Anyone ever invest in vacation property?

[IPAfan]

Not that I have enough extra cash to devote to an investment right now. However, I've been thinking more and more about the idea of buying a house.

I've come to think that it might not be a bad idea to rent where we're at now, and invest in some real estate elsewhere. My goals would be to have a decent fairly new place earning 10% on cost.

I like the idea of investing in a nice area that will hold its value. I've honestly been thinking of hawaii. I don't know the area that well, but you can buy a decent looking 3/2 house in Hilo for about $150k right now (which is cheaper than where we live.)

It looks like you could rent one of these out for about $900-$1,000 a month. However, my idea was to look at getting it rented on a weekly basis. A furnished house in Hilo seems to rent for at least $750 per week. That would mean you'd need to rent it out 20 weeks out of the year to get $15,000 per year. Probably an extra 5-6 weeks to cover some sort of rental agency (but I'm not really sure, that's why I'm asking).

So I could easily see how this would be a decent investment. Anyone ever invested in real estate this way before?

[yclept]

Friends of mine have a high-rise condo in Honolulu where they plan to formally retire when their parents are gone. They will then sell their house in the Oakland hills. They like the weather; for me it's much too hot and humid. Okay for a week or two, but I'd never live there. The only islands I've been to are Oahu and Maui. Both of them would give me cabin fever in short order. I once spent about a week and a half in Maui, and at the end of that time, there was no road of any importance nor sight I hadn't seen at least once. Hawaii is bigger, of course, but I would guess that it's pretty easy to see everything there (not closed off on private ranches and such) in a similar time-frame. Hawaiians usually have to fly to Honolulu for major medical procedures, or for that matter even special shopping. I'll bet on-line shopping has been a god-send to places like Hilo.
Population of Hilo: ~50,000 (about the same size as Woodland, CA) and it's the biggest city on the big island.
Just my opinions and observations -- different strokes for different folks!

[Deleted]

Beerfan,

You might want to look at this thread on YM:http://notmsnmoney.proboards.com/index.cgi?board=finance&action=display&thread=8627

Have you been to Hilo? Last time I was there it was very depressed. It's not the favorite side of the island as it rains over 300 inches per year!

In my experience between cleaning, repairs and commissions you are lucky to receive half of the gross income for a vacation rental. Then you must pay the utilities, property taxes and insurance (and HOA if you're buying a condo). And don't forget when people are on vacation and you're footing the bill they don't care about leaving the lights, heat or A/C on.

In a slow economy people will be traveling closer to home so you will be lucky if you have the place rented once a month. Our markets are different but for us our most lucrative renters are our summer renters who rent for 2.5 months, don't use much heat and we have no A/C

Vacation rentals work if you are going to use the place a lot yourself. Otherwise financially you are much better off with a year round renter. It's steady income, they are responsible for the utilities and it's a lot less hassle.

[IPAfan]

Good points. I was using Hilo as an example because it's very cheap, and I was just using rental numbers from craigslist.

I do like the idea of owning property somewhere that I'd like to use it personally. Doesn't have to be HI, I was just using that as an example. I'd want to be able to earn a decent return. Sounds like you'd want to be grossing about 15%+ annually just to break even on using it as a vacation propert

I bet you could buy a property and then rent it out to a local authorized to sublet for whatever they wanted (daily, weekly, etc.) That way you get a steady renter, but the lease should be worth more than the going rate (Because most landlords wouldn't allow their property to be sublet).

Just thinking about things here. Again I've got other things I need to use my money for. Still, I'd definitely be open to buying a place in a few years if I could put 20% down and earn 15%+ cashflow return on my leveraged investment. That's a lot to ask, but I expect it's possible.

[IPAfan]

Honestly I think this interest in out of state real estate is that I'm not very confident about the economy in my section of CA. Not sure that I want to buy a house where I live. We can always rent without the potential for a big capital loss if prices plummet another 20+ %. Maybe I'm wrong. Maybe real estate is a great investment right now. I've never invested in real estate so I don't really know. Some housing is now becoming affordable, but only because I'm making more money.

I could see spending $250,000 on a house, but I'd want a really nice one that I'd like to live in for a long time. We're still not there in the city I'd want to live in. Surrounding areas are cheaper, but we don't want to live there.

I'd also highly consider buying an office building. Financing an offc. building is tough though, so I'd need to put a lot of cash into it. If it's one thing I don't have right now it's a lot of cash (and that's why I probably will hold off on real estate, and make a leveraged residential investment only if it's cashflow positive).

[Deleted]

Beerfan,

You really have to look at a vacation rental as a toy not really an investment.

Where abouts in CA are you? DH and I own 2 properties in the San Diego metro area, the Cabin in So. Cal mountains and a house in the SF Bay Area. I'm actually seeing a little recovery in the San Diego area and stabilization in the SF Bay Area. What's really interesting is looking at the rental market. Right now every property will rent for more than PITI with 20% down. My replacement costs for insurance are more than the market values for the So Cal properties. Remember you don't insure the value of the land.

[Deleted]

As far as the office building is concerned, as a mom and pop investor I don't like to invest outside of residential precisely because of the financing issue. One option you might explore though is finding a house that has or could have zoning that allows for commercial (office) usage. It's a nice option for a sole or small proprietorship.

[danshirley]

I have bought and sold residential property all my adult life. However I never dealt in vacation property and I never ever bought to rent.

The one occasion when I remember renting out a property (about 30 years ago) was because I couldn't get my selling price for it and was waiting for the market to catch up. I hated being a landlord and sold off the property as soon as I could get a decent price for it.

Property has been a great investment, not because you can rent it out, but because it has been appreciating in price.

forecastchart.com/estate-real-philadelphia.html
I think that process is over... at least for now. I dumped all my real estate (except for the two houses I live in) some while ago.

We rent an office space for my wife's practice, and I believe that over the last 8 years or so our landlord has had a hard time coming out even when you take into account idled capital, depreciation, maintenance etc.

[IPAfan]

I'm sure I'd be buying and selling property now if I lived in an area with lower RE prices. There are definitely markets in California we could move to where real estate is affordable. I think we're going to stick where we are, and probably continue to rent for now. I do like the idea of taking advantage of low interest rates to leverage into a property as an investment, but the highly attractive FHA loans only seem available for primary residences. Again, I can't find a deal on anything where I want to live so I'm going to wait.

It may be that real estate is a good deal now and will continue its upward trajectory. It just seems grossly overpriced still by my standards. I may end up saving a larger DP an investing in real estate somewhere else in the country.

EDIT:

I will say that there may possibly be some interesting deals in the condo space in my town. I would possibly consider buying a condo if the covenants didn't prohibit renting it out.

[commentator]

May 31, 2011 15:42:24 GMT -5 @bonnap said:

Beerfan,

You really have to look at a vacation rental as a toy not really an investment.

Bingo.

[IPAfan]

Points taken about viewing vacation property as a toy rather than an investment. I was definitely viewing it as a toy, but curious if anyone had it work out as an investment too. Seems the general consensus is that the only way to make money on vacation property is to get price appreciation.

At this point I'd probably be better off renting if we go on vacation.

Or maybe I'll buy a cabin in the Sierras and grow pot in it to defray the costs

[Deleted]

"grow pot in it to defray the costs"

LOL

Slightly off-topic but my friend is having a hard time with her soon to be 18 year old son. Kid's turned into a pot head and barely graduated high school today. Headed for Humbolt University next fall

I, being ever helpful friend, suggested that he look into farming hemp and growing medical marijuana as a career move.

She's still speaking to me...

[yclept]

Humboldt? The very heart Mary Jane country -- anybody want to put odds on this kid graduating, or for that matter even staying alive and out of jail? If he barely made it out of high school I see no way he's going to be accepted at any of the state universities. But that might be a good thing -- taking the long view, it might save his life.

[Deleted]

Apparently Humboldt has accepted him provided that he passes all his classes this semester.

Interestingly enough the kid has stated he prefers to stay home and attend CC rather than go away. But mom says it will take him 4 years to graduate because the school is so over crowded. She thinks he just wants to stay home so he can smoke pot with his friends anyway. She's ready for the sullen, unmotivated teenager to leave home.

It's too bad. Mom and Dad are bright and I suspect the kid is too, just bored and a little spoiled.

[IPAfan]

I usually go up to humboldt a few times a year. Have family there

It might be harder to make a living there for me since the DA's don't prosecute much in the way of pot crimes. That's my bread and butter.

[maui1]

hawaii is not a good vacation rental location if you are looking for a cash return investment. costs are to high.

hilo, does not get much tourist dollars......if you buy there you are looking long term and rents are low because wages are low.

if you want short term rentals, you will pay twice or three times what you could expect in a cash return.

advice.......invest in what you know, if you don't, you will loose your investment.