threshold to buy instead of rent winter place

[someguy]

My SO is full-time and I consider myself semi-retired although that varies based on how interesting and lucrative available projects are at any given time. Our work is not geographically dependent.

We are spending a substantial amount each year on vacation lodging. When we travel, it's been increasingly to the same area to avoid winter in our primary location. We've also been increasing the frequency of said trips and would like to increase them more. Short-term rents in the area have been increasing. Given all this (and more, see below) we're thinking of buying a second place.

I've long been a fan of the NYT rent-buy calculator (http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html). Although I imagine it's designed for the more typical scenario of comparing full-time living in one location using current rents and home prices, is there any reason it couldn't be used to compare second/winter type living?

For example, say we're currently spending roughly $2k/week for 6 weeks of rental in the winter location ($12K/year). I plug the appropriate numbers into the NYT calculator (including adjusting the landlord-paid utilities amount to include all expected utility costs) and adjust the purchase price until the breakeven number it spits out is $1000/mo (i.e., $12K/year).

If I could buy a place for that purchase price, then buying is financially equivalent to renting as we've usually done, except for the cost to furnish the place, right?

In an area with historically and currently high appreciation rates plus relatively high rentrice ratios, it seems pretty easy at the 6-8 weeks/yr range to break even or do better buying. Moving to 10+ weeks/year makes it even easier.

I have done a more traditional comparison of leasing (year-round) versus buying in the winter location and according to the NYT calculator, buying comes out way ahead.

Obviously a downside to the buy option is the hassle and stress of maintaining a second place including having it sit empty for possibly many months at a time. That could be partially mitigated through the type of place (e.g., lock-and-leave type condo or townhome). A risk of the buy option is that the historical appreciation rates (which I adjusted down by 20% to be conservative) don't accurately predict future appreciation rates.

Obvious upsides to the buy option are the ability to increase the frequency and/or duration of stays at little to no additional cost. Also, having our own stuff, especially work-related and recreational equipment such as cycling gear. Very few rentals have one office set up, let alone two! Bike rentals in the area are only for single-speed coaster/cruiser type bikes.

Has anyone else found themselves in a situation where vacation/winter rental expenses are effectively equal to the cost to buy? I know there have been a lot of threads about renting/buying second homes but I don't think any have had this angle. What did you end up doing and any useful tips or gotchas? Am I missing anything obvious or less obvious in terms of the math and
logic?

 

[HadEnuff]

About 6 years ago I was interested in buying a place in The Villages, in Florida. When I did the Buy vs. Rent math, I came up with a break-even time of 7 months.
Since I had no desire to be there for 7 months, it wasn't an option.

Curiously, I recently met a guy here in my town who rented from friends of mine in The Villages, and he did the same math, worked on it with his accountant, and they also came up with the same number, 7 months.

I can't imagine that 6-8 weeks of renting would get you the break-even point of buying. Have you compared equivalent properties and added ALL of the extras, such as bonds, if applicable, HOA fees, Amenity Fees, insurance, year-round pest and varmint control, year-round landscaping services etc etc.?

 

[someguy]

About 6 years ago I was interested in buying a place in The Villages, in Florida. When I did the Buy vs. Rent math, I came up with a break-even time of 7 months.
Since I had no desire to be there for 7 months, it wasn't an option.

Curiously, I recently met a guy here in my town who rented from friends of mine in The Villages, and he did the same math, worked on it with his accountant, and they also came up with the same number, 7 months.

I can't imagine that 6-8 weeks of renting would get you the break-even point of buying. Have you compared equivalent properties and added ALL of the extras, such as bonds, if applicable, HOA fees, Amenity Fees, insurance, year-round pest and varmint control, year-round landscaping services etc etc.?

Make sure you take a look at the NYT calculator. It's pretty comprehensive. I had to estimate certain things (like total utilities, for example). The secondary location is in a place that is very temperate year-round and has very little in the way of bugs (both items are major reasons we didn't consider FL). It also takes into account appreciation and tax savings (on mortgage interest and RE taxes). Both appreciation and tax deductibility are significant (historical appreciation above average and higher than current mortgage rates, and high marginal tax rates) in terms of helping the buy proposition.

That said, it is not entirely apples to apples. The place(s) we are renting on a weekly basis would be significantly more expensive to buy than the purchase price given by the NYT calculator. When in the shorter-term rental market, we are forced in a couple ways to go higher-end than we would otherwise. Almost all the ST rentals are quite close to the coast (= more expensive). Also, to get a couple key amenities we usually have to go more upscale than we otherwise would. Put another way, most of the non-year-round lease options are very much geared toward short-term vacationers. We definitely could get a true apples to apples, but we'd have to lease (one-year type term) year-round and that math is clearly in favor of purchasing.

How do you handle things like recreational equipment, work-related equipment requirements, and facilities requirements? Or are none of those applicable in your scenario? Do you schlep other items (e.g., clothing) back and forth?

 

[Ronstar]

For me, the break even point is $7k, which is the yearly total of our owned condo expenses. I don't know rental rates, but I like the fact that I stay at my own place.


Sent from my iPhone .using Early Retirement .//82339)

 

[marko]

I don't think it's a purely financial decision.

There is the straight convenience of handing the keys back to the owner when done; letting someone else deal with the hurricane/snowstorm/changing neighborhood/eroding beach etc; the opportunity to try another place that might pop up as more interesting; your own health or health of family members and ability to go back each year might all play into the equation. "Life happens" and things change.

We have neighbors in Florida who bought their condo thinking they'd go down every winter for 3 months. Soon after a grandchild got seriously ill (no visits that year) and then the DH got sick (no visits that year) and now they're paying $25K assessments for a place that they use a few weeks a year.

 

[HadEnuff]

I don't think it's a purely financial decision.

There is the straight convenience of handing the keys back to the owner when done; letting someone else deal with the hurricane/snowstorm/changing neighborhood/eroding beach etc; the opportunity to try another place that might pop up as more interesting; your own health or health of family members and ability to go back each year might all play into the equation. "Life happens" and things change.

We have neighbors in Florida who bought their condo thinking they'd go down every winter for 3 months. Soon after a grandchild got seriously ill (no visits that year) and then the DH got sick (no visits that year) and now they're paying $25K assessments for a place that they use a few weeks a year.

I agree with you. We have a lake home up north and we are pretty much locked into Spring, Summer and Fall here, so neither DW nor I are keen on anchoring to another harbor for winter. The tradeoffs, as mentioned, are things like not having your own stuff, always having to find a new place,etc.

 

[tmm99]

One landlord I acquainted with said he had a condo in Naples, FL. He said a German couple rents it for a few months during summer months every summer, and that pays for the yearly property taxes plus some. He said the way he decorated it attracted this European couple (I cannot remember what kind of decor though...) Obviously, you don't know if you can rent it out during summer months when you won't be using the place, but this landlord did.

 

[HadEnuff]

Make sure you take a look at the NYT calculator. It's pretty comprehensive. I had to estimate certain things (like total utilities, for example). The secondary location is in a place that is very temperate year-round and has very little in the way of bugs (both items are major reasons we didn't consider FL). It also takes into account appreciation and tax savings (on mortgage interest and RE taxes). Both appreciation and tax deductibility are significant (historical appreciation above average and higher than current mortgage rates, and high marginal tax rates) in terms of helping the buy proposition.

That said, it is not entirely apples to apples. The place(s) we are renting on a weekly basis would be significantly more expensive to buy than the purchase price given by the NYT calculator. When in the shorter-term rental market, we are forced in a couple ways to go higher-end than we would otherwise. Almost all the ST rentals are quite close to the coast (= more expensive). Also, to get a couple key amenities we usually have to go more upscale than we otherwise would. Put another way, most of the non-year-round lease options are very much geared toward short-term vacationers. We definitely could get a true apples to apples, but we'd have to lease (one-year type term) year-round and that math is clearly in favor of purchasing.

How do you handle things like recreational equipment, work-related equipment requirements, and facilities requirements? Or are none of those applicable in your scenario? Do you schlep other items (e.g., clothing) back and forth?

I am recently retired, so I wouldn't have to worry about work-related equipment. I do like to cook, with nice utensils, so that would likely be a small problem. In all honesty, this will be my first winter completely retired, and DW is likely to still be working, so we haven't spent a winter away, and it will not likely happen this year.

I think "banking" on the idea of appreciation is, as we all should have learned in 2007, a bit shaky. Also, when I was working, I was making enough money that I was going to lose a lot of my normal real estate associated write-offs to the AMT. Especially since I live in NY STATE and get heavily whacked already. Keep an eye on the AMT and what it may due to your projected deductions if you are anywhere close to the AMT threshold.

 

[RioIndy]

I will be looking into this further myself in another 10 years or so

As I simply have a general interest in this, my very surface level research tells me that it is often better to rent instead of buying, even if it costs a little bit more. Because the added flexibility, reduce in headache and stress and time involved compared to buying and then maintaining property has a significant impact on the decision.

 

[pb4uski]

We went through this recently and ended up buying a condo in Sarasota.

Cost to rent for winter months is ~$3,000/month + 10% for tax and minimum of 3 months... so that works out to, say, $10k. In reality, we would probably want to spend 5 months there so that would be $16.500, perhaps a bit less since a couple of those months would be off-peak... so say $15k.

Our HOA fees, property taxes, electricity, insurance and monitoring while we are away cost about $7,300/year. Between the difference in owning vs renting and potential appreciation of the property I think it will roughly cover my opportunity cost of funds since I paid cash for the property.

If I consider the above holding costs and my opportunity cost net of appreciation potential I figure that it is costing us $2,500/month if we use it 5 months a year.

Plus, I can come and go as I please, I don't have to worry about whether I can get the unit for next season, I can leave my things there, I don't have to worry about getting scammed with a vrbo or craigslist rental, wonder if the owner is charging me 10% for taxes and pocketing it rather than paying the state, etc.

I should also mention that part of our reason for buying in that neighborhood is that there are half a dozen couples from where we live in the summer who winter there so there is an immediate social ties as we golf together, go out to dinner together, play cards or dominos, etc.

 

[someguy]

I will be looking into this further myself in another 10 years or so

As I simply have a general interest in this, my very surface level research tells me that it is often better to rent instead of buying, even if it costs a little bit more. Because the added flexibility, reduce in headache and stress and time involved compared to buying and then maintaining property has a significant impact on the decision.

The flexibility part was definitely an overriding factor when we were younger. We've racked up a ton of air miles over the years going wherever strikes our fancy. Back then, having a second place would have made us feel obligated to go there all the time and we would have grown to resent that.

As we've gotten older, we find ourselves taking fewer of the "crazy" trips and instead defaulting to the same area most of the time. Plus, my math suggests the potential is to replace an existing rental cost with a similar purchase cost. Our travel budget still has room beyond this cost/expected cost so trips elsewhere shouldn't be an issue.

 

[someguy]

Has anyone set up a deal with rental property owner to have a standing reservation of 2-5 winter months? I guess with at least smallish items (like nice road bikes) one could get a storage unit near the rental. If the relationship with the owner/manager was good, could also work out some way to have a small work space or two.

 

[pb4uski]

A couple we know who regularly rent for certain winter months are allowed by the owner to store some things there. A couple beach chairs if I recall correctly.

 

[someguy]

I am recently retired, so I wouldn't have to worry about work-related equipment. I do like to cook, with nice utensils, so that would likely be a small problem. In all honesty, this will be my first winter completely retired, and DW is likely to still be working, so we haven't spent a winter away, and it will not likely happen this year.

I think "banking" on the idea of appreciation is, as we all should have learned in 2007, a bit shaky. Also, when I was working, I was making enough money that I was going to lose a lot of my normal real estate associated write-offs to the AMT. Especially since I live in NY STATE and get heavily whacked already. Keep an eye on the AMT and what it may due to your projected deductions if you are anywhere close to the AMT threshold.

Regarding cooking: we are in that camp, too. If it's really bad, you can always buy a few key items (probably one knife and two cookware items) and just leave them when you leave. Even if you spend say $250 that could be a lot cheaper than buying your own place. Many times, the stuff is still there if you return next time.

Thanks for the AMT heads up. Since much of our income is non W2, we typically have more room to steer clear of AMT, but it would definitely be something I'd want to clear with our accountant.

 

[omni550]

Here's a book on vacation rental properties. It's in in 3rd edition, so there's definitely folks interested.

I read the 1st edition about 10 years ago. I seem to recall that she posits that 17 weeks (just over 4 months, which is a do-able vacation season in the US) of rentals would need to cover your expenses, after that it's all gravy.

https://www.amazon.com/Rent-Vacation-Properties-Owner-Third/dp/0974824976

omni

 

[RAE]

Has anyone set up a deal with rental property owner to have a standing reservation of 2-5 winter months? I guess with at least smallish items (like nice road bikes) one could get a storage unit near the rental. If the relationship with the owner/manager was good, could also work out some way to have a small work space or two.

Yes, we do this for a house we rent on the Texas Gulf Coast every winter. We've been renting the same house every winter for 2 1/2 months, but we could get it for longer if we wanted to. The house is nice, the location is perfect, and the price is great, so there is no way we would consider buying a place down there if we can continue to get a rental house like this for anywhere near the price we get it for. Rental units are available nearby to store stuff, if we wanted to do that, but so far we have not felt the need to do so.

 

[omni550]

Has anyone set up a deal with rental property owner to have a standing reservation of 2-5 winter months? I guess with at least smallish items (like nice road bikes) one could get a storage unit near the rental. If the relationship with the owner/manager was good, could also work out some way to have a small work space or two.

Several of my friends have done this in the Keys.

The one couple kept renting the same house for 3-4 mos. They kept personalizing the space (Taking down the owner's art and knick-knacks and things and putting up their own. Then, off season, they stored their own stuff in plastic tote bins which they left in the rental house's storage room.....until the owners started complaining about the ever-growing number of tote bins.)

The other couple rented for 2-3 months, and things were good for several years, until the owner told them sort of last-minute that the house would no longer be for rent, so my friends had to scramble to find another house (when hardly any places were available.)

------

In the Naples, FL area, I have run into many couples who could not get a rental place for multiple contiguous weeks or months, so they seemed to be jumping from rental to rental, a few weeks here, a week there, etc.

I've also run into several people who thought they had a rental contract for 2 months, only to be told (fairly last-minute) by the landlord that another party who wants to rent the same place for 3 months now has priority and the original 2-month contract has been torn up.

Hearing stories like these made me decide to buy my own place. It's there when I want to use it and everything is just the way I want it and just how I left it.

omni

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[bclover]

Has anyone set up a deal with rental property owner to have a standing reservation of 2-5 winter months? I guess with at least smallish items (like nice road bikes) one could get a storage unit near the rental. If the relationship with the owner/manager was good, could also work out some way to have a small work space or two.

Know quite a few couples from the Philly/DE area that do this. One of my friends rents a place January through March every year. Owner cuts them a deal for leaving a deposit on the following year.
I think the owner likes the fact that they now don't have to worry about advertising and marketing the place. they get a couple who they get to know fairly well and generally take great care of the place. win-win My friends love the area (florida keys) don't have to worry about home ownership issues.

No horse in this race as I have no desire to own another house so where ever I end up snowbirding, I'll be renting

 

[Floridatennisplayer]

My parents bought a condo in FT Myers 30 years ago. Golf course community etc. we loved the convenience of going down anytime we wanted. Southwest run a $99 special......boom, we would go down for a long weekend. Our kids loved it.
So many fun memories with our family.

Now my wife and I bought one 3 years ago. My condo fees, insurance and property taxes run me just under $9k annually. Since we aren't retired, I rent it to the same couple Jan-March and it covers all my costs. We love the area, love our friends, restaurants. We are all going down next month for 2 weeks. Can't wait. Every time an airline has a special.....we pop down for a fun time. Hard to put a price on that.

 

[fritz]

We've been renting for two months (Jan/Feb) every year since we retired (retired 7 year now). We rented from the same couple for 5 years in Florida. Originally started with VRBO and find rentals on there can be scary, and some owners unreasonably demanding (when you read their info or inquire about their place). It was very uncomfortable to send money for a deposit to people you didn't know (they didn't take credit cards), but we developed a good relationship with them and they never required one after the first year (we reserved it for the following year when we left each year).

We noticed each year when we returned, that the place had suffered extreme wear and tear on some items. Their new carpet was ruined in one year, and they had replaced the dining table and it was already scratched/damaged. The yearly list of damaged/replaced items went on and on. They finally put the place up for sale and we had to move on this year. It must be a realtors dream to sell properties in Florida. I imagine some have sold the same (broken dreams) property several times....

We rented this year's place for Jan/Feb on VRBO, after a long and disappointing search again. Was a nice/newer 3bd/2ba beach house (from the pictures - pictures can be deceiving). Very nice Canadian couple owned the place and they held the place for us with no deposit - but they informed us they had the place up for sale and things could change. We took the gamble as we liked the pictures of the place (and we were tired of searching). Upon arrival, we noticed that a lot of the nice furniture was damaged. Got to know one of the neighbors and they mentioned that the place needed some new furniture. To our surprise, they had actually sold the place, and we were the last renters.

We are looking for this coming Jan/Feb rental now and the process is really tiring. I've not found where VRBO allows you to select just those offering monthly winter rentals, so you have to look at them, check their calendar, their pricing, their rental arrangements, and then if you like it. Vrbo and other sites that do these vacation by owner rentals allow commercial property managers to advertise (ie. contact "manager"). We've found they have the most restrictive rental requirements (ie. no refunds and some have it so so you end up paying both months before you actually arrive). Have friends that snowbird as well and you wouldn't believe the horror stories - best one was with a property manager. They had apparently told owner it wasn't rented and pocketed the money. Mistakenly double booked the unit they rented to them as well (it was occupied when they arrived), and the property manager had to put them in another unit. FYI - the cleaning people for both places we've rented left a lot to be desired and we had to clean each year when we arrived.

When we head out for our winter rental at the end of the year - the car is full, as we lug along our own linens, kitchen items, and various other items. Somehow, with all the stuff the wife wants to take along I manage to get it all in the car. She's right, in that it's much better to have your own items. We purchased all this stuff for this usage.

I've always been unhappy with the rental scenario, but when running the numbers evaluating buying or leasing for a year vs. VRBO type rentals - we need 4+ months to make it feasible. Florida has some strange scenarios as well. One involves property taxes where they take advantage of part-time residents with property tax increases. Year round residents can end up paying much less than part timers in property taxes on similar properties, as part timers don't qualify for tax breaks (and they can't vote the local govt. out of office). This has been reported on by reputable sources). They've also allowed HOAs in Florida to eliminate reserves (has to do with the last recession where HOAs used up those funds to remain solvent - some didn't make it). If you aren't careful, you can get stuck with some heavy out of pocket special assessments. Not to mention you really need to uncover the HOA fees - some are huge...

We'll most likely find a decent rental again this year, and I haven't given up on a 2nd place (but not in Florida). Although we hate the harsh Midwest winters - I have commented to my wife for the first time since retiring "maybe we should just stay home this year"

 

[HadEnuff]

Know quite a few couples from the Philly/DE area that do this. One of my friends rents a place January through March every year. Owner cuts them a deal for leaving a deposit on the following year.
I think the owner likes the fact that they now don't have to worry about advertising and marketing the place. they get a couple who they get to know fairly well and generally take great care of the place. win-win My friends love the area (florida keys) don't have to worry about home ownership issues.

No horse in this race as I have no desire to own another house so where ever I end up snowbirding, I'll be renting

You bring up a good point, and that is that an owner likes a repeat customer who has established that he/she will respect the property. This reduces the cost of advertising, cost of paying an agent to find a renter, and reduces the stress associated with the risk that the new renter will trash the place.

 

[HadEnuff]

Going back to my experiences when I was checking out The Villages, Hurricane Insurance was an issue. I don't think it's unique to The Villages, but probably an issue anywhere in the parts of the country that are in Hurricane Country. When I was looking, the memory of devastating Hurricane seasons of 2004 and 2005 was fresh, and insurance companies were dropping coverages like crazy. It wasn't that it was expensive, it was that you couldn't get it.
Supposedly the State of Florida set up an insurance pool, that was grossly underfunded, the last I checked. I don't know where that stands now.

 

[ivinsfan]

So Fritz, a lot of your problems have to be location dependent as Florida might be the number one spot for snowbirds.

One thing I love about the HGTV show beach front bargain is the huge amount of lovely beachfront available in this country. Some areas in Texas look amazing.

The property tax situation is pretty normal, when we house shopped out West the agent would always give us the state resident primary home tax number, since it was so much more reasonable then the real number we would have to pay.

We always loved the St George corner of Utah since we couldn't Snowbird in the real sense and often go there for a month or so from mid Jan on. I can pick from dozens of rentals and get them all last minute for anywhere from one bedrooms for 60 a day to brand new 3 or 4 bedrooms homes for around a hundred a day.Of course it's not Florida but I have family close and we love the parks and such.

 

[pb4uski]

....I've always been unhappy with the rental scenario, but when running the numbers evaluating buying or leasing for a year vs. VRBO type rentals - we need 4+ months to make it feasible. Florida has some strange scenarios as well. One involves property taxes where they take advantage of part-time residents with property tax increases. Year round residents can end up paying much less than part timers in property taxes on similar properties, as part timers don't qualify for tax breaks (and they can't vote the local govt. out of office). This has been reported on by reputable sources). They've also allowed HOAs in Florida to eliminate reserves (has to do with the last recession where HOAs used up those funds to remain solvent - some didn't make it). If you aren't careful, you can get stuck with some heavy out of pocket special assessments. Not to mention you really need to uncover the HOA fees - some are huge...

We'll most likely find a decent rental again this year, and I haven't given up on a 2nd place (but not in Florida). Although we hate the harsh Midwest winters - I have commented to my wife for the first time since retiring "maybe we should just stay home this year"

The issues that you have had with renting are the very reason that we decided to buy but we plan to spend 4-5 months down there. If you only plan to spend a couple months down there then renting makes more sense.

I think you are misinformed on the property taxes... Florida residents get a homesteading property tax reduction, but some sort of homesteading tax-break is pretty common in many states. I agree that you need to be diligent in checking out an HOA, luclily our is ding very well and had healthy reserves.

 

[fritz]

The issues that you have had with renting are the very reason that we decided to buy but we plan to spend 4-5 months down there. If you only plan to spend a couple months down there then renting makes more sense.

I think you are misinformed on the property taxes... Florida residents get a homesteading property tax reduction, but some sort of homesteading tax-break is pretty common in many states. I agree that you need to be diligent in checking out an HOA, luclily our is ding very well and had healthy reserves.

I had always been looking at property to buy while wintering in Florida, and we have friends who own and live there part-time and full-time. I had read an article sometime ago about the property tax scenario in Florida. Did a quick search and this is one article about it -

Florida Snowbirds Challenge Fairness Of Two-Tier Tax - WSJ

We gave up looking to buy in Florida, as wife (and I) haven't hit on anything there we liked, and wife just doesn't care for Florida after looking around for 6 years now (too touristy, lack of city planning, and high crime rates). Granted we've been looking since we started wintering in retirement, and the economy in Florida was hit particularly hard in the last recession, but we felt that a lot of the areas lacked a sense of community, as beach property seemed to be "for sale" or owners had them "for rent" on VRBO. Also depending on the location - hurricane and flood insurance rates can be prohibitively expensive (and based on the construction/style of the house or condo). Some of our friends with homes take the risk and don't carry flood insurance.