Condo at the Beach - Do the numbers make sense?

[athena53]

I used to watch a program on HGTV called "Vacation Home For Free". It wasn't free, of course; the assumption was that the owners would rent it out during prime season in addition to the small matter of a down payment.

Two things would make me nervous. One- I worked in property-casualty insurance for 38 years. Insurance is not going to go down on these properties. (Maybe that steep management fee% includes insurance premiums, at least on the building?) Every time there's a major hurricane the catastrophe modelers refine their data and premiums go up. (Mom and Dad lived in a modest house in NMB, NOT oceanfront but between the main drag and the ocean, and stopped buying windstorm coverage.)

Second- vacation rentals seem to be sensitive to the economy and to the price of gas. People tend to forego long road trips when gas prices skyrocket, and do "staycations" if worried about their finances. You cannot assume 100% occupancy every year.

OK, a third item- salt air is rough on everything. Plan on higher maintenance costs as a % of value that you would in a landlocked area.

Not my thing but certainly a lot of people decide to do this.

[Dash man]

In addition to our Florida condo, we have a Jersey Shore SFH that we do rent out about five weeks a year, at least for now. It’s another lifestyle choice that we use for getaways and family get togethers. Our net rental income is about $16,000 for those five weeks, which cover property taxes and utilities for the rest of the year. We don’t need to rent, and one bad tenant will probably end it.

[Charlotte]

Really look into those insurance costs... we have multiple kinds of policies for our beach house... flood, wind, regular homeowners-like insurance to protect against fire or theft, as well as a higher than normal umbrella liability policy (important if you think you are going to rent it out).

[Dash man]

Quote:

Originally Posted by Charlotte Really look into those insurance costs... we have multiple kinds of policies for our beach house... flood, wind, regular homeowners-like insurance to protect against fire or theft, as well as a higher than normal umbrella liability policy (important if you think you are going to rent it out).

Got ‘em all covered. Our SFH is two blocks from the beach and not even in a flood zone. Property tax is by far our most significant expense.

[sheehs1]

Quote:

Originally Posted by athena53 Two things would make me nervous. One- I worked in property-casualty insurance for 38 years. Insurance is not going to go down on these properties. (Maybe that steep management fee% includes insurance premiums, at least on the building?) Every time there's a major hurricane the catastrophe modelers refine their data and premiums go up. (Mom and Dad lived in a modest house in NMB, NOT oceanfront but between the main drag and the ocean, and stopped buying windstorm coverage.) .

For a condo, part of the HOA fee paid to the association is for the Master Insurance Policy for all building units and purchased by the Condo Association, so I am still unclear why the steep management fee. The Op hasn't responded to this point. The HOA fee listed in the numbers was pretty high too so I assume that included the units divided interests in the Master Insurance Policy.

[foxfirev5]

Our lakehouse has annual expenses of approx. $7700 including $2000 for future capex. At our age we are not interested in renting it out so any potential rental income is moot. However we use it extensively during the summer and travel elsewhere the other three seasons. The annual expenses of this property are considerably less than one winter trip to Key West.

However it's a lifestyle choice and crunching the numbers really doesn't matter as long as you have enough. It has taken me several years to get to this point and it is the feeling of freedom that FI should provide.

[ncbill]

Plenty say "I'll buy my dream vacation home & just rent in the high season to cover all my expenses" but your family won't want to stay there given the aftermath of weekly renters for those 4-5 months...

[Bamaman]

Many of our friends have condos on the Gulf Coast--400 miles south. Most rent them in prime summer season and spend a month or so down there in the Fall. it is doubtful they ever turn much of a profit--just renting for the yearly upkeep and expenses.

We keep a RV in the Blue Ridge Mountains, and total expenses yearly are about $1,100 per year--for 14 nights per month use. it stays there in storage.

Our dream lake house has been in my family since 1945. And it is just 1/2 hour from our main home. I spend many afternoons there while my wife stays at home. With us raising a 7 year old granddaughter, life gets in the way, especially with her in church twice on Sundays and on Wednesday nights.

We continue to spend at least a month a year in Europe or on extended cruises. We keep coming up on internet deals that allow such travel cheaper than we could go To The Beach for. Latest deal spotted is Berlin--Prague--Vienna--Budapest for 12 nights total for $1,100 each including airfare and trains between cities.

[marko]

We summer north of Boston and winter at the beach house in Fort Lauderdale.

The costs are the costs of our lifestyle. Renting out to offset cost has never entered our mind; these are our homes.

I've always thought considering one's home as an investment created an opportunity for making bad decisions.

The set up has not hindered our ability or interest to travel other places as we still go to Europe, Mexico etc when the mood strikes. We simply live in one town for x months and another town for the balance.

[rodi]

I, personally, would never purchase a second home as a vacation home.... If I lived in colder climes I might buy a snowbird home... but I live in a vacation destination already.

That said - I'm currently on a "staycation" - we rented a beach front apartment about 6 miles from our house... Makes it really easy to wake up, throw on a bathing suit, go boogie boarding... all before breakfast. And no cost of airfare. We definitely got in the vacation vibe quickly.

Something to think about. More and more apartments/condos/SFHs that are coastal are getting turned into vacation rentals.... and there is a huge push back. Several California cities have banned them outright, and others have very restrictive laws. San Diego recently voted in one of the most restrictive laws yet.... so all of the owners who bought years ago are going to find that vacation rental income taken away from them next July. Some neighborhoods have had vacation rental properties for decades, owned by the same family the whole time.... and they'll be banned from doing this if it's not their primary home.

(Note - this new San Diego law WILL be challenged in court... just like is happening in Santa Monica, Hermosa Beach, and San Francisco.)

That's a risk you have to consider when you buy a 2nd home with the intent of renting it out part time... Laws can change, disallowing it.

In the meantime, we're enjoying the rental while we can. Nothing like sitting on a front porch watching the boardwalk fun and the waves.

[ivinsfan]

Quote:

Originally Posted by sheehs1 Rarely do I see a management fee this high. Typically I see 15% to 17%. What in the world are they managing other than renting it for you? I purchased a bay front condo. It was not for status and is not for rent. If I rented, I could get a positive yearly profit return of minimally $13,000. HOA Reserves are good. They set aside the recommended yearly amount cited in a Reserve/Replacement Study. We are in good shape.

Those fees are pretty typical for weekly type rentals and a real rip-off in my opinion. Certain newer developments put in the sale documents that you must use their certified rental agents to ensure safely and monitor renters. What they really mean is we own that company too and want some more of your money.

[sheehs1]

Quote:

Originally Posted by ivinsfan Those fees are pretty typical for weekly type rentals and a real rip-off in my opinion. Certain newer developments put in the sale documents that you must use their certified rental agents to ensure safely and monitor renters. What they really mean is we own that company too and want some more of your money.

Wow ivinsfan. You are correct in saying it's a rip-off. 40% of the gross rentals is quite a bit in my part of the country. The 15% to 17% property management fees I mentioned are for coastal homes in Va. and N.C. but I have not looked at it for about three years.

[ivinsfan]

Quote:

Originally Posted by sheehs1 Wow ivinsfan. You are correct in saying it's a rip-off. 40% of the gross rentals is quite a bit in my part of the country. The 15% to 17% property management fees I mentioned are for coastal homes in Va. and N.C. but I have not looked at it for about three years.

We looked at a brand new development in Southern Utah geared to short term rentals and they had this management deal..use them to rent or be in violation of the HOA by-laws...it's unbelievable to me that a buyer would sign off on a restriction like that. You know exactly where those "management" fees went.

[Dawg52]

Love my beach condo. Do not rent it out as it's just for me. Does it make financial sense? Probably not but its a lifestyle choice. It has appreciated nicely tho. I do not travel like many here so its my outlet. Looking forward to spending a lot time in the Fall there.

[Floridatennisplayer]

Live in Ohio and a winter condo in SW Florida. Status never entered my mind. Obviously it entered yours...jealousy perhaps?

Totally a lifestyle choice. We love coming down to get out of the winter. Love our gated community, the golf course, tennis, restaurants etc. I have a snowbird renter for only 90 days a year which covers all my expenses for an entire year. So other than my cash outlay, it’s free plus I get to deduct property taxes etc.

[Scuba]

We live in a beachfront condo as our primary residence and really enjoy the lifestyle. I agree with others that property ownership (one or multiple homes) is a lifestyle choice, not an investment. We used to own a second home in the desert. Loved going out there but didn’t love the costs involved, plus every time we went out there was a “to do” list that wouldn’t have existed if we were renting. After a few years, we sold it and have since been very happy just renting homes in whatever destination we are visiting.

If we had a lot more wealth, I could see owning a second home just for the convenience of having it available to us whenever we wanted to use it. Maybe if we get tired of extensive travel around the world, we will consider buying a desert home again. However it does create more complexity and work to own a second home, even if you have “staff” taking care of it for you.

[NW-Bound]

It's really just a way to "blow some dough". The opportunity cost is huge. If one cared about having more money, then not having even the primary home and living in an RV to invest the money would bring much better returns.

People spend their money in different ways. Having a 2nd home is just one of the ways to do it.

[cyber888]

The HOA fees in Myrtle Beach for 2BR are ridiculously high. $800/month is the low end. Others are $1000-$1200/per month for HOA fees alone. In order to profit, you must have no mortgage + you must rent it directly yourself and advertise it in VRBO or Homeaway.com. The management fee + HOA fees is killing the profits.

[pjigar]

Need more numbers like everyone said. But I can tell you that my friend literally went broke (bankruptcy) trying to buy multiple rental condos. His numbers looked good when he bought them but things changed after few years in the renal market. You need a HUGE margin of safety with non-liquid assets, especially with condos because lot of the hard expenses NEVER stop regardless of vacancies.

[sheehs1]

Quote:

Originally Posted by cyber888 The HOA fees in Myrtle Beach for 2BR are ridiculously high. $800/month is the low end. Others are $1000-$1200/per month for HOA fees alone. In order to profit, you must have no mortgage + you must rent it directly yourself and advertise it in VRBO or Homeaway.com. The management fee + HOA fees is killing the profits.

True! The HOA fees are why it took me so long to find a place. All of the high rise condos I saw have fees that exceed the $800/mth and as you said, are often $1,000 or $1,200 per month. They typically have way more "things" to take care of and more amenities. No way was I doing that! Plus, I did not want a high rise.

My condo is a "low rise" at only three levels. I am on the second level. My HOA is $345/mth and covers the Master Insurance Policy, water and sewer and maintenance. I have been asked to be on the HOA board shortly (Treasurer) as someone is stepping down. Could be a thankless task but at least I will know more about what's going on and I really like the others on the Board. The budget has enough buffer to set aside 25% to 30% into the Reserve Fund every year.
It's not new. The complex is 25 years old, has a track record and I know others that own here.

It is difficult to find anything with a HOA fee south of $500/mth. The HOA fee for low rise condos, duplexes etc. are often lower than high rise condos. At least that has been my experience.