Lakehouse as next investment?

Question

I am a mom of three young kids and just starting out in investing. I own a SFH in my town that cash flows well, and now a six plex in a town nearby that also has great cash flow. For my next property, I was considering a lake front house to use for personal use sometimes, but also as a short term rental. I understand it may not cash flow as well as some other properties, but being that we have kids and want a vacation home anyway, I thought it may help offset some of the cost. My questions are:

1. Can my LLC purchase the property if we don't use it too often for personal use (***will discuss with my CPA!) How will my lender treat this?

2. For those that have done this, please let me know the good, bad, and ugly. I imagine dealing with the turnover and cleaning is an issue, especially if not located in the same town.

3. For those with lake homes: do you find that some people are interested in renting during non peak times? Trying to estimate the cash flow during the winter months. I imagine this has a lot to do with what else the town has to offer beyond lake life.

Other thoughts???

John Underwood · Answer

Sarah

We have a Lake house and it stays rented a lot. I was surprised how much it is rented in the off season. It is rented next weekend even. We have a cleaning lady that I just text to have house cleaned so it is easy to manage. We live an hour away so get to use it when we want to.

I keep our boat and jet skiis at the dock. I occasionally take renters out on the Lake on the weekends just for gas money.

We live close to Clemson University so we rent for top dollar for all the home football games and graduation.

We have a family from Canada that rents a week in June and all of December every year.

I have found Homeaway to be much better for my vacation rental but pickup a few Airbnb bookings also.

If you are going to have a mortgage I doubt you can put the house in an LLC to start with. You should be able to move deed to your LLC afterwards. I didn't do that because I have a mortgage so if someone sued they could only get equity. I also have insurance. Those are my 2 first lines of defense for Asset protection.

Have a good rental agreement in place. Have a minimum age restriction, get a photo ID from renters, get a security deposit, have an exterior camera to monitor for too many people or unauthorized pets etc.

We keep taking most of our profits to make upgrades to the property, but house does pay for it self so we have a free Lake house!

John Underwood · Answer

We are on Lake Hartwell, Conross Creek area.

John Underwood · Answer

@Julie McCoy

I have my DVR set to record it.

You can also watch past episodes on

https://www.homeaway.com/vrp  That have a VRP calculator on the web site, not sure how accurate it is.

The show is called Vacation Rental Potential Potential.

It is similar to Vacation House for free, but they don't rehab a house they find turn key properties, some are already existing VRBO's that someone is selling.

Tookie Nemchak · Answer

@John Underwood which lake are you on?

We also rent out a couple of properties for Game Day rentals near Clemson. So far it has been a positive experience.

Julie McCoy · Answer

Solid advice in this thread.  And @Sara Peak for someone just starting out, it sounds like you're off to a great start!

Re: cash flow, the reality comes down to many factors, but it's certainly possible to cash flow on Vacation Rentals as much or more than LTRs - IMO, if a VR is bought as an investment and it doesn't cash flow significantly better than a LTR, it's a poor investment.

The main difference is with a VR, beyond the fact that you have to set it up fully furnished/equipped, is that it requires more ongoing attention - that is, you're making yourself responsible for guest communication, cleaning arrangements, possible maintenance calls from a distant location, etc.  Like @Robert A Garcia said, the internet makes all of these things pretty pain-free (as long as you have a great housekeeper!  Essential!!) but it WILL be something that requires your ongoing attention.  Or you can hire a property manager, of course, but that will cut into your profits (I've seen VR PMs charge anywhere from 20-40%).

As for personal use, even when I intend to go to one of my VRs to just relax, I always find myself working on the property anyway (I'm not very good at being idle, and I enjoy tinkering with the house).  I'll have no trouble truthfully saying I spent no personal time at my VRs!

But the thing that struck me most about this thread... there's a Homeaway show on A&E now @John Underwood??  LOL I'll have to watch today...

John Underwood · Answer

I agree with Robert about personal use. I still mow the grass trim the hedges, do minor repairs etc. I am always doing some type of maintenance when I'm there. Days for maintenance do not count against personal use days.

I saw a family that was on Homeaways new show on A&E Saturdays at 11AM that went and used the pool at their VRBO most every Saturday during turnover between guest leaving and the next ones arriving that afternoon. They had a cleaning crew taking care of the house while they relaxed and played in the pool.

I have occasionally gone out on the Lake while house is rented. I just asked ahead of time if renters mind if I go down to the dock and jump in the boat and take off. No one has ever minded.

Robert A Garcia · Answer

One more thing people always charge for cleaning in the fee so I would say every one is willing to pay and you should do that too

Robert A Garcia · Answer

With the advent of the internet owning and operating vacation property has become a lot easier.  Its still about location I checked a lake near me because I had to sell my folks lake front home after they passed and I noticed all of the properties that were available online were not in the area that my folks were. Since there were none in my folks part of the lake ( its a big lake ) I don't really know if that was bad or good.. However I had no trouble selling the place for at or over what realtors had told me I could get. I had no trouble locating places for rent online is my point

As far as personal use I would advise if you want to use it, you pay for it, so when you fill out the form about how many days it was rent able ( sch E) you have no personal use and can enter 365 on that line.  A big red flag if you were to enter anything else, not to mention the headache of dividing up personal VS rental use. What do you think of those ideas Sara Peak?  Good Luck

Lakehouse as next investment?

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