.

Sorry I recognize reality. If you are taking out a mortgage to purchase a property and then renting out that property to pay the mortgage and cover other expenses and hiding your personal stuff in locked closets when you’re not there it’s not a “second home” — you are investing. Plain and simple.

[Anonymous]

I wouldn’t do it. We have a ski house out west and it always needs something! We don’t rent it out and that would add a huge layer of complexity, plus you wouldn’t get it really use it at will. Plus the benefit of keeping the house ready to go kind of goes away.

I think you either do investment properties or buy a second house that you acknowledge will cost $, don’t try to combine. I would not stretch for either.

[Anonymous]

I’d also keep in mind that finding folks to for repairs in a resort area can be difficult and if not timely fixed, can destroy your reputation as a host (think broken HVAC on the day a vacationing family arrives). I have friends who stopped renting out their condo in Bethany after having one too many vacationers run the AC at full blast in the low 60s with the doors and windows open. The unit was promptly destroyed. Vacationers do not treat your property like renters who do not treat your property like owners. Finally, if it’s an older condo, getting insurance or being hit with a huge deferred maintenance assessment is a real risk these days. Managing all of this remotely and profitably can be quite challenging. FWIW, we do own an investment property and would’ve done better just putting the money in the stock market. It’s not worth the hassle or liability.

[Anonymous]

No, not if it is a stretch and/or you need to rent it.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Best advice we ever got was from a woman who lived in the Hawaii condo community we wanted to buy into in the 2000s. She said the HOA dues alone were $1000 a month (then). So that was $12,000 a year we could spend flying and renting a place there or staying in a hotel there.
Getting on the property ladder only makes sense to me if things will appreciate dramatically and paying for it isn't a scramble. You will be competing on price with all the other condos around.

This 1000%!!

Owning and renting it out means you have to plan your own trips 1year in advance (or go at non peak times where it won't be rented). Avoid the hassle and just rent when you want to go.

And also plan on doing a lot of cleaning and other maintenance while you're there because you will not be happy with the condition you find your home in.

[Anonymous]

Anonymous wrote:You need to research rules related to short term rentals in that area. You also need to hire someone to manage the property and the guest turnover and guest issues. Hosting or being a landlord isn’t for the faint of heart.

And the town can change their rental rules and taxes at any time. I would not do this.

[Anonymous]

Anonymous wrote:Best advice we ever got was from a woman who lived in the Hawaii condo community we wanted to buy into in the 2000s. She said the HOA dues alone were $1000 a month (then). So that was $12,000 a year we could spend flying and renting a place there or staying in a hotel there.
Getting on the property ladder only makes sense to me if things will appreciate dramatically and paying for it isn't a scramble. You will be competing on price with all the other condos around.

+1. Similar advice I got from a Canadian old couple some 20 years ago when we were vacationing in Aruba. We had just toured one of those apartment/townhome communities that were up for sale. This couple told us never to buy property where you don't live. They've done it, got burned, sold it all and now only invest in real estate close to home. Their advice was. if we really wanted to invest in real estate, to buy a property close to home for the same amount and use that cashflow to fund our vacations. Frees you up to go wherever you want..

One of our friends, an avid skier family, used to do colorado ski vacations religiously for years. They were considering buying property there (not sure which location) but ended up not. They recently discovered skiing in the Alps and in Japan, and are so glad they didn't buy property in CO.

[Anonymous]

Good god, nothing I can think of in my life has reduced my happiness as much as being a landlord (short-term and long-term). I stumbled into it, and I don't understand why people would voluntarily choose this.

[Anonymous]

i have 2 properties we STR and one we purchased in 2009 and the other late 2020. we’ve mad a fortune in both and it has been an incredible addition to a diversified portfolio. However the STR market is flooded and my mortgage is low enough to undercut my competition and still remain cash flow positive along with a mountain of equity. Don’t think i would invest in a STR unless i could afford the carrying costs in this market of high prices and high rates.

[Anonymous]

Anonymous wrote:For many years spouse and I have daydreamed about purchasing a condo in a popular resort town that we both love.

Purchasing this property would require us to keep it rented via VRBO as much as possible, but we’d spend a couple weeks there each year. We can cash flow what we don’t make in rental income but again, the idea would be to offset that as much as possible.

My question is, if you made the leap and purchased a second home with the idea of renting it out as a necessity when you’re not using it, do you regret it or was it worth the stress/risk? Did it end up being more trouble than it’s worth? Or are you glad you got on the property ladder in your favorite place on earth?

Financial planner friend says one of the big regrets his clients have is the second home purchase for beach/vacation. There is always something to do maintenance-wise when you're there, short term renters often do not treat the property with respect, and you feel obligated to return to the same place rather than vacationing elsewhere, or you don't spend as much time there as you anticipated due to life. However, you know you and your tolerance for people in your property and how often you want to be there, and not minding repairs, buying toilet paper, etc. when you're at the property. If it is your favorite place on earth and you'd be there whether or not you owned a property there, it may be worthwhile.

[Anonymous]

Anonymous wrote:You need to research rules related to short term rentals in that area. You also need to hire someone to manage the property and the guest turnover and guest issues. Hosting or being a landlord isn’t for the faint of heart.

+100

Speaking as someone who rents out a local condo in DC to a full-time renter.

You need a property management company AND still expect to have to make unexpected trips down respond to the management company on repairs, guest issues, etc.

[Anonymous]

We have had a great experience and it allows you to have the mortgage paid for but you need to block out Airbnb dates your family wants to use it.

[Anonymous]

Anonymous wrote:There are risks. My dad had a place in Whistler - premium at the time he bought it, but then with global warming it stopped being ski-in ski-out very often, plus they built a lot more upscale places, so the rental return fell quite a bit. In the end he sold barely breaking even. Just be aware that as with every investment the value can ho down as well as up.

What location at whistler used to be true ski in/out and no longer is?

[Anonymous]

we have one, but we use it one month a year and close it one month a year for a refresh. House has tripled in value and after all expenses we net 42k/yr, which we have invested in the market ins. taxable account.

we are planning on a 1031 exchange in 5 years when our youngest graduates college for a true retirement home that will have no mortgage, allowing us to pocket all the profits from our primary home when we sell.

it’s been an excellent investment.

[Anonymous]

Anonymous wrote:we have one, but we use it one month a year and close it one month a year for a refresh. House has tripled in value and after all expenses we net 42k/yr, which we have invested in the market ins. taxable account.

we are planning on a 1031 exchange in 5 years when our youngest graduates college for a true retirement home that will have no mortgage, allowing us to pocket all the profits from our primary home when we sell.

it’s been an excellent investment.

Except you apparently have been using the property personally for more than 10 percent of the time that it’s been rented, which complicates making a 1031 exchange, and you also cannot move into your “true retirement home” under a 1031 exchange until you’ve rented it out for at least 2 years first. Not as straightforward as you think.