Condo at the Beach - Do the numbers make sense?

[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]

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]

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]

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]

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.

 

[Rivertop]

We own a beachfront condo in Gulf Shores, AL. We have always vacationed down on the gulf coast and may live down there someday. We are probably at our condo 2-3 weeks a year. We do rent our place out when we're not there.

We like having someone else pay our mortgage and expenses. We have always had 1 or 2 rentals at a time - not on purpose, but as a means to an end.

Our expenses:
We do have a property manager that we pay 18%. The going rate in the Gulf Shores area is 25%. Our property mgr collects and pays all of our occupancy taxes, handles cleanings, repairs, bookings, etc
3-4% credit card fees
$10 for starter supplies for each guest.
Deep cleaning 2x/year - $900
Master HOA fees ~50/month (grounds landscaping, security, clubhouse)
Building HOA fees ~ 450/month (bldg flood insurance, water, internet, phone, building landscaping, maint)
HOA-6 insurance (contents)
Flood Insurance (unit)
Property taxes
Electric

 

[DeRosaNC]

My wife is retired at 57 and I'm 56 and will retire Aug 31st of this year. Just a couple of weeks away! We purchased an oceanfront 17th floor condo in a more residential quiet part of Myrtle Beach, called the Golden Mile in 2014. We live 3-hours away and we manage it ourselves through vrbo #633092 (shameless plug). Also have a Facebook page for it "The Reach at the Beach". We have an awesome cleaning lady who takes care of that. It stays booked and we net $11,000 per year after all expenses (HOA, taxes, everything), and thats with us using it probably a total of 5-weeks per year. Paid cash for it and did a complete gut job at $13k into it. It's now worth about $125k. A great investment! Very pleased! That said, my wife does put an awful amount of time into it making sure our guests are completely satisfied and it shows with 50 5-Star reviews on VRBO. Tons of repeat renters. She could write a book on how to make the most out of a beach rental. Hats off to her.

 

[bclover]

Before I begin, I think the answer is that people purchase beach condos for the status, as I don't see that the numbers make sense.

Today, I could rent a 2 BR, 2 BA Oceanfront condo for maybe $900 - $1,200 a week for the last week in August. This is in North Myrtle Beach. A condo that can yield this kind of rent is in the $225,000 range. Of course, you can get condos cheaper and more expensive. I am just trying to match a weekly rental and a purchase price. Condo fees are going to be in the $800 per month range. Management fees run 35% to 45%. Those are the big expenses. You can guess maintenance and repair and utilities.

Lets say that you will rent solid from mid May to mid September. Furthermore, you are going to stay in the unit for 4 weeks in the off season. That leaves 28 weeks. During those weeks, between decreased rates and vacancies, you will pull in an average of $500 a week. Using these numbers and some estimates of other expenses, I get a profit of $2,000. Plus, I get 4 weeks stay, FREE! I have left out appreciation because I don't see enough appreciation in 5 to 10 years to offset the expenses of selling.

OR, I could take the earnings (60/40 AA) on $225,000. Maybe $10,000. And I could rent 4 prime weeks in a similar condo and pocket $6,000.

Again, people must do it for the status of saying I own a condo or they plan on using it a whole lot more than my example. Do not want hate from those that own and use for extended periods. Just trying to understand those that think they are making a profit and getting their vacation for free.

I purchased mine to live in, which I do. Since i have a small circle of friends who have known me for 50 years, the status statement is dumb. Im old don't have to impress anyone. No numbers to show you
Let me add, i'm in a beach town but not beachfront I'm a few blocks away.

 

[Rdub]

We own 2 investment condos in Hawaii. The basic math for us is that if you put ~50% down, you will be slightly cash flow positive after all related expenses. Take into acct tax savings (mortgage interest, depreciation, etc) and it gets a little better. I have been looking at a 3rd condo with a CAP rate around 4% and close to the 1% rule (basically gross income divided by purchase price). I'm sure there are better deals out there, but since we enjoy vacationing in Hawaii with family and friends, I am comfortable with these numbers. Throw in 3-4 weeks per year of personal use and the appreciation, our current units have turned out to be great investments. I'm sure there are better deals out there, but since we enjoy vacationing in Hawaii with family and friends it works nicely for us. Your mileage may vary.

 

[hopefullyoneday]

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...

That's the problem with not renting year round without a management co. I rent year round with a co. when I am not there. I go there about 10 days every other month and only rent short term. That way if I get a dirty renter they are only in there for a few days. My management fee is 30% which seams high but that is the going rate in Hot springs AR. They handle any damage done to place, advertise, provide linens, clean, and I get checks every month and get a bunch of write offs and depreciation perks.

 

[pb4uski]

..... 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. ....

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.

We own both a single family home and a condo. The SFH is a lot more hassle, even if I hired everything out I would need to manage the vendors (we don't hire everything out).

The condo is easy-peasy.... turn off the water, set the HVAC and close and lock the door.

 

[Scuba]

We own both a single family home and a condo. The SFH is a lot more hassle, even if I hired everything out I would need to manage the vendors (we don't hire everything out).



The condo is easy-peasy.... turn off the water, set the HVAC and close and lock the door.

Yes I agree that condos are much easier, which is why we live in one as our primary (and now only) home. However in the desert, we like staying in an SFR so that we have a private pool. We did hire everything out when we owned there, and it was not only expensive but a big hassle managing the vendors.

 

[pompanobeach]

It seems you are missing important things on both sides:

- I don't see vacancy and I don't see capital expenditures;

- On the other hand I don't see anything for tax benefits such as depreciation and tax deductible trips to visit your property.



Also, if I am buying a property for status I will not be renting it out. If I am buying for status it will sit empty 45 weeks a year except when my friends are using it for free. Lol.

You took the words right out of my mouth Calikid!

 

[Floridatennisplayer]

You could use this scenario for just about anything. Why do you buy a new car instead of a used car? why do you go out to dinner all the time at restaurants instead of eating at home? Why do you go on nice vacations that you have to fly to and are expensive instead of staying local?

Nothing I ever do is for status. what I do is what I want if I want a new car I buy it if it bothers somebody that’s their problem. I never worry about her question why somebody buy something or why somebody buys another hole or has a two extra cars that they don’t use that much good for them I say

 

[RenoJay]

I’m currently selling a vacation condo in Lake Tahoe. I found I didn’t use it much, and I started to feel resentful about the long lost friends who showed up when word spread that I had it. I’m selling at a decent profit (bought it during the downturn) and I’ll carry a seller’s note (ie mortgage) on the property except for 25% down payment by buyer. The interest from the mortgage is roughly what I’d get by having a long term tenant in there. Was hard to justify the condo financially but the appreciation gives me a decent positive return after all expenses so net net it was a decent purchase during the holding period.