Vacation properties?

Question

I know historically vacation homes and condos didn't stand up against other investment properties for net income potential.  But what about now?  Anyone biting on vacation homes?  Daily or weekly rentals?  What do the numbers look like?  What areas do you like best?

Jeffrey Gordon · Answer

Having spent the last 4 years living in 2 of Idaho's best known resort areas I have been following the return to earth of the incredible bubble prices from 2004 to 2007
          
          rental markets in vacation areas are difficult if you are going to rent to the locals, they don't make much money and they can be transient.
          
          The vacation rental market is also difficult as many folks buying a 2nd home, soon find renting it out to cover some costs is a good idea and inventory can grow quickly during a stronger new construction market.  I also question just how many folks are going to have as much time and money for vacations in the coming 5-10 years.  If anything I might consider turning an existing vacation home into a fractional unit and selling 6-10 shares at a markup over the market value of the property for individual ownership.
          
          As always buying right is the key, if you bought a $930,000 1200 sf 2bedr 1 1/2 bathroom cottage at Tamarack Resort in Dec. 2007 (at the top of the local market) you got buried as recent sales for the same units are at $250k range as banks clear them out--rental resort occupancy on those cottages has not been above 25 percent.
          
          I heard today that Key bank recently bulk sold around 50 SF workforce housing units built by Tamarack Resort.  I think these houses originally were perceived to be in the $150,000 range when the they were built in 2006/2007.  They were probably 2-3 bedroom 2 bath ranchers with attached garage,  nothing fancy but good affordable housing for Tamarack's 100+ seasonal employees.
          
          Apparently Key Bank sold them for $15,000 each. The buyer planned an auction, but the huge number of folks registering to bid resulted in the buyer selling them directly to interested parties without going through the auction.  The sales prices were said to be in the $60,000 range and almost all of the units were sold/closed within 90 days.
          
          someone had the right approach, buy right and have  a great exit strategy--leave some money on the table and blow those  suckers out!

Rich Weese · Answer

Thanks Josh.

Jon- I've had 5 condos in Cancun. # large ones and 2 smaller ones , all in same building. 
I've had the larger ones longer. They rent for varying amounts. From $1000 to $2400 per week, depending on season. These sleep 8 and are on the Carribbean, penthouse level, older units. Over the last 5 years, I've averaged about 67% occupancy per year. The nice part is the majority of the vacancy have been the less expensive  weeks. I pay a daily usage fee when used and a monthly fee of $250 per month. My Taxes are under $200 per YEAR. The maid service is $20 per weekly visit. 
     The last time I calculated it, the net was about $45,000 per condo per year. The rent is down at present due to economy, Swine flu scares, and fear of Border drug wars(which Cancun is several thousand miles away from).
      If there are other questions, just ask. Rich.
p.s. This allows me about 15 weeks to visit at my disgression for nothing or give weeks out for free to friends or as promotions.....

Josh Green · Answer

as a normal rental, this property would probably rent for $400 a month with a lease....

Rich Weese · Answer

I have a single wide park model in AZ on a golf course . I get $2400 per month from Northerners for a few months each year.

Rich Weese · Answer

Hi Jon my friend- I'll field this one. I'm pretty familiar with this scenario. I've had 5 condos in Cancun for as long as 30 years, owned 3 in Park city, Utah, one in AZ and had parts of a couple in So Padre island, TX.
     My experience has been good and bad. IT IS A JOB!!! That is the bad. How much of a job depends on location, demand, cleaning , repair system etc.
I obviously like the Cancun units. It is TOUGHER right now than the last 30 years. Fear for foreighners(unfounded) and swine flu.  The location is what makes it work. You can see the differences, just in Cancun by looking at map on my website. You can PM me if you want that.
     The problem with these are this. Either you buy the home and are fully responsible for all the repairs , oversight etc, or you buy a condo that has monthly maint fees. 
    I'd be careful what you buy. They will make money, but many are still way overpriced and they don't rent themselves. It is a job. Rich in FL
p.s. I sent you your copy yesterday.

Account Closed · Answer

Jon,
Sorry about late response.
Still in the process of collecting all the data in Siesta key.
The property I am interested is SFH 3-4 blocks from the beach. Price of that property will be around 250K. The rentals should be usd 75-100 per night.
So with 40% rental vacancy, you are looking at around 15-20K per year income. Your expenses will be 11-12K per year. So cash flow is not that great but in my opinion the value of the property  will go up in few years..
I am still in research mode and numbers might not be exact...
Nil

Account Closed · Answer

Jon,
I agree with Rich. It is about the location and the right price to buy it. Managing the apartment is a job but applying extensive use of internet, will make it easier for you. Since lots of travelers who are willing to stay in apartment than hotel are internet savvy. My experience is limited to Rio vacation rentals and I am looking at some properties in Siesta key, Florida where the price is still very high even after major corrections.  2%-50% Rule passes with flying colors in Rio but I have hard time finding properties in Siesta key which will conform to that. I will update on the board the numbers if I found one in Siesta key.
I heard that Clearwater might bring better returns on vacation rental than Siesta key but still not sure.
I did not research extensively any other areas in US yet, but some of my friends have condos in Hawaii and Costa Rica and they are pretty happy with their investments so far.
Cheers
nil

Account Closed · Answer

Couple of comments:

Favored resort areas often have lots of competition for the vacation dollar. (You won't be the only one with a rental)

Some friends live off the rent from a nice house in Costa Rica. However, this year, they had lots of cancellations and are having trouble keeping the place rented. The public has less vacation money in a soft economy.

Somebody has to do a lot of work: finding tenants, collecting rent, cleaning between guests, repairs.

Chris L. · Answer

My wife and I own 4 vacation rentals outside of Gatlinburg TN.  
They were break even to a little positive on a cash flow basis and appreciating nicely until the economy tanked.  They are now bleeding cash although we are starting to see signs of the rentals picking up and the nightly rates going back to 2006 levels.

We have all of ours listed.  Of course, we have not had any takers since we are not "giving" them away.  We will hold till the rents and markets come back.

The key points to ponder if considering cabins is that the quality of construction varies significantly and you will want to have a solid property management team in place.

I am not sure if they will let me post the website to our cabins or not but you can see our 4 cabins at:
www.littlevalleymountainresort.com
Our cabins are: Stars & Stripes, Sunset Lodge, Timberwind, and Majestic Mountain.
My opinion is that you can pick up some nice cabins at a discount that you will be able to sell in the future for a profit.  You will probably not break even on a cash flow basis for a year or two until the economy recovers enough so that more people are ready to vacation.

Another opinion, I would recommend the Gatlinburg market if that is somewhere that you would enjoy going on a regular basis and treated this more like a second home that you rent out as compared to strictly a rental investment.

Why do we have 4?  Our first cabin did so well that we built the remaining 3.  Of course, that was prior to the economic freefall.  We actually saw the vacation rental start to drop in Aug 07.

If you have the staying power to buy and hold, there are some good values available.

Chris

Vacation properties?

Most Popular Reply