Want to get into rentals, need to pick a path!

[Jenni Brown]

My husband and I are ready to start looking for our first property. I am leaning toward a beach house in a nearby city in a neighboring State. But, we keep going back and forth on vacation home vs a single family home near our house to start with that has the opportunity for regular renters all year long. Thoughts? Suggestions?

[Leo R.]

@Jenni Brown if this will be your first rental, and your first experience being a landlord, I'd probably suggest going with a LTR near your home, and not the vacation house.  All other things being equal, a LTR will be a much easier learning curve, will involve less risk, and should take much less time to manage than a vacation house.  

 ... if you had planned to have a property manager take care of the vacation property, I think it's a good idea to first manage a property yourself and be a landlord yourself, before getting involved with property managers (there are a lot of lessons you'll learn from being a landlord and managing a property that will help you if you  ever end up hiring a property manager).  Contrary to what many believe, property managers are rarely a "set it and forget it" arrangement--you often need to manage your property manager! (and prior experience managing a property yourself will help you do this). Getting the experience of managing a LTR first will put you in a better position to eventually manage a property manager at a vacation property--if that's a route you decide to take...but, jumping right into a vacation property (with or without a property manager) is sort of like hopping in a car and going on a busy interstate before you've ever had any experience driving, and before you've taken any driver's ed courses.

Lastly, another benefit of a SF LTR is that--if you buy in a good neighborhood--it will probably have more stable appreciation and rent income than a vacation property.  Although vacation properties can appreciate well when the economy is strong, they tend to get hit HARD when the economy tanks (both in terms of their valuation, and their rent income). When the economy tanks, vacations are often one of the first things people eliminate from their budgets, and the pool of eligible buyers for vacation properties usually shrinks substantially--which drives down the property's value (whereas a good SF LTR may lose relatively little or no value, and may lose little or no rent income in an economic downturn)....given the current state of the economy (recession almost a certainty, higher rates, and high inflation), a vacation property could be a very risky move right now--particularly for a new investor.

In a nutshell, all things being equal, the vacation property would be a more challenging, riskier, more time consuming property. Also, there are some very valuable lessons you'll learn from managing a SF LTR that you may not learn (or may not learn as quickly) with a vacation property. 

Good luck!