Strategy for Northern Michigan Vacation Rental?

[Sarah Lorenz]

I'm interested in buying a lake house in Northern, or possibly mid-Michigan. I have rented a few for vacations on HomeAway, and now I'd like to just own one myself for use a couple of weeks a year and hopefully have it pay for itself or cash flow. I'd appreciate any advice that investors are willing to share. Here are a few of my questions:

My criteria for purchase would be lake-front, all-sports lake, minimum of 3 bedrooms, 2 baths. Should I stick with this or try to go larger, like a 4 bed or more? I have a feeling that this might be the sweet spot--not too expensive, but workable for most people's needs. 

I'm guessing from some of the long DOM that I see on listings that I might be able to get seller financing on a second home. Do you think I'm right?

Is it worth paying more for a place near the ski resorts to get winter rentals as well? I don't know much about this aspect. How close do you have to be to capture this market?

Although I'm used to rehabbing, I'm debating whether or not to jump into a major renovation on a place 2-4 hours away. Would it be worth it? How much more rent does a fully rehabbed house command? And how much does a really nicely decorated house command? Most of the rentals I see are pretty awful when it comes to decor. 

Should I opt for something around 2 hours from home, like Houghton or Higgins Lake? Houghton Lake houses are pretty cheap. Why? Or should I go for a premium property near the Sleeping Bear Dunes or Charlevoix?  That would put me more like 4 hours from home. Are there any locations that will likely see more appreciation? Bear Lake or Ludington area on the west side of the state are also options. How much are the rent differentials? When I rent personally, I look all over the state for the type of house I want, not so much the town that it is near. But that might not be everyone. Any particular lakes or locations that I should consider? 

[Paul Sandhu]

Wow. 13 questions in your post.  I'll answer question number 7, "how much does a really nicely decorated house command."

My furnished rentals are for guys working at a refinery.  Welders, pipefitters, boilermakers, electricians, etc.  My decorations are paintings of nude females, calendars of scantily clad females doing construction work, professional sports related memorabilia, hunting/fishing themes, firearms and ammunition, motion picture themes characters such as Arnold Schwarzenneger, Rambo, Quentin Tarrintino related, Fast & Furious, Brad Pitt, Avengers; Marilyn Monroe, etc.

I ask the guys if they mind all the stuff I put in. The last guys answered me "Hel no, that shi tis mandatory".

[Sarah Lorenz]

 @Paul Sandhu  That is hilarious. And definitely not my niche. 

[Perron Riley]

@Sarah Lorenz  I'll throw my 2 cents in here from the perspective of a long-term vacationer in Northern Michigan.  You're on the right track in thinking that a 3 or 4 bedroom will offer the best value.  2 beds won't fit many vacationers families and 4+ beds are going to be pricey in the high demand areas.

This is a good time to be buying going into the winter season and you may or not find owner financing: I think it depends on the price range and what house you end up with.  A year around resident selling their primary home will probably discount more to unload it whereas a vacation home seller may be open to owner financing.  

If you're looking to take advantage of winter sports rentals,  Petoskey and Boyne City are the closest to Boyne Mountain; Harbor Springs the closest to Boyne Highlands.  Waterfront pricing can range from the $200's to multi-millions.

I don't think you need to have a fully renovated property for good cash flow, but it will need to have updates and look fresh.  Renovations can be costly as labor rates and material prices tend to be higher due to less competition (excluding the box stores).

In terms of appreciation the "on Lake Michigan" cities are going to offer the best opportunities.  Generally speaking the smaller lakes will cash flow better with lower appreciation rates.  I don't know enough about the difference in rental rates to answer.

I have found that people tend to stay in the same area year after year once they find an area they like.  Driving distance from Traverse City to Harbor Springs is only 1.5-2.5 hrs depending on the season so people will use their rental home as a base of operation to visit the multitude of other lakes, festivals, and towns "Up North".  Think about catering to repeat renters with discounts for extra weeks, off season rentals, etc.  

I know the Harbor Springs/Petoskey area the best, so other smaller lakes you might want to consider are Crooked Lake, Burt Lake and Pickeral Lake.  Larger lakes would be Walloon Lake and Lake Charlevoix.

[Mark S.]

@Sarah Lorenz

I have zero familiarity with that area.  However I think the same rules apply almost everywhere.  The nicest homes, in the best areas, with the best amenities, get rented first.  Then it is a sliding scale down to the worst homes in the worst areas rented last.  And reviews, of course, can help slide a house up or down that scale.  Yes, if you can swing a house next to both a lake and near ski resorts, you're going to do well for more of the year. I would imagine.

The general formula is pretty straight forward.  A big new house, with all the amenities in tip-top shape, will generate high demand and high rent.  But also higher costs.  You have to be comfortable within your budget at the end of the day.

I agree that you should look for at least a 3 bedroom, if not 4.  And find something that is in good shape.  I personally wouldn't want to tackle a large renovation 2-4 hours from my house.  But minor things (painting, floors maybe, etc.) are fine. 

Best of luck

[Sarah Lorenz]

Thanks for the input--you've confirmed some of my thoughts. And also for pointing out that Lake Michigan properties may appreciate more. I've heard that the southern Lake Michigan properties' prices are driven by Chicago owners. I'll keep analyzing. 

[Perron Riley]

@Sarah Lorenz

Yes you are correct that properties on the Southern end of the Lake are highly dependent by Chicagoans.  Saugatuck, South Haven, Grand Haven etc offer close proximity to the Windy City.  It is also popular with the St. Louis crowd.  It is another area you should explore and it's close to you as well.  You won't be able to take advantage of the winter ski rentals there but the weather is better earlier downstate so it might end up being a wash.

[Keri Middaugh]

@Sarah Lorenz, I was in Traverse City recently for the first time since the 1980s/90s and I thought, "Holy sh*t, this place is the Ann Arbor of the north!" Eateries, wineries, theater, boutiques, novelty sports, all with high prices. The east side of the state (Lake Huron) is much more humble and affordable, but not quite as snazzy.  I imagine the purchase prices and rental rates reflect this.

[Sarah Lorenz]

@Keri Middaugh Yes, Traverse City is quite the place now. I'm not thinking that I'd like to pay the premium for that location, but I am curious from a financial standpoint if it would make sense to pay more for a property in that area that has access to the ski resorts in order to have winter rental income as well. Our priority in personal summer rentals has been direct lake frontage, and then we're happy if there is a day trip to Traverse City or the Dunes within an hour or so. So I find myself searching a wide range of locations, but only for lake front and in my price range. And it seems that Homeaway is the site for week-long rentals, and AirB&B is more for nightly rentals? 

[Morgan Klein]

So much depends on what you want to spend.  My advice would be to start with a couple of areas that interest you, then get on VRBO and see how much rentals in those areas fetch.  Then try to get an idea of how many days per year you can rent your place, and if your gross rental income will cover your expenses.  

Personally, I would look at Boyne City.  Lake Charlevoix is incredible (ranked the #2 lake in the country by USA Today) and connects to Lake Michigan.  Boyne is quaint with a great vibe year-round, there are great restaurants and breweries, and it's only 6 miles from Boyne Mountain, so you can pull in some winter rentals, too.  In my opinion (and the home prices back this statement up), it's still overshadowed by Charlevoix, Petoskey, and Harbor Springs.  

If you want to get in on an area that's completely under the radar where you can get some great appreciation on your property in the next 10 years, look at East Jordan on Lake Charlevoix's "south arm" and also a short drive to Boyne Mountain.  

[Melody Everett-Neddo]

Hi @Sarah Lorenz, I work in Traverse City on the East side.  I live close to the south end of the 3rd most beautiful lake in the world, Torch Lake, which is around 20 miles long and runs North/South parallel with the east arm of Grand Traverse Bay.  If you are interested in Ski Resorts nearby as well as kinda a Traverse City feel, check out Bellaire, next time you are out this way.  Shanty Creek and Schuss Mountain cater to the Golfers and Skiers.  I believe the hills might be smaller than say Crystal out in Thompsonville?  Bellaire is home to Shorts Brewery downtown.  Joe Short would love it if you stopped in and tried one of his signature craft beers.   Our hunting property is in Leelanau County....perhaps more known for its wineries and Sand Dunes.  I concur about the Charlevoix area, too.  Many, Many great areas to choose from here in Northern Michigan.   

BTW, I am not an official investor yet, so there is much I do not know, but if there is anything I can do for you up here, please let me know.

Melody

[Account Closed]

Make sure you invest in an area that will allow them...many Northern Michigan communities are enacting laws to suppress or not allow AirBnB's or other "homeaway" type rentals.  This seems counter-intuitive for vacation destinations but local neighbors and hotels are putting the pressure on to eliminate them.  Or, at the very least, make sure you buy something that has a good exit strategy.

[Jeff Weaver]

Sara,

I had to do a double take to make sure this wasn’t my wife posting.

We have been looking off and on for a while now. But I just can’t seem to find anything that I could call an “investment”. I have many MF and SF rentals in Oakland county, MI, and have used Vrbo / home away many times myself. I personally believe that it’s better to own a normal rental near your home and spend your rental income traveling to wherever you want to go.

When I go on vacation I don’t want to run to the hardware store to fix something wile I’m there. My vacation time is to valuable to me.

I can think of one occasion when we rented a cute cottage in Brighton. Wile we were there the TV stopped working ( I had 2 kids under 4, this was bad) the owner rushed over and replaced it. The next day the AC went out the owner rushed over and paid a hvac guy a lot ( holiday weekend) the day after it was the stove.

Now other then the TV that could happen at any rental, however on a short term week rental, it MUST be fixed today. The tenants paid a premium to be there and are not going to be inconvenienced. Or they will post a bad review and or demand a refund. And the constant texting back and forth between the owner and the tenants before during and after the rental period is work. Don’t kid yourself if you use the home a few times a year it will be well deserved.

To avoid the work I looked at crystal mtn. I stay at the cottage for 5 days or so every summer. And considered buying there. The cottage’s are 1/4 share and they do everything : rental, maintenance, ect. You just tell them when you want to use it and they try to rent the other times. But there not cheep, and crystal takes 50% of the income. So it still will end up costing you the equivalent of just renting there.

Vacation homes drop hard when the economy slows. Little rental income lots of carrying cost, and hard to sell. A normal rental is still in demand in a slow economy.

My recommendation: Don’t buy a vacation rental for an investment. Just a normal long term rental. And enjoy traveling to multiple destinations.

Now if you were to ask my wife she would say: were still going to buy one anyway. ( so we probably will)

Jeff

[Jeff Weaver]

Up date : My just bought a place at crystal Mountain.

[Kati Stoermer]

@Sarah Lorenz, what did you wind up doing?  I have a different scenario - the hubs and I both can work remotely, and have toyed with second home for summer living, but I hate the idea of paying for something that sits empty the rest of the year.  But then, as our kids get older we likely can't be gone all summer, so would rent it out weekly.  This old post came up as I've been looking around and was curious if you had bought anything in the end. 

[Sarah Lorenz]

@Kati Stoermer We haven't moved on the lake house scenario yet, as we are focusing on our Ann Arbor projects right now. But hopefully soon. I'm still evaluating the purchase prices vs. STR rental income of local lake properties within an hour vs. those up north, about four hours. I think the STR rates are much stronger up north.

[Isaac A.]

how is this different from Airbnb?

[Sarah Lorenz]

Some people do use AirB&B, but more in Northern Michigan use other sites like Homeaway and VRBO.com. They seem to cater to week-long, higher-priced rentals. You can also search by criteria like lakefront or beach, over a wider area. With AirB&B, seems to trend toward nightly rentals and you have to search by the location name, I think. 

[Charles Kao]

@Sarah Lorenz Easiest way is go to the sites

and see what is getting highest rents. We have found that whatever there is alot

of inventory of only 2-3 days out is what to avoid. The more niche in my opinion the better. We have some rentals rented out for months within a few weeks of launching just by doing the right market research.

[Joel Rosenthal]

Have you looked into the chain of lakes right by you? I have a friend who has a rental there and has tons of success because you will still get U of M tailgaters even into the colder months 

[Courtney M.]

Do you plan on managing this yourself, or bringing in a PM? That would be one of the first things I would look for, if you're not close to your property. I would get quotes for any rehab project. As a few people mentioned, there is less competition and rehabs are going to be more expensive in northern Michigan. 

I personally love Charlevoix/Petoskey and you may want to look near Lake Leelanau (Sutton's Bay). That's another charming area.

Overall this is also an area I looked into, but I thought the ask prices were fairly inflated in the fall of last year. Maybe they've come down a bit. Of course if this isn't going to be solely a rental, you may be okay with paying a bit more so you can enjoy it yourself.