Beginner: Vacation Rental Coastal Carolinas Questions

[Valery Mora Kepley]

I have always wanted to own a beach house, and I am hoping that by investing in a vacation rental I can make this a reality. I have a few questions, as I am still researching feasibility.

Is it ideal to form my LLC prior to purchasing my first rental?

How much should I expect to put down? 

Are mortgage rates different for investment properties?

How do you determine the market for a rental? Is looking at VRBO and calendars a decent way to assume average rents? How do you know if a new rental in the same location will have similar rents? Isn't it possible that highly booked properties have an established clientele?

Is it worth it to purchase a condo that will have positive cash flow if it is in danger due to beach erosion?  What happens if your property gets condemned? Does insurance have a role in this instance?

For those that manage their own properties with VRBO and housekeeping, how do you deal with the minor complaints from a distance (3-4 hours away)? Things like broken coffee pots or ceiling fans?

I have many more questions. Thank you in advance for reading this, not thinking I'm an idiot, and hopefully replying with helpful information!

[Andrew Johnson]

@Valery Mora Kepley I don't know much about the Coastal Carolinas but here are some generalities when it comes to beach rentals:

1.) You're probably looking at 20% of gross rents as a property management cost.  You can try and do it yourself but you're selling the "experience" more than the physical property and it's hard to outsource that "experience" to a handyman and a cleaner.

2.) You really need to get a statement from a professionally managed beach rental that's currently in service (ideally, on the same stretch of land) to see what occupancy looks like between peak and non-peak times.  Odds are, it's lower than you'd think.  You can see in what periods you can demand a "full week", what periods you'll have to accept "Friday - Sunday" and in what periods you'd be lucky if anyone shows up!

3.) Highly booked properties do (generally) have an established clientele.  However, that's also linked to their presence on websites, a certain management company, etc.  Family are prone to stay in the same home for the same week summer after summer.  In more "incremental" than anything else but it's there.

4.) Insurance for oceanfront is higher than you think and I have no idea what happens if the property gets condemned!  Who knows, I've heard of some properties that are uninsurable for that reason.

5.) Furniture and linens wear out.  The last thing you want is someone writing a review saying they had to sleep on stained or torn bed sheets!  So expect additional costs.

6.) Budget at least $150 for cable/satellite TV as well as internet service. 

7.) Expect to put down 25% but you might be able to get away with 20%.  It depends a little on the lender.

8.) Worry about the LLC after you've figured out if this financially works for you.

Hope that helps.