Buying Seasonal Vacation Rental with All Borrower Funds

[Michael Hayes]

I am looking to buy a seasonal investment property on Cape Cod where many people are making $100k plus a season. I know the market up here fairly well, so even though it may not be the best ROI it's something I'm comfortable with. I own a primary home with a mortgage, an investment home in Florida (no mortgage), and a third home with no mortgage that my parents live in. The Florida home was inherited recently from my late Grandfather and so I don't know the market down there very well. The home my parents live in I also inherited from my late grandfather. That home's value is around $2mil with no mortgage. I am thinking of doing a HELOC or c/o refi to come up with $500k-$800k as a down payment on a $1mil to $1.5mil property and then financing the rest with a traditional or jumbo investment mortgage. I figure the rate on the non-investment home will be less and this way I can buy a rental property will all borrowed funds. I could put money down, but figure why should I when rates are so cheap? All the posts I've read about say cash flow is so important. I don't think I would cash flow in this case, but is it a huge problem when I have not put any money down? I figure if I have to put a couple thousand a month (kind of like a 401k) it is better than putting $200k-$300k down at the start? So we have reserves in case we don't cash flow. Our income is strong so we would qualify for the two loans and our only debt is the mortgage on my primary home. I like the idea of renting seasonal as these homes seem to have much higher income and appreciation. The duplexes around here are in rough shape and 3-4 unit properties are not common. Also I'm hoping in 30 years it would be paid off and I could use the home myself, that would be the end goal. Any thoughts are most appreciated.

[John D.]

    Similar to @Michael Baum I am scratching my head a bit on this one, as you haven't stated what you are trying to accomplish (other then buy a seasonal "investment" property on Cape Cod).  When you say folks there are "making $100k plus a season" I assume that means they are grossing $100k, and likely losing money when considering all expenses.

There's no way a $1-$1.5mil home that grosses $100k in rents a year has any ROI with a mortgage, and all of the other expenses including CAPEX and maintenance, in the scenario you described. My vacation rentals at that price point gross 3-5x the number you are tossing out.

      Paint us a picture of your goals.  That's the best way to determine if a particular strategy is in alignment.