We purchased a vacation condo in a local resort area in 2006 (yep, right before the crash). My sister-in-law and her husband had one that they used and rented out and indicated that it was doing well. That gave me the idea to start looking around for one too. I wanted a place for our family to gather – adult children and grandchildren along with us. I also wanted a bit more diversification in our portfolio and figured an additional piece of real estate could help that.
I scouted nationwide, looking for a likely spot to buy – wanting an area that had enough attractions to rent well, was someplace we would enjoy, and which was close enough to home to make it accessible for weekend trips for all of us.
My daughter-in-law went with me (my first grandson in tow) to look over various properties and we found one we both preferred. It was lakeside, right across from a state park with a marina, plus we were promised a private dock slip (for an extra investment) on the grounds of the condo. The area was quiet and upscale, close to all kinds of attractions and shows in the Branson area. It was a brand new small development built on the site of a previous resort. The previous resort owner was going to function as a rental property manger on site and she had a loyal existing client base for rentals.
Never pay the full amount for something not yet built.
The new dock was not yet built. Yet we plunked down the huge $25,000 sale price to get a slip in it – not even requiring that the money be put into escrow. Stupid. As it turned out, the dock was never built, one of the development partners absconded with the money and we had to sue the remaining partners to get our investment back. Luckily we were able to do so, with interest and full payment of lawyer fees.
An accountant is required.
The tax code for second homes used as rental properties is incredibly complex here in the US. Although my spouse and I did our own taxes for more than 30 years, we found that with the rental property and recent tax changes here, it was almost impossible to keep up, so we use a tax accountant to calculate our income taxes. This doesn’t come cheap, but provides peace of mind.
The rental season is shorter than expected.
Before buying (being somewhat of a math nerd) I ran projections on likely scenarios on income and expenses. Unfortunately, I was over optimistic about how many days per year the condo would rent. Our rental season is pretty much limited to 2 weeks in June, all of July and 2 weeks in August – sometimes with a holiday or two thrown in. I was counting on an average of 4 months rentals. Needless to say, my projected profits never materialized.
Rental management companies may not distribute rental days evenly.
For the first few years, I used the on site manager to run the property rentals. She charged 38% of the gross rent plus $10 per renter for welcome guest supplies and she charged extra for light maintenance and other supplies (like light bulbs). This really took a bite out of our income. To top it off, she owned one of the units; and her brother owned another. Guess which ones always rented first? Hint: not mine.
Family members may not use it as much as anticipated.
At first, we all used the condo together each year, but after the first couple of years, the kids got busy and weren’t as interested in coming down for a get together with the old folks and each other. It is disappointing, but there isn’t much you can do to force family to enjoy a get together.
Extended family members expect free days.
After offering to let a nephew and his family use the condo once, I was frequently afterwards hit up (or hinted at) to allow use, free of charge, multiple times. I wouldn’t have minded if it was once or twice a year during the off season, but this person acted offended if I refused to give up high season rentals so they could stay free.
I don’t enjoy group ownership.
We are in an 18 unit condo association – rather small by most standards. The other owners and I very infrequently agree on upgrades needed. I found that they voted for expensive upgrades using special assessments every time over putting aside money in a reserve fund to pay for expected, routine future maintenance (like staining the exterior or putting on a new roof).
Check the government records.
We carefully inspected all sales agreements, condo documents and association documents to make sure we understood and could live with the contents. We did not, however, think to check the county records. The developer had convinced the neighbors to protest the building and gotten them to instigate a county document which they interpreted as saying that management should be ‘on site’.
Several owners weren’t happy with the ‘on site’ manager and wanted to do their own, or use another rental or property manager. The association board (replaced during the drama around this issue) confronted the county officials and got a different interpretation of the document.
I really can handle the rentals myself.
Because I was unhappy with being told I couldn’t rent it myself, because our unit wasn’t being given an equal number of rental days, because there is a tax break if you manage nightly rentals yourself and because I thought I could do a better job, I started renting our condo out myself.
Guess what? I do a better job. We get more money, more days rented, and fewer hassles with me renting it than we did when it was under management.
It is enjoyable having a vacation home.
No matter if my family doesn’t use it as much as I’d hoped; no matter that they won’t swim in the lake; no matter that my spouse would rather stay home; I’m still enjoying the condo with my two grandchildren each year. I also kind of enjoy dealing with the folks who rent it out and interacting with the other owners (even though I’d rather not be in partnership with them!).
The opportunity cost is huge.
We paid cash for our vacation rental. We bought it right before retiring. Although the operating costs are typically covered entirely each year, the opportunity cost of having all that money tied up in a property (which lost value the year after we bought it due to the recession) is huge. If you need the income from your assets, a vacation property is not the place to invest.
Do you have a vacation rental? What advice would you give?
These are all great things to keep in mind. We have thought about getting into the vacation rental business but it is a hard decision!