To rent out vacation home or not?

[ivinsfan]

Quote:

Originally Posted by brucethebroker 1+. Also, look into ditching the rental company-cut out the middleman. We used VRBO to advertise our former place and were pleased. Take the entire rent up front. Keep the security deposit until you personally visit and confirm (we used a 45 day period in our lease). This entire process requires two visits, one a day or so before guests arrive (to tidy up the place) and a visit afterwards. But it sounds like you would enjoy stopping by anyway. (Ask your CPA if before and after visits count towards your personal 14 day usage.) BTW, if you plan on retiring there, recapture of depreciation should be a non-issue. Plus, tax law can change in the next few decades.

45 days to return security deposit? Pretty sure that isn't legal in most states. I've always gotten my deposit back within around 7 days... And who does the laundry and housekeeping to ready the place for the next visit?.

I haven't talked to an actual owner when renting in over 8 years, it's all pretty much management companies now. But word of mouth I've heard that the VRBO is raising their fees across the board and so many owners want full payment at booking that taking CC cards has become a must.

But the company does take a lot off the top..I suspect the fact there are lots of rentals around and that the OP has a 2 bed maybe one bath is keeping down the daily rental income. On my last rental I rented a 4 bedroom two master suite home with 4 bathrooms for the same amount of money people were asking for a 3 bed 2 and half bath unit.

[pb4uski]

We have two places and I have no interest in renting either of them more from a hassle factor than anything else.

We would let friends and family use them, but it hasn't really come up..... other than a niece who inquired about using our place in Vermont for a week in the winter while we are in Florida.... I wrote back that she and her friends would be welcome to use it... she wrote back that she wouldn't be there but that she was asking for her friends... like she was looking for us to loan our place to some 20somethings that we don't know at all!

I just wrote back that we wouldn't be comfortable with no one from the family being there and that was then end of it but I thought it was a bit bold of her to ask.

[mexexpat]

Quote:

Originally Posted by pb4uski We have two places and I have no interest in renting either of them more from a hassle factor than anything else. We would let friends and family use them, but it hasn't really come up..... other than a niece who inquired about using our place in Vermont for a week in the winter while we are in Florida.... I wrote back that she and her friends would be welcome to use it... she wrote back that she wouldn't be there but that she was asking for her friends... like she was looking for us to loan our place to some 20somethings that we don't know at all! I just wrote back that we wouldn't be comfortable with no one from the family being there and that was then end of it but I thought it was a bit bold of her to ask.

We have 2 homes in very popular vacation areas, but we never had the thought to rent either of them. If you are thinking of doing so, then it isn't your vacation home, is it?

We do offer our FL home to family. Last month a nieces asked to use it for 5 days. On her 3rd day, she called to say the guest toilet was "broken." We tried to guide her through a few easy diagnostics, but that seemed to be cutting into her beach time. We did manage to get her to shut off the water valve.

Am rethinking these invitations.

[lakerunner]

We have had a vacation home for years. We did rent it out for a few years. Things we learned:

-People don't take care of it like you would. Expect to have to replace/repair things when you are ready for it to be your full time house. (Scratches on the hard woods, stains on carpets, etc,)

- Don't have anything out that has sentimental value. That is what will get broken. Pack those away and decorate from Wal-mart.

- You will need additional liability insurance. It is now considered commercial property.

But is sure helps pay the mortgage. Twice over the past 15 years, we have had someone ask about a long term rental. In one case, they wanted to rent for a year while their house was built across the street from us. That was a win-win. They got to stay nearby and we had a year of o house bills or worries.

[lakerunner]

Also, I just saw that this is in the young dreamers forum. We built our retirement house 20 years ago. It is now paid for.

[joeea]

Quote:

Originally Posted by hopefullyoneday Wife and I purchased what we want to be as our retirement home. We will retire in about 7 years. Any words of wisdom, any suggestions on how to sell in the future and not have to pay the depreciation tax i claimed. Thanks

Why do you want to sell your retirement home?

We purchased our vacation/weekend/future retirement second home a little over 7 years ago. We were at a stage in our lives where we didn't need to rent it out - we just enjoyed it every weekend, every vacation, and while babysitting our grandchildren every Thursday night and Friday.

We have just sold our primary residence and move into this second home permanently next month.

[pb4uski]

Quote:

Originally Posted by hopefullyoneday .... Any words of wisdom, any suggestions on how to sell in the future and not have to pay the depreciation tax i claimed. Thanks

Nope. The only way to avoid the depreciation tax is to die and have a heir inherit the property with a stepped-up basis.

Also, keep in mind that it is depreciation that you were entitled to take, whether or not you actually took it.

[gerntz]

Quote:

Originally Posted by lakerunner But is sure helps pay the mortgage. Twice over the past 15 years, we have had someone ask about a long term rental. In one case, they wanted to rent for a year while their house was built across the street from us. That was a win-win. They got to stay nearby and we had a year of o house bills or worries.

So how did you use it for vacation in that time period?

[tulak]

I’m seriously considering buying a vacation rental in a HCOL area.

We’d mostly use it during winter, for weekend ski getaways. There’s no way I could afford to do this without making it a rental and to me, it seems like it’d be a waste to keep empty for most the year.

I’m still unsure if I can make the numbers work, but if I feel that I can make it close to break even with little risk, then I’ll probably do it. But realistically, this would happen in 2-3 years from now.

So yes, I’d definitely consider renting out a vacation home.

Having said that, if I could afford to do this without renting it out, I’d probably go that route. Or maybe just rent it out to friend/family, but as mentioned here, that also can be risky.

[Sunset]

Quote:

Originally Posted by tulak I’m seriously considering buying a vacation rental in a HCOL area....... I’m still unsure if I can make the numbers work, but if I feel that I can make it close to break even with little risk, then I’ll probably do it. But realistically, this would happen in 2-3 years from now.......

No such thing.

As a landlord that is cash flow positive, there is still lots of risk, and hoping that insurance will pay if something terrible happens.

[Sunset]

Quote:

Originally Posted by hopefullyoneday That is what my wife thinks, but she is not paying for it. I on average bring in 500 per month with 615 in bills minus mortgage, repairs, upgrades, and people steeling stuff.[/LIST].

So your place rents out on avg for about $750/mo. It's the management company with zero skin in the game that is making $250/mo.

If you could eliminate them, you would be covering all your costs except mortgage (should include damage deposit for cases of theft, use photo's before and after to see theft).

But if you are not close, then hard to manage it yourself.

[brucethebroker]

Quote:

Originally Posted by ivinsfan 45 days to return security deposit? Pretty sure that isn't legal in most states. I've always gotten my deposit back within around 7 days... And who does the laundry and housekeeping to ready the place for the next visit?. I haven't talked to an actual owner when renting in over 8 years, it's all pretty much management companies now. But word of mouth I've heard that the VRBO is raising their fees across the board and so many owners want full payment at booking that taking CC cards has become a must. But the company does take a lot off the top..

I appreciate that your comments represent your experience (and opinions) as a renter using a management company. Mine represent a hands on landlord who actually used VRBO and had a positive experience with it.

The pre-rental inspection is just to make sure everything looks OK-maybe a quick vacuum or dusting. We never did guest laundry.

In our area, mgmt. co's. took 40-50% of the rent. At that time, (8 years ago) seasonal rents (3 months) were $10,000. That $4k-$5k saved allows lots of room for increased VRBO and CC fees of a few hundred $.

[ivinsfan]

Quote:

Originally Posted by brucethebroker I appreciate that your comments represent your experience (and opinions) as a renter using a management company. Mine represent a hands on landlord who actually used VRBO and had a positive experience with it. The pre-rental inspection is just to make sure everything looks OK-maybe a quick vacuum or dusting. We never did guest laundry. In our area, mgmt. co's. took 40-50% of the rent. At that time, (8 years ago) seasonal rents (3 months) were $10,000. That $4k-$5k saved allows lots of room for increased VRBO and CC fees of a few hundred $.

So you hire someone to come in do the actual cleaning and wash the dirty linens? Or you drive down and do that yourself?

The area we usually rent has lots of management companies and from what I can tell the fees are around 30%...cleaning fees are added to the rental total. 40-50 is a lot of money and seems excessive. I just know as a renter it's more seamless and easier to deal with a management company.

I don't know how much you charge for a damage deposit but at 3 plus for a month and paying cash up front at the reservation time, I would not be too happy if I had to wait 45 to get my own money back. How would I know that in the past 45 days another renter hadn't been in the place and done damage I had to pay for. Normally the cleaning crew will be in the rental the day or after you leave and check the place out for damage while they clean.

If it works for you that's great those management fees are off the hook.

[cyber888]

How much is management taking in commission wise ? 40% ?
I use to have a cabin and mortgage + utilities was around $1500-$1600.
DW and I rented it out ourselves via Homeway.com. It was 2 hours 40 minutes from our house, so we would go over there to clean it up. Our monthly proceeds was around $1500, so still some loss but almost break even. We did not have a rental company, so that was key to making more.

Quote:

Originally Posted by hopefullyoneday Wife and I purchased what we want to be as our retirement home. We will retire in about 7 years. It is a 2 br 1000 sqft townhouse with lakefront. We go there about a week every other month and love it. But my monthly costs are about $1200 which includes everything from mortgage to poa dues. We have rented it out using a management co. and have yet to make a profit from the rental proceeds. It is rented as a short term rental although i have rented for a month at at time. It is located in hot springs village AR. which is a very popular place to visit. I know that i can write it off as a loss and help lower my primary job income which then i pay less taxes, but is it really worth renting it out since if i ever sell it i have to pay a 25% tax recapture from the depreciation i have claimed on it. For now we don't see a reason to sell anytime soon. Is there any other advantages to renting it out that i am not seeing. I hear allot of people making money from rentals but don't see how i am going to do it. My place is priced competitively and rents out more than any other in my area. Any words of wisdom, any suggestions on how to sell in the future and not have to pay the depreciation tax i claimed. Thanks

[Retired Expat]

Quote:

Originally Posted by hopefullyoneday I can afford it that is not the issue, and i have no intentions of selling because of the bills. I just wanted to know if it is worth renting for the write offs or not rent so i don't have to repay the depreciation write off of 25% later if and when i do sell. My tax bracket is around 10% so to pay 25% later is a stinger.

I am a similar position as you. I don’t need to rent the house. I will surely want to use it more than 14 days a year. I recently put it up on AirBnB and at best this year will earn enough to cover 50% of the expenses. Mostly because we want to be there during the nicest times but isn’t that why we bought the house?

Still after added costs to outfit the house (extra sheets and towels and paper products, shampoo, soap etc) we are ready whenever to make a few bucks if people want it and we aren’t there. So will it ever make a profit? Not likely.... But will it cut my fixed costs in half? For sure and perhaps much more as it gets reviewed and established and in more demand. Houses with no reviews are slow to rent.

Cleaning fee covers a cleaner coming in and I have a friend who will check on it for 10% of the rentals. In some ways better than the house sitting unused for months at a time. Of course, we have just started renting it, so ask me again after some guest/tenant trashes the place!

[Bamaman]

Sometimes we'll rent out our lake house for a week to tournament bass fishermen. They're gone all day long, and keep the place clean. Since the house is just across town, it's no problem cleaning it up. We don't depreciate the house or do any special tax paperwork for just a week or two.

[DINKFIRE]

a few thoughts on taxes:

1) If you income exceeds certain level or you can't get out passive activity limitation, the tax loss from rental is carried forward.

2) You can convert the rental property to primary residence and qualify for the capital gain exemption, but recapture of depreciation is required unless there's no gain. You are required to track the tax basis, depreciation deducted for the calculation.

3) The recapture of depreciation is taxed as ordinary income and the rate is determined in the year of sale.

4) There are way to defer the recapture/gain, such as 1031 exchange or installment sale, when the property is inherited upon death of the owner, the basis is stepped up to FMV.

[Retired Expat]

Quote:

Originally Posted by Retired Expat I am a similar position as you. I don’t need to rent the house. I will surely want to use it more than 14 days a year. I recently put it up on AirBnB and at best this year will earn enough to cover 50% of the expenses. Mostly because we want to be there during the nicest times but isn’t that why we bought the house? Still after added costs to outfit the house (extra sheets and towels and paper products, shampoo, soap etc) we are ready whenever to make a few bucks if people want it and we aren’t there. So will it ever make a profit? Not likely.... But will it cut my fixed costs in half? For sure and perhaps much more as it gets reviewed and established and in more demand. Houses with no reviews are slow to rent. Cleaning fee covers a cleaner coming in and I have a friend who will check on it for 10% of the rentals. In some ways better than the house sitting unused for months at a time. Of course, we have just started renting it, so ask me again after some guest/tenant trashes the place!

Going to update my previous response here after our first summer renting the house. All things considered quite worthwhile. Our house is in a HCOL area so part time rental will never cover all the costs or make a “profit”. It just reduces the carrying cost. This year we used the house ourselves 4+ months during the nicest times of Spring and Fall. Rented out on AirBnB mostly for a total of about 60 nights.

Sure having to pack up clothes and personal stuff is a drag but hardly terrible and the house had closets easily lockable to store stuff. Hanging rack and some large plastic storage bins and some moth balls make it fairly easy and I would likely want to bag and moth protect things anyway during our long absences.

Damage to house has been minimal, mostly a carpet will need cleaning but we furnished and outfitted with rentals in mind.

Does it make “sense” financially? Well renting similar houses for those 2 visits would have cost about the same as what we spend now for the house in a year, plus I would need to rent a car instead of leaving one there (bought used at a great price). Plus schlep clothes and stuff for each trip. It wouldn’t be outfitted with all the comforts we like and besides we have really enjoyed the flea market and tag sale shopping and making it our home.

So if renting out a vacation home takes some of the “bite” out of the carrying costs and isn’t too big a hassle I am all for it. Forget all the tax benefit now versus tax at sale later, you can break your head with trying to track that stuff.

We are early retirees, and this is about enjoying life and we are enjoying the hell out of our vacation home! Although how can it be a vacation home when life now is mostly one long glorious vacation?