Vacation (or other) Rental property out of state

Terry M - 3CK (Chicago)

Terry M - 3CK (Chicago)

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Nov 19, 2006
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853
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NE Illinois
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Terry
This was originally a note to @Mahneuvers but I was blocked from actually sending it. Then I figured, with all the personal jet, Pilatus, Cirrus, Turbo A36
and other high value flyers here, maybe ask the successful brain trust of POA.

Is a vacation rental in an area like Destin, 30a, Sarasota or HHI etc. a good idea if you are out of state?

Many near me have advised, if you aren’t handy and don’t have the time/desire to become handy, don’t invest in real estate.

With my job, I couldn’t really do much mx on an in state regular tenant rental, and out of state . . . Fuhgataboutit.

Once you hire a mgt firm, cleaning folks and pay to replace broken/stolen stuff, fix the washer/dryer, clogged toilets etc. Does it make sense?

Anyone finance these or pay cash?

I like the idea of owning something tangible, vs mutual funds etc. What have people experienced in the real world.
 
Terry M - 3CK (Chicago) said:
This was originally a note to @Mahneuvers but I was blocked from actually sending it. ....
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I actually forgot to mention this to him but I think you can't send him a DM because he has his profile locked. that's the only thing I can come up with, as the only people I can't DM are peeps who have their profile locked.
 
Our rental experience is with residential condos, and all of them within easy-drive of our home in Phoenix.

The first years, I was Captain Ambitious and did all the maintenance that I could - from furnace filters to faucets and more. As I crossed age 50, I decided that this was crap, and hired a property manager. She cost us "nothing" - as she got more in rent for the condos than my wife and I were negotiating, and the difference our PM got for us was more than the monthly fee.

I've never owned an out-of-town rental. We do own two beachhouses in Mexico, but those are our personal residences, and we don't rent them out - at all.
 
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Terry M - 3CK (Chicago) said:
@eman1200 so it wasn’t specifically me that was blocked? I figured I posted something stupid or offensive somewhere along the way and was blocked.
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Nah I don’t think so. I tried to DM him last week and same thing so i checked his profile and it’s locked. But then again all of my DM’s are likely to contain a d*kpic so maybe it did get flagged.
 
I asked to have my profile locked b/c @eman1200 kept sending d*kpics. I actually didn't know. I'll reach out to the admins.

@Terry M - 3CK (Chicago) , that's kind of a gigantic question :) Seriously, there are quite a few considerations and subjective tolerances which make it a very personal decision. If your objective is exposure to real estate, there are a REITs etc. which get you that w/o the hassle while maintaining liquidity. I decided to buy b/c (1) at the time, I lived a lot closer to the property and could escape to it for long weekends when it wasn't rented. (2) I wanted diversification. I've owned my property for 21 years now. If/how much you finance depends on where you want to be from a cash flow perspective, although, in the current market, all cash offers are winning the bidding wars. I would have been better off financially investing the $ in a S&P 500 index fund. The vast majority of people treat the unit with respect, but, as w/ any rental, it absorbs a good amount of wear and tear. We've had some things stolen from the property some with sentimental value which is disappointing. I've only had a couple tenants from hell. The most notable was last year when a renter drove to the owner's gate, got frustrated he couldn't enter, and summarily destroyed the gate causing me to write a 5K check. I instructed the sheriff to not act on his arrest warrant while he sticks to a repayment plan. Maintenance etc. hasn't been an issue despite the distance b/c I've always had a management company, but, that comes at the cost of 25% of revenues. I know many people who live close enough to manage and maintain their own properties which significantly impacts the financials. There are benefits you cannot quantify financially. My most favorite childhood memories come from the week my parents took our family to the outer banks. I'm sure part of my motivation was recreating that experience for my children. I think it worked as they all refer to our condo as their "happy place". I've always wanted to retire with two properties so I can run away from the heat in summer and to it in the winter. I viewed this property as setting the stage for that.
 
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Two other tidbits: (1) I saw my rental income jump 20% when I moved to a key-less door entry system. I believe the management company was renting the property under the table/off the books. A management company you can trust is very important. (2) The revenue greatly outstrips costs these days so, ironically, I look for ways to offset revenue. One way is by deducting the costs of my flights to the property for annual meetings or improvements that require my physical presence. So, it's now helping fund my flying habit :)
 
Really depends on your job, if any. I did 99% of the renovation/maintenance at our 2nd home but it didn’t interfere with work (we did telework 20+ years ago)

issues with neighbors over renters might be a big deal -lots of parties far in excess of what a 3br/2 bath can support

remote monitoring is extremely useful- no power in winter is a huge problem where our house was
 
There is nothing about vacation in owning a vacation home. then when you rent it out that multiplies. They can turn amazing revenue, but at a large cost in time, hassle, and stress. Many areas are putting in restrictions on STR's, and insurance can be very marginal if at all. Normal landlord rental insurance doesn't apply. There are so many issues with STR's being in areas that are not appropriate for motels. So the push back by local residences is gaining momentum. Local communities are passing laws to regulate them. We have used them and I often find things like smoke alarms disconnected, and fire extinguisher's flat etc. Things that consumer protection laws would not allow at a licensed motel. Local tradesmen add a big percentage to their bills when they find you are in the STR business. And not being able to watch what they are doing is a real problem. So do your homework. Lots to consider. They can be a great investment in an appropriate neighborhood, and a real nightmare elsewhere.
 
I’m not interested with buying into FL, especially now. If I want to go, a rental is good enough.

I’m kinda thinking can be easier off the water a ways, cheaper.
 
Morgan3820 said:
I think you should buy while the market is at a peak. And as gas continues to climb I’m sure people will travel even more. And don’t forget to finance the purchase. And take out a HELOC for the down payment.
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My wife sometimes complains of my sarcasm. I've told her I'm an amateur compared to those on this board :)
 
Mahneuvers said:
My wife sometimes complains of my sarcasm. I've told her I'm an amateur compared to those on this board :)
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Its a gift. And it must be genetic, because my daughter has the gift as well, But she is still in training. As she gets older the world will hone her skills. The student will become the master
 
Oldmanb777 said:
There is nothing about vacation in owning a vacation home. then when you rent it out that multiplies. They can turn amazing revenue, but at a large cost in time, hassle, and stress. Many areas are putting in restrictions on STR's, and insurance can be very marginal if at all. Normal landlord rental insurance doesn't apply. There are so many issues with STR's being in areas that are not appropriate for motels. So the push back by local residences is gaining momentum. Local communities are passing laws to regulate them. We have used them and I often find things like smoke alarms disconnected, and fire extinguisher's flat etc. Things that consumer protection laws would not allow at a licensed motel. Local tradesmen add a big percentage to their bills when they find you are in the STR business. And not being able to watch what they are doing is a real problem. So do your homework. Lots to consider. They can be a great investment in an appropriate neighborhood, and a real nightmare elsewhere.
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Oldmanb777 nailed this one. Before I'd buy another STR, I'd do a lot research on the local climate towards them. One town in CO reduced the maximum number of STR licenses they will allow by 20%. Anyone with a license can keep it, but if you buy a property with the intent of renting it, you'll have to wait until 20% of the licenses are given up before you'll get one (even if the property's previous owner has one). Other jurisdictions have implemented rules that basically force you to use a management company. That might be OK with you, but you need to research all of this the before jumping in.
 
eman1200 said:
Nah I don’t think so. I tried to DM him last week and same thing so i checked his profile and it’s locked. But then again all of my DM’s are likely to contain a d*kpic so maybe it did get flagged.
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He must have it locked, it certainly wasn’t because the file size was too large. :)
 
STR's can be really hard on a community in many ways. Everything from making worker housing impossible, to bringing in lots of additional issues for law enforcement to deal with. One of the communities near us is offering to subsidize your rental if you are willing to make it a long term rental instead of STR. Many communities are grappling with the issues. When Politian's are asked to grapple with problems, you know its gonna get messed up even more. The issues run from corporate STR companies taking over residential neighborhoods, to who know whos coming and going in you neighborhood, To the lack of respect from "guests" for the neighborhood. Most are fine, but it only takes a few. The list goes on and on. Consequentially they are forcing regulation. The explosive growth of the business probably is causing a lot of the push back. Make sure you are insured for your business. Most home insurance doesn't cover STR's, or their activities. The last one I looked at wanted a $1 million umbrella, specifically covering the STR activity, written by a differant company before they would insure the property. I think the insurance industry has been slow to get into business of covering STR's . We had to put in place a moratorium on new owners for a 3 yr period. So basically, as a new owner you cannot STR your property for 3 yrs after purchase. then you will need a permit, and have a representative available within 1 hr 24-7 while its being rented. The county requires similar now, and has the right to inspect (they never do) the property for safety and such. Similar to a real licensed motel. So lots to consider. Too bad it has to be that way. But when people get abused, rules get put in place to avoid that abuse.
 
Hi there! Investing in a vacation rental in areas like Destin, 30a, Sarasota or HHI can be a great idea, but keep in mind the extra effort of managing it from a distance. These areas are known for their beautiful beaches and abundance of tourist activities, which can make them a great spot for a vacation rental. Hiring a property management company or investing in a nearby property can help. Also, researching the vacation rental market and talking to local experts before buying Property for sale Quinta do Lago is recommended. Good luck!
 
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If they were highly profitable, Goldman Sachs would own all of them and the government would make it illegal.

A number of neighbors and acquaintances own beach houses in the outer banks and SC. Also a few lake house owners around me. As this is something I thought about doing, I picked their briains over the years . According to the owners, all have been somewhat profitable but particularly the units on the beach also have their down years. Nothing is tougher on a house than renters and the ocean. Hurricanes filling the pool with sand, unplanned condo roof replacements, air conditioners that last two years, window replacements, re-decking the walkway to the beach at mindboggling cost due to permitting etc. will take a bite out of that profit. There will be beach house owners who 'never' have any of these expenses, those people also drive Audis that never had a 'check engine light'.

For those who self manage, it's a second job. If you have a low stress day job and want something else you have to pay attention to, that may be a good thing.

Two of my neighbors stopped renting their respective places as they got close to retirement. That is when it truly becomes 'your vacation home' with your personal furniture, your books on the shelf, your grandkids toys strewn about and none of the renter related hassles. They could afford to do that because decades of renters had paid off the mortgage and now they are in a financial position to just eat the taxes, maintenance and association fees for the luxury of having a second home.

I should also say that my dad's brother ran a vacation rental management company for about 20 years. From staying with him during the season I had a chance to see the business from that side. The economy of these vacation towns relies on two sources of revenue: vacationers and vacation home investors. The vacationers make you money for three months, the investors make you money year around ;-)
 
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I didn't realize this was a necothread until I went to like posts and saw I already had. It's still funny.

Hindsight being 20/20, this caused me to reflect on the condo we've been going to in Florida for 7 or 8 years now. 4-5 years ago, we got fairly serious about buying one. The math worked; having the company we rented from manage it, we'd see a small return with proportionally minimal effort. Ultimately we decided we needed our money working a bit harder and we'd hold off. Over the next couple years prices doubled and we were kicking ourselves. A few months ago Ian ripped the roofs of all the buildings (these are two story wooden structures on pilings) and they are going to have to be stripped and rebuilt from the studs in. I THINK the association and its insurance is robust enough to survive, but I'm quite thankful to not have to deal with it, and I wonder what the insurance is going to cost them going forward.

Might be the time to buy as I suspect there will be some very distressed owners after not receiving rental income for a couple years. Couple that with a lousy economy and sky rocketing interest rates. I just wish it was closer to the airport.
 
I have had investment properties previously, and my younger brother is a real estate agent.
Short version, if you really know what you're doing and know the location, it might be possible to make a profit on a rental investment.
Longer version, it depends. Management companies typically take 9-10 percent of the monthly rent, in addition depending on the market you give up between a half month to two months rent each time you change tenants in commissions, let alone the down time of the property off the market. The STR is much more susceptible to economic conditions. So when the economy is good, you can do well, and the inverse holds. Long term rentals generally have less stress, but you make less in the peak years and more in the down years. Long term tenants who care about the property are the key to really making money in a long term rental from a cash flow perspective.
When you consider financing (or the cost of money if using cash), you are really betting on the long term trends of the value of the property; and should consider the cash flow as a way to cover the investment costs.

Tim
 
My wife and I have spent 5 years remodeling our current house and plan to sell it this summer. It's a lake house and should still sell in this environment.

We have spent the last year researching what to do next. We will have a bit of money that we will need to 1031 and have looked at investing in STR in locations we like to travel to. Warm places in the winter and cool places in the summer.

I'm still not convinced we just wouldn't be better off buying something and not renting it out. So many horror stories about people tearing up places and management companies ripping off site owners off.
 
This is a really interesting thread to me, as I have recently started researching again how to make real estate work for me. Specifically, I want to create additional income sources aside from my long hours day job. I also want to move back closer to my parents on the other side of the country, for a while, and was trying to figure out how to get the value of my current home to afford me a smaller place there. Then having 2 places to rent one out and live in the other depending on where I wanted to be geographically in any given year. Hopefully scale this approach to several properties.

I bought my house in Phoenix 6 years ago so the amount owed on the mortgage is 50% the value of the house (slightly variable).
I've considered STR, but there is much maintenance involved as explained in above replies. I've heard of Nurse rentals, which with a 3bd/2bth could theoretically get me 3 nurses living here, and 3 rental agreements per this house. But furnishing the place and other upgrades I want to make before having it rent ready, would be a small investment, and time to coordinate.

Anyway, I'm rambling, but I'm realizing I should be making my asset work for me rather than living here until the coffin stage. I want to be in other locations, and use the value of what I already have. I've read and watched a bunch on BiggerPockets website, podcast, and vids. Its motivating, but the math makes me skittish and I always second guess if things will actually work out.
One day I'll take the plunge and hopefully make a couple bucks steady income from it.
 
We have a vacation rental. A big 3 bedroom condo in a very popular resort area. Lessons learned. Association fees escalate. Taxes are high. Maintenance is always surprising. Guests are very hard on appliances. Our electric bill is the pet peeve. Why do people go the a beach resort, set the AC in the 60s, and then leave for the day? By the time we pay the rental agency fees and other expenses we usually break even. The good news is the property continues to increase in value so while in income statement isn’t great, the asset value is is. Personally I think commercial real estate is a better investment.
 
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Marc B said:
I've heard of Nurse rentals, which with a 3bd/2bth could theoretically get me 3 nurses living here, and 3 rental agreements per this house. But furnishing the place and other upgrades I want to make before having it rent ready, would be a small investment, and time to coordinate.

.
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Covid money is drying up and hospitals are moving away from the traveling nurse concept as the cost is so high, and the fed government isn't reimbursing them for the extra. Be careful using this model as a long term business plan.
 
The model isn’t limited to nurses, but you cannot just focus on one method to get revenue. You need a variety of them. They do exist. Know your market.

STR’s can be good money if you do your calculations, tenants destroy so buy cheap stuff but know the difference between a solid wood kitchen table and ikea stuff. Tenants will destroy ikea stuff and blame you for injuries. You won’t have to pay for their ignorance unless you want to, but it’s a headache and more BS to deal with.

Phone calls on Christmas and all holidays about parties or some other incident. Eventually you’ll get tired of it. But if you need a job and some money, and you have the energy and patience to deal with it, go for it! :D:D

Potentials for property appreciation and potential for renting and re-renting to avoid the up front costs exist. Cities constantly change rules so you have to understand you are working in a grey area and willing to skirt that fine line. Neighbors will certainly complain.
 
cowtowner said:
Covid money is drying up and hospitals are moving away from the traveling nurse concept as the cost is so high,
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That sounds logical. I'll be checking out the various options we have as real estate owners.

mandm said:
but you cannot just focus on one method to get revenue.

But if you need a job and some money, and you have the energy and patience to deal with it, go for it! :D:D
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Not focusing on any one path yet, though thinking through all methods commonly used.
I have a job already and plenty of money from it, so I'll be pursuing the options that take less time from me, and still a reasonable profit from it. Likely Mid or Long term rental is sounding like a dependable method for this goal.

Good input from both of you, thanks!
 
cowtowner said:
Covid money is drying up and hospitals are moving away from the traveling nurse concept as the cost is so high, and the fed government isn't reimbursing them for the extra. Be careful using this model as a long term business plan.
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The model is not limited to travel nurses. Every town with a major medical center has a constant demand for quiet rooms in shared homes from RNs, x-ray techs, medical residents, graduate students, pharmacy interns etc. They are not really STRs as they stay for 6mo or a year. They also don't party and break stuff like the idiot undergrads. Based on what I hear our staff pays for those places, it should provide a good income.
 
Do a VRBO search for areas you’re interested in. It may surprise you to see how many people buy homes for that purpose. College towns need game day houses, business hubs need to house traveling staff, etc. At least you can get an idea of the competition in an area.
 
When you have enough money then time to focus on enjoying life and de-risking. To get into a STR and be a point of contact for someone burnt down your house or this police activity occurred at your home of course always 2am on a Fri or Sat night. Think about how you can stomach those scenarios. Easy to justify it, but a few too many then you normalize it or you just don’t want to be bothered in the first place and want to sleep not waking up to this and that happened last night. Something to think about. Longer term rentals have their own issues albeit not as frequently usually. Monthly STR stays are extremely hard on the home. Furniture damaged, secret pets or “service animals”, destroyed carpet, can easily dent any profits and cause unnecessary stress, unless you like those kind of projects.
 
I bought a house ultimately hating the city and moved out of state and just kept it as a rental.

Found a property manager that was a Godsend...The charged 10% of total rent and it was the best 10% I ever paid...they did everything from listing, renting, and managing. Had no idea who was in the house nor did I care (but they had standards). They had authorization to fix anything up to $250 without approval and just deducted it from my payment if necessary...and they had a Rolodex of service providers that could do things at almost half of rack rate and didn't mark them up. Anything over $250 they needed to reach out to me.

If wanna go short term rentals...Google "rental arbitrage"...there are guys out there that will run the short term rental on your property and give you a cut which can be more lucrative than a long term rental but more risk and more volatile.

Neither did I ever want to personally manage. That is a business, not an investment.

Yes there are owners that will do everything themselves to save a buck or maximize cash flow but of you are the one taking the call to fix a toilet you are investing wrong IMO. All depends if you re trying to maximize cash flow or just park money.
 
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