Experience with vacation rental property?

[trirod]

We are getting very close to FIRE and had always planned on moving out of Ohio when we retired, to somewhere with a lot more outdoor opportunities. However my wife and I are both from the U.K. And we may need to move back there for a few years to look after aging parents.

So we are thinking we want to keep a foothold in the US that we can come and visit a couple of times a year in Northern Michigan, but rent out the rest of the year (well summer anyway), which would hopefully help cover the taxes, insurance, utilities etc., and ease the pain of duplicate living expenses in two countries. We would have to hire a property manager, not being anywhere close by.

Just wondering if anybody had experience renting out vacation homes, especially from a long distance away? Did it work well or was it not worth the aggravation? I don't expect to make any real profit from this, just want to cover my costs.

The town we are looking for does not allow short term vacation rentals there, so we would either have to rent out by the month, or buy somewhere outside the city limits. Anybody have experience with monthly rentals? Not sure how likely people are to rent a vacation place for a whole month, or longer.

 

[Blue Collar Guy]

Rent the movie Pacific heights, see if you can stomach a worse case scenario. Ive been to homes that were wrecked by tenants. I know others in here make a mint in the rental business. Its not for me.

 

[Sunset]

.....
So we are thinking we want to keep a foothold in the US that we can come and visit a couple of times a year in Northern Michigan, .....

Wouldn't it be cheaper, and a lot less hassle to simply rent something when you wanted to visit the US, since it sounds like it's just 2 -> 3 times per year.

And why Northern Michigan ? why not Colorado ?

 

[calmloki]

We've been landlords for over 30 years.
We don't rent long distance - about a 15 mile radius for us, and closer is better.
Managed property, IMO, is a way to assure you have most of the stress and way less of the income. When we are 1000 miles from the rentals in the winter I fix problems by flinging money. It is our choice, but not a happy one.

 

[NW-Bound]

Wouldn't it be cheaper, and a lot less hassle to simply rent something when you wanted to visit the US, since it sounds like it's just 2 -> 3 times per year.

And why Northern Michigan ? why not Colorado ?

+1

Now that I have used Airbnb in Europe, I look at Airbnb listing in the US, and there are many. I like this a lot. Previously, we rented timeshares, and while the condos worked out fine, we were limited to 1 week. What if we need fewer days, or in the OP's case more days?

 

[Scuba]

We are getting very close to FIRE and had always planned on moving out of Ohio when we retired, to somewhere with a lot more outdoor opportunities. However my wife and I are both from the U.K. And we may need to move back there for a few years to look after aging parents.

So we are thinking we want to keep a foothold in the US that we can come and visit a couple of times a year in Northern Michigan, but rent out the rest of the year (well summer anyway), which would hopefully help cover the taxes, insurance, utilities etc., and ease the pain of duplicate living expenses in two countries. We would have to hire a property manager, not being anywhere close by.

Just wondering if anybody had experience renting out vacation homes, especially from a long distance away? Did it work well or was it not worth the aggravation? I don't expect to make any real profit from this, just want to cover my costs.

The town we are looking for does not allow short term vacation rentals there, so we would either have to rent out by the month, or buy somewhere outside the city limits. Anybody have experience with monthly rentals? Not sure how likely people are to rent a vacation place for a whole month, or longer.

Unless the property is in a desirable area for snowbirds or families visiting for the summer, it may be difficult to get longer term rentals. You could check airbnb and vrbo to see how many places are fully rented out vs how many are available. I agree with other posters that it would be less hassle and cost for you to rent a place when you visit vs being an absentee landlord on a different continent.

 

[brucethebroker]

We used to rent a FL condo out for 3 months each winter. We did it ourselves (1100 miles away), but made trips to check on condition before and after.
The biggest advantage of seasonal rentals is that the rent is paid upfront. All of it. Since one of the biggest headaches with rentals is collecting rent, this is huge. We ran credit checks (the renters paid). We held a $1000 damage deposit, and the rent was $3500 a month, so three mos. plus deposit was just over $11,000. People paying that kind of money are not likely to damage your place (no problems in 4 seasonal rentals). But they are also picky. If they arrive, and there isn' t a (electric grill, wok, large enough caserole dish, etc.), they will ask you to provide one, so be prepared.
If I were going to do what you are thinking of, I would call a couple of rental management companies in that area. Ask what are the easiest types of homes/condos to rent and what the going rents are. Those guys are paid by finding renters, so it is in their best interest to be straight with you-and there should not be a charge to chat with you. You can also talk with Realtors in the area that specialize in working with investors. Call a couple of offices and ask to speak to either the owner or the relocation director for the office, NOT the first person to answer the phone (could be a Realtor working the "lead" desk who may not work with investors). Ask the owner/Relo director to speak with the office investment expert for that area. Again, there should not be a charge for talking on the phone. I am a Real Estate broker, and this is exactly what I do when looking at a new area for an investment property.
I think your idea of Northern Michigan is a good one-we love that area. Since many FL residents like to go north for the summers, it might work well, but the local Realtors and management guys will know for sure. Good luck.

 

[phil1ben]

We have three vacation rentals. One near our primary residence (within 6 miles) and two near our beach house (within 1 mile). We rent the one near our primary residence through VRBO/Homeaway and the two near our beach house with a local realtor. All are vacation rentals rented for 3 days or longer but the beach rentals have a 1 week minimum and only rent from June through September. They are all in vacation destinations.

Our experience has been excellent and we have never had a problem. Returns are also very good. However, the difficulty you have is the distance from the rentals. Something always pops up and it is possible but it would be difficult to manage from a long distance. If you use VRBO/Homeaway and fail to "almost immediately" fix a problem you will be open to a bad review which can hurt your returns significantly.

Although you may have a network of tradespeople, I think the time difference and distance would trouble me, given my experience. Renters who pay thousands per week for a vacation rental (and chose to spend their vacation at your place) really don't want to hear that you couldn't get a plumber or you just picked up the e-mail because there is a five hour time difference.

You may think a property manager is the answer but our experience is they collect their 10% and when a problem arises they simply call you. Kind of like the television commercial where the bank is getting robbed and the guard just notifies the bank manager stating he is just a "bank monitor".

 

[ivinsfan]

We are getting very close to FIRE and had always planned on moving out of Ohio when we retired, to somewhere with a lot more outdoor opportunities. However my wife and I are both from the U.K. And we may need to move back there for a few years to look after aging parents.

So we are thinking we want to keep a foothold in the US that we can come and visit a couple of times a year in Northern Michigan, but rent out the rest of the year (well summer anyway), which would hopefully help cover the taxes, insurance, utilities etc., and ease the pain of duplicate living expenses in two countries. We would have to hire a property manager, not being anywhere close by.

Just wondering if anybody had experience renting out vacation homes, especially from a long distance away? Did it work well or was it not worth the aggravation? I don't expect to make any real profit from this, just want to cover my costs.

The town we are looking for does not allow short term vacation rentals there, so we would either have to rent out by the month, or buy somewhere outside the city limits. Anybody have experience with monthly rentals? Not sure how likely people are to rent a vacation place for a whole month, or longer.

A few more details?

Is this the town you want to live in when you retire?

Would you live there until the parents in question actually need help? Because things like heart attacks, car accidents and such mean this scenario might not even happen.

If you want to live there when you retire, buy a house enjoy it and worry about the rentals when the actual need arises. Worst case, if you can find a permanent renter, is that you might not have access to your house for a few years but you will more then cover your expenses.

Prime time in N Mich is going to be their very short summer season and I imagine the rest of the time will be pretty dead. Without a daily/weekly rental option I don't see much rental income in your future.

 

[trirod]

Wouldn't it be cheaper, and a lot less hassle to simply rent something when you wanted to visit the US, since it sounds like it's just 2 -> 3 times per year.

And why Northern Michigan ? why not Colorado ?

I've never been that excited about owning vacation property for exactly the reason you mention - less hassle and cost to just rent somewhere when we need it. I think there's a couple of reasons we're thinking about it now. One is that we would probably be spending a couple of months there per year, and that does start to get expensive when renting. Another is that it would mean not having to get rid of all of our house contents, only to replace them in a few years when (hopefully) we move back for good. I think there's also an emotional content too - not feeling like we're leaving the country permanently. I also know it's not a good idea to make financial decisions based on emotions!

The reason for Northern Michigan vs. Colorado (or other places out west that we really like) is just that we know Northern MI really well and feel we can make more of an informed decision in a short space of time. Our original plan was to retire 12/31/18 and then spend a year or so traveling around the west looking for an ideal location to move to. We may not have time to do that now so rather than taking a gamble on a place out west, we are thinking about going for somewhere we know better, even if it might not be the perfect place for us.

 

[trirod]

We used to rent a FL condo out for 3 months each winter. We did it ourselves (1100 miles away), but made trips to check on condition before and after.
The biggest advantage of seasonal rentals is that the rent is paid upfront. All of it. Since one of the biggest headaches with rentals is collecting rent, this is huge. We ran credit checks (the renters paid).

Thanks for this information - it's really helpful. I definitely like the idea of a seasonal rental. I think that would work in Northern Michigan with snowbirds wanting to get away from Florida for 2 or 3 months. I need to call a property manager up there and see what the market is like for those kind of rentals.

 

[trirod]

A few more details?

Is this the town you want to live in when you retire?

Would you live there until the parents in question actually need help? Because things like heart attacks, car accidents and such mean this scenario might not even happen.

If you want to live there when you retire, buy a house enjoy it and worry about the rentals when the actual need arises. Worst case, if you can find a permanent renter, is that you might not have access to your house for a few years but you will more then cover your expenses.

Prime time in N Mich is going to be their very short summer season and I imagine the rest of the time will be pretty dead. Without a daily/weekly rental option I don't see much rental income in your future.

Long term, we are likely looking at moving out West for our "permanent" retirement. We do really like the Traverse City area though and could easily see living there for 5 or 10 years, or at least until we can't stand the long winters any more.

My wife and I are very lucky in that all 4 parents are still alive and were in very good health until my FIL was recently diagnosed with prostate cancer. His PSA was over 600, which is not good and generally implies that the cancer has metastasized. Scans did not pick up any spread of the cancer but his oncologist and urologist both think that with a PSA that high, it must have spread but for some reason was not picked up on the CT or bone scans. So we are not sure how his health is going to change in the next few years and we figure it would be good to spend some time with our parents before they get too frail to participate in family activities (they're in their mid seventies so could have a good number of health years left or they could go downhill rapidly soon).

Actuarially, with 4 parents in their mid-seventies, there's likely a pretty good chance that at least one of them will hit 90. The plan was not to move back to the UK for 15 years (more like 5?), but who knows how that might turn out.

 

[ivinsfan]

Thanks for this information - it's really helpful. I definitely like the idea of a seasonal rental. I think that would work in Northern Michigan with snowbirds wanting to get away from Florida for 2 or 3 months. I need to call a property manager up there and see what the market is like for those kind of rentals.

You know a property manager only makes money when he rent properties. Even though is the area isn't zoned for short term. I suggest you go to VRBO and such and look for any rentals in your town. There are way more areas available for reverse snowbirding then there are for regular snowbirding.

For short term 30 days rentals expect the PM to ask for 25-30% in fees.

 

[Sunset]

Normally real estate advice is to rent if you are only going to be in an area for 5 years or less, as the costs with buying and selling are so steep.

Since you would only be using the property for 2 months of the year, that advice would be extended out 6x for 30 years. Now it's true if you managed to rent it out sometimes, then that would help cut down on the carrying costs, bringing the year span down, but intuitively it's still going to be 10-15 yrs.

 

[Sunset]

Compared to renting 2 months for $6,000 , buying a house is quite a bit more expensive.
My quick back of the envelope calculations, puts buying as $10,000 more expensive per year

 

[brucethebroker]

Compared to renting 2 months for $6,000 , buying a house is quite a bit more expensive.
My quick back of the envelope calculations, puts buying as $10,000 more expensive per year

Some good information. But, if you are going to be using the "lost" interest from the down payment, be sure to look at the appreciation of the property over a time period. Even modest appreciation (1-2% a year) will more than cover the "lost" interest income.

Our experience (two rental/vacation properties) is that the "holding costs" (taxes, utilities, HOA fees, etc.) are offset by the appreciation when you sell. We have often snowbirded "free" that way.

Sure, it would not be prudent to expect that to happen, but in many parts of the country, it works out that way.

 

[ivinsfan]

Some good information. But, if you are going to be using the "lost" interest from the down payment, be sure to look at the appreciation of the property over a time period. Even modest appreciation (1-2% a year) will more than cover the "lost" interest income.

Our experience (two rental/vacation properties) is that the "holding costs" (taxes, utilities, HOA fees, etc.) are offset by the appreciation when you sell. We have often snowbirded "free" that way.

Sure, it would not be prudent to expect that to happen, but in many parts of the country, it works out that way.

Care to give a few details, how long did you hold the properties and did you have a robust rental income? In St George, Utah they are constantly building new snowbird homes and the cumulative result is that anything over 5 years old has to be heavily discounted to sell.The builders are doing a good job of keeping the entry price point of the house stable. The funny part of that is so many of the entirely new neighborhoods being built are the result of the bust. The builders all had unfinished developments go back to the bank and then just bought other builders unfinished developments from the bank for pennies on the dollar.

 

[Scuba]

I've never been that excited about owning vacation property for exactly the reason you mention - less hassle and cost to just rent somewhere when we need it. I think there's a couple of reasons we're thinking about it now. One is that we would probably be spending a couple of months there per year, and that does start to get expensive when renting. Another is that it would mean not having to get rid of all of our house contents, only to replace them in a few years when (hopefully) we move back for good. I think there's also an emotional content too - not feeling like we're leaving the country permanently. I also know it's not a good idea to make financial decisions based on emotions!



The reason for Northern Michigan vs. Colorado (or other places out west that we really like) is just that we know Northern MI really well and feel we can make more of an informed decision in a short space of time. Our original plan was to retire 12/31/18 and then spend a year or so traveling around the west looking for an ideal location to move to. We may not have time to do that now so rather than taking a gamble on a place out west, we are thinking about going for somewhere we know better, even if it might not be the perfect place for us.

Putting emotions aside, renting a place for yourselves for 2-3 months per year is pretty much guaranteed to be less expensive than owning property and renting it out when you aren't using it once all costs are considered.

 

[Scuba]

Compared to renting 2 months for $6,000 , buying a house is quite a bit more expensive.
My quick back of the envelope calculations, puts buying as $10,000 more expensive per year

Agreed, and I think there are other expenses such as phone, cable TV, replacing damaged items, etc. that are missing.

 

[Scuba]

Some good information. But, if you are going to be using the "lost" interest from the down payment, be sure to look at the appreciation of the property over a time period. Even modest appreciation (1-2% a year) will more than cover the "lost" interest income.



Our experience (two rental/vacation properties) is that the "holding costs" (taxes, utilities, HOA fees, etc.) are offset by the appreciation when you sell. We have often snowbirded "free" that way.



Sure, it would not be prudent to expect that to happen, but in many parts of the country, it works out that way.

We owned an investment property in Palm Springs, CA. It turned out to be a large cash flow drain so we sold it. Lost money when we sold it too, but didn't want to keep holding it to wait for market appreciation because we were losing thousands per month holding it.

I recommend the OP do a spreadsheet budgeting for all costs of ownership less likely rental income, and compare that to cost of renting a property for themselves. I'd be very surprised if ownership was better financially.

 

[trirod]

I don't disagree with the posts that point out renting is likely cheaper than buying. However we do plan on living there permanently eventually so that shifts the equation slightly. I did a very quick and dirty spreadsheet that showed it could work if we manage to rent it out for the whole of June, July and August at what appear to be market rents in that area. I do need to take a closer look and see if I've been realistic about the expected costs.

Thanks for the input - I appreciate it muchly and it will help me come to a decision I'm sure!

 

[Koolau]

Our situation was somewhat different. We bought a retirement home and then rented it out full time until we were ready to retire. For the most part, it worked pretty well though we didn't manage it as well as we could have (we could have made more or maybe lost less) by keeping on top of local rents, etc. We did eventually get a property manger and yes, they are not a magic bullet, but they do keep the place rented if that becomes necessary (longest without renters was 10 days.) I can't say I recommend it, but it worked well enough for us.

YMMV

 

[Sunset]

What about a blended solution:

Rent while you are only using the area for 2 months per year. Then when you are really going to move full time there, buy.

It will afford you the flexibility to change your mind if you find out you would rather be somewhere else, and if not then it's been cheaper and less hassle than buying when you aren't there full-time.

 

[brucethebroker]

Care to give a few details, how long did you hold the properties and did you have a robust rental income?

FL. Seasonal rentals paid about 40% of the yearly operating costs. Owned it about 7 years, rented it out 5 of the seven (90 day snowbird rentals). Forced to sell during housing crisis, so the value was depressed, but still had about 40% appreciation-enough to have had "free" use over that time period. At the end, we had a couple who loved the location and would most likely still rent there if we still owned it. BTW, no shortage of people with the cash to pay it all up front.

Obviously, it works better if you buy in slow, or down markets, or find gently distressed (cosmetic improvements needed) properties. Then sell when the market turns around.

 

[traineeinvestor]

I've looked into the financial aspects of buying holiday homes a few times and every time I conceded that after all the costs and expenses (including opportunity cost) were included financially we were better off just investing the money and staying in hotels/serviced apartments for our holidays.

Other benefits: less hassle + we were not locked into going to the same destination all the time.