Second home as an investment property - worth the stretch?

[Anonymous]

Anonymous wrote:Ours has doubled in value in 5 years! We love it, rent it during peak season and use it ourselves before and after peak season. Plan to stop renting it in an other year. Will spend a lot of time there when retired. It’s been a very good investment and dream come true

+1 to 1st 2 sentences. We plan on continuing to rent it for at least another 8 years and then will see. The rent pretty much pays for the mortgage and maintenance fees. The place will be paid off in 3 years and then lots of passive income.

We own other properties that are purely rentals that we don’t use and they do well but none had gone up in equity as fast.

[Anonymous]

Anonymous wrote:

Anonymous wrote:It depends on part on what kind of community/resort this is, and who the normal clientele would be. In this economic climate, I would not buy a place hoping to rent it primarily to the kind of normal, stable, GS15/SES types of live in the DC area. Those folks are not going to be splurging on vacation rentals in the immediate term.

It’s a ski resort in Colorado. Easy access to Denver. But we are in DC.

It would be marketed as a luxury condo and we have the money to make it look upscale. But it’s small, 2 beds 2 baths, just large enough for a couple and their two kids. Or two couples no kids.

We have exactly this and it’s worked out well. We use it about 60 days a year. I love that the experience is very different in the summer, winter and fall. Our place is about a million and we do not cash flow unfortunately but we use it prime time. If you don’t have kids and don’t need to follow the school calendar you’ll be in a much better place. We rent pretty solidly from Jan to March and June to October, almost fully booked. We use it over xmas and the entire month of July. lt helps with the mortgage.

[Anonymous]

Usually only makes sense if you are doing the turnovers (cleaning, beds, etc) yourself. That way you can write off expenses including depreciation and mortgage costs as small business deductions. If not you are taking more of a risk focusing on profit from appreciation which can be very unreliable with condos.

[Anonymous]

Anonymous wrote:Sounds like a very poor return on your time and effort. And one problem tenant can wreck up the place and cost you all your profits.

+1000

[Anonymous]

Anonymous wrote: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.

This 1000%

Renters will treat your place like crap, even at expensive higher end places it happens a lot.


Maintenance will cost a lot

[Anonymous]

Anonymous wrote:

Anonymous wrote:Ours has doubled in value in 5 years! We love it, rent it during peak season and use it ourselves before and after peak season. Plan to stop renting it in an other year. Will spend a lot of time there when retired. It’s been a very good investment and dream come true

+1 to 1st 2 sentences. We plan on continuing to rent it for at least another 8 years and then will see. The rent pretty much pays for the mortgage and maintenance fees. The place will be paid off in 3 years and then lots of passive income.

We own other properties that are purely rentals that we don’t use and they do well but none had gone up in equity as fast.

These situations described here where value doubles or triples because you bought many years ago and/or got lucky with location isn’t likely to happen anymore. The market is at the top everywhere, there is nowhere to go up in terms of prices. It would have to be a truly unique situation to buy something at today’s prices with today’s rates and make huge profit in 10 years or so. I wouldn’t count on this in OP’s situation having to buy now. Also relying on rental income will be stressful with today’s home ownership costs unless OP has cash. If having to finance most of it, OP would also compete with those who bought long ago and can afford to charge lower rent to stay occupied. All parts of the equation to keep in mind

[Anonymous]

Second home ownership today may not be a good investment IMHO if you have to stretch. It’s great only for people with a lot of cash who do not need to rely on rental income to cover costs. And vacation home ownership is always amazing for people with enough wealth to hire staff to manage their homes (including primary home). For middle class even primary home ownership can often be a burden in terms of maintenance.

I would only consider it if you can buy something cheap and make it amazing and market it (you have to be handy/creative/hardworking or resourceful) do extensive research on new up and coming areas that aren’t already too expensive. It’s not a lazy way to own your dream second home for sure. It might be easier for you to focus on maximizing your wealth in other ways, and then buying what you want outright with cash.

[Anonymous]

Anonymous wrote:

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.

+1. Recently I was looking at Airbnbs in an area near my brother that happens to be popular in the summer. The town had strict rental restrictions on the number of people allowed to sleep in the house and that really limited options since we wanted flexibility for cousin sleepovers, etc. We ended up just booking nice hotel rooms for much less money.

[Anonymous]

I think there still room for significant increases where we are. When interest rates drop, there will be a big bounce

[Anonymous]

It doesn't seem worth it unless you have more money than you know what to do with. There is a hassle free solution to everything you want to get out of it. 1) you can make better investment returns in the stock market. 2) you can rent a nice place any time, anywhere for a fraction of your costs to own this place.

It seems the only reasons to buy a vacation home are sentimental reasons or you plan to go there so frequently that renting a place stops making sense, and so does renting it out.

[Anonymous]

I wouldn’t do it as a stretch. Or as an investment. We purchased a vacation home in our dream location and rent it during peak season to help defray the cost. But I do not expect to be net positive from that. For us, it’s a long term plan bc we do plan to eventually spend much of our time there. I also expect prices to continue to rise and found a good opportunity. I think in the long term it likely will prove to be a good investment. However, we can afford to not rent it out if needed.

[Anonymous]

I would not do it right now. The resort market is slowing down, and those areas tend to have massive swings in value.

I would wait and save, and buy when the market dips.

[Anonymous]

Anonymous wrote:I wouldn’t do it as a stretch. Or as an investment. We purchased a vacation home in our dream location and rent it during peak season to help defray the cost. But I do not expect to be net positive from that. For us, it’s a long term plan bc we do plan to eventually spend much of our time there. I also expect prices to continue to rise and found a good opportunity. I think in the long term it likely will prove to be a good investment. However, we can afford to not rent it out if needed.

PP here, also want to add, we considered doing this a few years before we actually pulled the trigger, but had we done it then, we would have definitely had to rent it out and it would have been a lot of pressure and financial stress. We are glad we waited and purchased when we were in a better financial situation to do so

[Anonymous]

DW keeps nagging me about buying a second property. We come from a country where everyone owns multiple properties and in her mind, we are 'poor' because we don't. I know I'll end up being the bag holder in terms of dealing with all the nonsense around home ownership (as I am now for the primary residence). Much easier and simpler to just own your primary residence and rent wherever you need, whenever you need.