Which would you choose - Vacation Rental or Multi-family property

[Darrell Bowman]

Hi, I wanted to pose a question about whether you would choose to invest in a vacation property or a small (10-20) unit apartment complex? Vacation rental would be a condo complex that takes care of all the maintenance and bookings and takes 40% off the top. 

The way I see it, both investments will:

• pay down your debt service
• allow for depreciation (not sure which one offers the most depreciation for tax purposes)
• allow for re-fi and cash out to invest in additional properties

Vacation rental benefits are that my family can use it throughout the year for vacation and 1 unit to manage (at first). Probably less stress than dealing with tenants. 

Multi-Family apartment (10-20 unit) - If I raise the rents, I just increased my NOI x each door (10-20 in this scenario) which increases the value of the property. Unlike my vacation rental, I only increase the NOI, but not necessarily the value since the value is based on comps due to it being a residential loan.

Am I missing anything? Is there a better tax advantage with depreciate in multi-family vs a vacation rental? 

I have been running numbers on both and the vacation rental makes about the same, after debt service,   as the multi-family (~$2K-$3K per month). My thought is if I make the same, but I can stay at my vacation rental and my family can use it, then wouldn't you choose the vacation rental investment?

Value you input! 

Thanks,

Darrell

[David Thompson]

I think once you said the vacation rental is in a condo complex you lose a lot of control and add a lot of expense.  I'm biased since I play in the MF apt space but vacation rentals IMO are more at risk from economic downturns than good ol MF properties where you don't have the cyclicality issues to concern yourself with.