With real estate prices and mortgage rates at such low levels, I’m thinking about buying a house in a vacation area, with the intention of renting it out to people on holiday. The idea would be that (mortgage payment+utilities+cleaning staff+repairs) is approximately equal to 2 weeks occupancy per month. Over a sufficiently long time, the property should more or less pay for itself, and if the real estate market improves, it could be sold at a profit.
I know that other people do this, but I also know I have no experience running a business, much less a business in another state. Am I crazy? Is this a bad idea? Please tell me about your experiences with owning a property like this. For that matter, tell me if you have ever rented one, and what you thought of it. Thanks.
My husband’s parents did this for a while, and eventually came to the conclusion that it is simply not worth the trouble. When there is a maintenance problem you have to fix it NOW, tenants are late on rent, they skip out on the rent, they trash the place, etc etc etc. Being a landlord involves lots of distasteful labor, lots of being nasty and receiving nastiness, and lots of trips to small claims court.
If you had several houses and it was your full-time vocation, and you didn’t mind breaking balls, you’d be fine. If you have another job to keep at the same time, everything I’ve ever heard says DON’T.
Being a landlord does not HAVE to include lots of nastiness and you might not get horrible tenants, but as a renter I think it might be more work than you’d expect. My SO and I are renting a condo and it’s a giant pain in the ass to get our landlords to fix anything or even return our phone calls. Typically I just fix it myself. I called them a few months ago about our faulty microwave (it turns on by itself and the buttons on the front panel regularly don’t work) and they haven’t done anything or even called us to give us some sort of update. They also like to hang on to our rent checks for weeks before finally cashing them.
Do we trash the place? No, not at all, but we do live here and after a few years there is normal wear and tear that they’ll have to deal with when we move out. If you rent to people you should keep that in mind.
My mother-in-law owns a home in Aspen. It was supposed to be their retirement home. My father-in-law died before he retired. For about 10 years, they rented the home out to a family friend with the caveat that she (and the kids) could come and visit as they wished. It worked out pretty well. She rarely raised the rent and the occupant took care of much of the maintainance knowing they were getting a good deal.
Occupant got married. Things deteriorated. The wife insisted on my mil taking care of the things the occupant previously took care of. My mil raised the rent to “market” levels and the tenants left. Mil decided they (she remarried) were going to move out and live part-time in Aspen. They furnished the home, got things to her liking and then they found out the new husband had leukemia and that plan was scrapped.
They used a property management agency and got another tenant who stayed for three years. They were going for the permanent rental angle rather than the vacation rental angle. Since the house is part of an HOA, road maintainance was taken care of, but she had to hire a gardener and others to take care of other fixes. The new tenant was a bit of a pain in the ass, he ruined her white sofa, etc. They rented the house out as a vacation property for a year. That was a huge pain in the ass. Property management took care of the weekly/biweekly cleanings, but cost $$.
They don’t bother renting it out to strangers anymore. Even though the house is paid for and property taxes are reasonable, she doesn’t want the hassle. This way, they can go on a whim to the house and it is available for family/friends whenever. She still has someone take care of some routine yard work and what not. She also has a woman who goes out and preps the house when someone is coming to visit, who is much cheaper than the property management agency was. The woman is the wife of the guy who takes care of snow removal for the HOA and does the same thing for others who live in their area.
She only rents to acquaintances and friends of the family. My husband spent December and March there (yeah unemployment!). Mil was there December and January. My sister in law got married on top of Aspen Mountain in July, so they were out there June-August. She had various renters in between. None have been a problem as they are typically friends.
We considered turning our old house into a rental property when we moved out of state, but decided against it for all the reasons listed by others. It was a big enough pain in the arse keeping the empty place looking reasonable for sales showings, and that was just paying someone to keep the yard mowed and having a cleaning lady go in and deal with dust and such every couple weeks. What you’ll need is much, much more complicated–you’ll need the yard taken care of, the place inspected for damage and cleaned every time someone leaves, more inspection and cleaning before someone comes in if it’s been a while between tenants, linens laundered and replaced every time the place is rented. There are management companies who will do all that for you, but those places aren’t cheap. And, of course, you’ll have to furnish the place, including basic kitchen gear and linens.
Don’t be an out of town landlord unless you use a management company to rent it out for you and clean the place between tenants. Also you’d have to find a handyman BEFORE you bought a place. Factoring all that in means you might break even.
My mom is a landlord, but she lives in town, is handy herself AND has a handyman and a whole team of people who have worked on our various homes (plumber, painter, electrician, carpenter, you name it), and who will drop nearly everything to do work for her because she pays immediately after the job is done, or the day the bill comes, whichever is first.
I’d be wary since you have no business experience to boot. My mom grew up with my grandfather owning properties and I grew up with her owning properties (I suppose my dad also “owns” them, but the only thing he’s contributed to is putting together a set of cabinets once) so I have experience, and even still I know my experience is limited.
It’s not totally rational, I admit. I’m renting from two people who are nice but seem pretty flaky (we still don’t have a copy of our lease, after asking multiple times), so after 3 years it annoys me when they drag their feet on anything.
My brother in law was a career Navy officer, and he’d rent his house out every time he got sea duty (which could last 6 months or more.) At first he thought it was a good thing, because it meant the house wouldn’t be vacant while he was gone, but after the second or third set of tenants he changed his mind. Whenever something went wrong, he couldn’t be there to figure out how bad the problem was, whether it was the tenant’s fault, whether the repair was good, etc. That doesn’t even include the problems he had with the tenants themselves.
Ach! Renting a place out long term is one thing, renting a place out as a vacation home is completely different. Just substitute “Party” for “Vacation” every time you form a sentence thinking about renting a place as a vaca, er, party home.
There are several people around me that do that, and 9 times out of 10, the security deposit doesn’t cover the damage, or the cleanup.
If you plan on growing and getting several homes, you can pay someone to keep them up.
Most absentee landlords do not believe in putting any money into the place. If it is livable and barely legal, that is good enough.
I have not owned rental property, but am in the process of getting my ducks in a row for investing in it.
I initially looked into buying a good vacation property and renting it out. All of the concerns listed above are accurate, but it’s not always a loser. It takes a good property in a good area, and time spent finding the right people for cleaning, repairs and/or management for property out of town. A good website (with listings as well) is http://www.homeaway.com
I am now looking at local houses to buy and rent out. I have heard all of the horror stories, but most of them come from people who thought it would just be a thing they think about once a month when the rent check comes. Being successful at property rental takes just as much time and effort as being successful with any venture, which is why I’m doing the research now, and plan on doing that research and work for the rest of my life.
It can be done and isn’t always a pain in the ass, but it takes real commitment.
ETA: Also, the formula for calculations is usually:
This. We have a vacation rental. What you need to know is that this is going to annoy the shit out of any neighbors. Period. We don’t even rent to people under 25, yet somehow- every fourth rental or so ends up being some douchey parent who rents it for their college kid---- kids who at least bother the neighbors, at most trash the carpets with puke.
You also need to be aware that many more areas than you think have ordinances against vacation renting---- even a lot of areas you think it would be ok, areas where there are tons of vacation rentals listed online (Las Vegas, for instance). While the cities usually look the other way, the fact is that all it takes is the neighborhood revolting against you and you could have a few grand in fines. Just something to think about.
We have regular rental houses— vacation renting is a whole different beast and don’t use folks’ stories about one to understand the other.