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Vacation Rental Investment

6K views 13 replies 13 participants last post by  captain sandbar 
#1 ·
I have been looking into purchasing a 2b/2b home in Rockport to use as a vacation rental investment. This is my first go at this so any/all information is appreciated.

I know there are a ton of variables but if you have knowledge/insight on the vacation rental game I would love to hear it.

Not expecting to get rich, just wondering if there is money to be made or should I just look into investing in stocks/bonds with the same money...

Thanks 2cool
 
#2 ·
Lots of write offs with rental property. Coastal upkeep is greater than inland, salt air is tough on stuff. IME, unless you can build a year round clientele and rent 180+ days/year it is about break even. Even then, net/net hard to do better than about 5% ROI/year. And don't expect that you can sneak in much free "personal use" as this is a big red flag for the IRS. Best bet is to put it on VRBO or other medium as available full time.
 
#8 ·
You can make more money doing short term rentals if the HOA allows it but you will have many more problems.

You will make less money doing long term rentals but have fewer problems to deal with as others have said.

You can't deduct rental property losses from your personal income unless you do real estate full time. We only dabble in real estate so the IRS considers it passive income and will not allows us to deduct any losses from our "real" jobs.

We've owned a 2B/2B on the water for 5 years and have done good to break even with a 40% down payment. "Special Assessments" or a new AC will erase most of your gains annually so make sure it's in a good location that will appreciate. This is a long term plan for us so we expect to use it once it is payed off.
 
#9 ·
You can make more money doing short term rentals if the HOA allows it but you will have many more problems.

You will make less money doing long term rentals but have fewer problems to deal with as others have said.


We've owned a 2B/2B on the water for 5 years and have done good to break even with a 40% down payment. "Special Assessments" or a new AC will erase most of your gains annually so make sure it's in a good location that will appreciate. This is a long term plan for us so we expect to use it once it is payed off.
I'm just a regular retired guy that has done short term for 4 years and long term for 4 years ... importantly the properties are located not far from each other so the comparison is apples to apples ... year over year the short term made less than 1% net greater returns than long term ... so far. The LT I pay taxes and insurance and repairs over $40 ... it is a 3/2/2 ... at purchase I did some repairs/upgrades amounting to $8K +- that should last 8-10 years (I do thorough BC's on all my renters) ... it's easy mailbox money (in the lease the renters are responsible for yard upkeep) ... I don't know where to start on the ST unit ... this one required a lot of involvement even though I had a rental management co. 'working' for me ... they are best at separating property owners from profits ... between their 'cut' of the rent and cleaning/ repairs and clerical 'work' they often made more than me and they get paid 1st ... then there are the utilities ... phone (emergencies I was told) and electricity and city water and of course cable ... all billed to you to add to the homeowners insurance that the HOA doesn't cover with the yearly $100/month increases to cover the yearly increases in taxes and TWIA/flood ins. Short term was one of the biggest headaches I've ever volunteered for and as good as $250-$300 a night looks, that only happens in high season which is just over 3 months a year ... fall bookings may end up being 1 or 2 weekends a month which puts you under for those months but the bills keep coming every month ... something not often mentioned is the return down the road when selling ... ST rental will be a lot more 'used' unless you've been sinking $ into it ... my LT'er is out appreciating the ST'er by about 5% a year, and that's worth consideration ... the only way to do short term in my opinion is first and foremost ... be young and able to work without a management company ... book/vet on your own ... repair on your own ... put profits into the bank note and pay off in 7 years at which time you'll be older and wiser and have long term properties ... :biggrin:

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#10 ·
I have looked into it several times and always opted against it. Not that you can't make money, it just was not for me.

A common theme here is you are lucky to break even. Which is not a bad thing considering renters are paying for your home and you will own it outright at some point. Plus appreciation.

I just always concluded that strictly as an investment… There we're better opportunities out there with higher upside and less hassles.
 
#14 ·
So, read all the posts, and I have a couple of points (consider this, I am a licensed tax attorney - and this is very complicated stuff). that said, I rented my house in Rockport for a number of years and did so without the use of a service, as - at least for me - if you pay 20% of gross for that service your rental business becomes uneconomic quite quickly. But be very careful, as if you rent short term in Rockport, Aransas County, Texas - you have three reporting and tax considerations, and failure to do so will create headaches beyond belief, exorbitant penalties... I do not have the correct names for these taxing jurisdictions off the top of my head but if you do some research you can find them.... first, there is a Rockport Occupancy Tax, Second there is an Aransas County tax and third there is a Texas Hotel tax - all three combined account for about a 15% hit on your gross rental income (e.g., you are taxed before any reduction for the 20% service fee). So if you want to make $100 per night (just using $100 as an example number), in order to get $100 in hand before paying the 20% fee, you need to charge your renter's $115/night - but that amount needs to be further grossed up if you use a service because you've also just increased your service fee from $20 (20% of $100) to $23 (which is 20% of $115). Couple other points, besides your possible HOA restrictions on renting - consider your mortgage, because many/most residential mortgage docs prohibit the lender from renting; now that may not be a worry for some, "what they don't know won't hurt them" but for some (me) that is not the way to stay licensed, and a lender is likely to charge another 1/2% for rental property mortgages... Same applies to your insurance carrier.... if a renter burns your place to the ground, and your policy doesn't cover renters you are SOL! All that said, I rented my house several weekends a year - just enough to make enough to cover my property taxes, and insurance. Don't let anyone fool you, you generally cannot take losses beyond simply offsetting your rental income from being taxed - because that is not the way passive loss limitation rules work.... I was fortunate in that I vetted my renters considerably before hand to make sure I was somewhat protected, and always made sure I had $250 of security deposit in hand (cashed check) before I gave any access, and if I was even a bit concerned, I said "no" - and took considerable chit for that on occasion. happy to answer more questions.
 
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