I’m new to this site. In fact, I stumbled across the web address by reading my wife’s essence magazine. This site is great but it has so much information, I don’t know where to begin.
Anyways, here’s my story…my wife and I are looking to purchase a vacation property (condo/townhome) in VA Beach. We already own a home in Maryland. Our goal is to be able to rent the property in the spring/summer (or any time for that matter) to at least cover our mortgage and any profit would be super. We also plan to use the property as a family vacation spot. Our grand plan is to perhaps purchase more properties and manage down the road.
However, first thing is first:
What type of loan should we look for? We both have excellent/good credit. Are there certain types of loans for people who already own? Would it be wise to use some equity in our current home for a downpayment on a new one (even though we have money to put down?)
Since we plan to rent the property out during the spring/summer months, the income generated, would that count towards our total “income” and how much loan we would qualify for?
what are the tax pros/cons of claiming the property as a second home or as a vacation home?
I’m sure everyone on here is familiar with today’s real estate market. Is now a good time to buy?
We are cautious by nature don’t want to over extend ourselves by taking on too much.
I have looked at many vacation rentals and haven’t found a single one that will break even, let alone make a profit. Why not post some numbers of a deal you’ve found?
Thanks for reading my post…I think. I don’t have any numbers to post. As I stated in my original post, my wife and I are Looking to purchase a vacation property as an investment and have a bunch of questions/concerns regarding the process. See original post.
Vacation rentals are very management intensive. Some one has to be there every week as the guests move out to assess damage and clean and ready the place for the next guest.
I suggest that the very first thing that you do, is to go to your chosen location and talk to the various agencies that manage vacation rentals. See what their terms are. Ask what sort of rental units are in demand.
If you are going to buy a rental, you need a non-owner occupied mortgage.
Yes, they will count part of the rental income as income. Usually about 75% of it.
You will need non-owner occupant (rental) insurance on the building. Some insurance companies won’t insure a unit that sits vacant, so that is something else to consider.
To start off getting some basic numbers, look around for some properties you would be interested in buying, and see how much they are selling for.
Then possibly see what they are renting for and estimate out how often you would rent them out to determine your gross income.
Look at your personal finances to see what kind of down payment you could afford. Assume you got a loan at 6-7%, and calculate what your mortgage might be.
Finally, see how much room you have for expenses/management after subtracting mortgage payments from rental income… My guess is that you won’t have much left over for expenses unless you have a really high down payment.
See how much of a neg cash flow you would have, and compare that to the price of renting a place each winter or however often you plan on vacationing… see if the numbers pan out…
I don’t know much about this area of Real Estate, but my understanding of timeshares is pretty close to what you are talking about. You own a vacation property and while you are not using it, you are renting it out to others to use for their vacations. Those people buy shares of time for their vacation time slots at the property.(?) If this is a viable scenario then there are timeshare management companies who do all of that labor intensive responsibilities for you. That also includes selling the timeshare slots. There may not be much profit in this to begin with, but in the long run the more you pay toward the debt the more profit you make. But that goes without saying. I would say the primary factor is if there is a profit generated at all. You certainly don’t want to do this if you lose money.
Whether its timeshare or just regular property management I would say you need to compare the numbers. Doesn’t time share generate more of an income than standard renting? I don’t know, I’m asking.
I’ve looked at a lot of vacation rentals and the numbers never work.
There are several problems (but not limited to).
High commissions (up to 40% to management co.)
high upkeep. (you have to keep the place in A-1 condition)
high vacancy (typically the property is empty 50-70% of the time)
If you want to buy as a 2nd home and off-set some expenses with some rental income (note you will have a complex tax situation), that’s a good plan, but as a pure investment, I would urge extreme caution.
A quick note on tax: you can not just “claim” it as a 2nd home. You have to acc ount for rental income AND you can only take the portion of the expense determined by the ratio of the rental time (i.e. not 100% of expense are deductible). Consult a tax professional as this is a just a very basic explaination.
Thanks for your response. My wife and I are pretty certain that ownership is the way to go rather than investing in a timeshare.
Anyways…my wife and I wanted to start out small…sort of gain experience, etc. While it would be great to earn any sort of profit, we would be more than happy at least breaking even to help cover our mortgage when we aren’t using the property. But again, let me stress that we aren’t banking on having our entire mortgage covered all the time, but a little bit here or there wouldn’t hurt if you know what I mean. My thinking was that starting on a small project like this would help me learn a little bit more and eventually take greater risks/investments.
You guys have raised some additional concerns I’ve never thought about. I’m glad I signed on. However, I’m still less certain as to what types of loans are out there for my situation and what would work best for me.
Perhaps I’m in the wrong forum maybe? :doh Is the forum more geared towards those looking to buy/sell houses quickly to make a profit? Again, there is so much info on this site, it’s hard to digest everything.