Residential versus vacation homes

General Real Estate Investing
1

Hello All,

I am new to this real estate thing so bear with a newbie question. I’m thinking about two general courses of action at this point for my investing:

  1. Residential Buy and Hold
  2. Vacations Homes - say at the beach or in the mountains.

Residential seems somewhat straight forward, but I am curious if anyone has opintions on buying property that can be rented week by week?

Thanks

2

Good day,

Residential would be your best bet (that’s my opinion)… Not everyone are looking for vacation homes… Try to invest in a hot or simi hot residential market, so when you decide to sell, the house will be worth a lot more than what you originally purchase it for…

3

Thanks for the response. Let me clarify my question a bit.

I was speaking of buying a condo or a house near the beach that would be used week to week by people visiting that area. Another example might be a condo or house near a ski resort.

Anyone have experience with this sort of investing versus residential?

Thanks

4

I like beach real estate because of demographics. A huge wave of retirements is on the way. Many people dream of retiring to the beach or mountains. Beach is much more scarce than mountains.

Cash flow is most likely negative.

5

My CPA told me to stay away from vacation rentals. nearly all of his clients who have vacation rentals are negative. a few are break even with 100% down.[ i think this is becoz
they use them too much for personal use].
however if you’re in the asset buildup stage, as a general rule of thumb, stay away.
[but thats not set in stone]

6

I am a cashflow type of guy. Look at vacation and residential the same way. Remember that there are absolutes that should govern your decision. You can’t get any more than the market gets. First the most that the property will rent for is what those like it are renting for (it can rent for less) within a 1 mile radius. That is your ceiling. The second is the amount of time that your property will be empty between rentals is the same as days on the market for properties just like yours within 1 mile radius of yours. When you find a property to invest in, don’t use wishful numbers, use the actual numbers. If you find a vacation property that will rent for enough, and be occupied enough of the time to make you positive cash flow, have at it.

Don’t let the person trying to sell you the property sell you on anything that has not already occurred. Don’t buy on “we are going to build a golf course, rents will be much higher, time on the market will fall, sales prices will rise, etc." Only base your purchase on demonstrated performance. Vacation or residential remember…this is a business and if the numbers don’t show it making money, it won’t.

7

Thanks to everyone who posted! Treating a vacation property purchase the same as a SFH make sense. If the numbers crunch well, it is a good buy.

Looking forward to more Wisdom from you pros.

Thanks

Stan in Morrison

8

Well said Bluemoon.

I think I’d only add one ‘rule of thumb’ to what Bluemoon wrote.

Things that may or may not change in the future (raising rents due to a golf course as an example) represent risks. The Buyer is taking the risks and as such should reap the rewards. If you’re paying more than what the property is PRESENTLY worth you are paying the seller for the risks and he shouldn’t be reaping those rewards. He’s selling now, so if he’s expecting to make money without taking the risk (of waiting for these possible occurences to happen) then he’s not reasonable.