Vacation rental property - reasonable investment idea?

[StellarSaver]

Does anyone have an opinion on whether it makes financial sense to purchase a vacation rental property, for example a condo near a ski resort in Colorado or Utah? I have been thinking about this off and on for a while, for a variety of reasons:

• I have a good bit of available money to invest, and it might make sense to diversify a bit more into real estate as virtually all my investments are mutual funds, ETFs, etc.
• I really love skiing and am intrigued at the thought of having a place of my own in an area such as Denver or Salt Lake City.
• Some of my friends have been hounding me to buy a vacation property to take advantage of the current buyer's market in real estate. They know I love skiing and would probably never consider this on my own due to my conservative/frugal nature.

My only experience with real estate so far is that I own my primary residence (a house), so I have never dealt directly with renters or any other landlord-type issues. I don't think I'd be too happy having to deal with tenants on a regular basis, so I would want to hire a management company to handle all those details for me. At the end of the day, what I'm contemplating is purchasing a property (most likely a condo) that I can spend 4-6 weeks at every year in the winter months and can rent out at other times of the year to more or less offset the ongoing costs of ownership and maintenance. Ultimately I would expect to sell this property in 15-20 years at a profit, hopefully exceeding the 6-8% annual return I could have reasonably expected if I had invested the money into mutual funds. Even if I ended up only realizing a 3% annual return (or even 2%), I'd probably still feel like it was a good investment simply because of the lifestyle benefits of having my own place so close to top-notch skiing.

Any opinions or advice on this would be greatly appreciated.

[Mr Nice Guy]

It would be a good idea if you got one right next to the mountain, but I feel like Denver is too far away.

Find a good property management service and you shouldn't have to worry too much.

Although there are still some awesome things to do in the mountains in the summer, you may have some vacant months once the snow melts...

[disneysteve]

We go to Disney World annually, usually for 2 weeks, and we always rent a vacation home. Obviously, the thought of buying a place, using it when we visit and renting it the rest of the time crossed our minds too. I researched that possibility pretty extensively and decided against it. I spoke to other current owners in the area as well as a couple of area property managers. The data they gave me regarding average weeks rented and associated costs just weren't very promising. Also, the number of hours per week that the owners told me they devoted to listing the home, responding to rental inquiries, communicating with the property managers, etc. was far more time than I was willing to spend for what would have been a very small profit (if any).

I am not at all familiar with the rental market in ski country but I would urge you to do the same thing I did. Speak with other owners (there may be an online forum where they hang out). Speak with a couple of realtors and property managers. Find out what the local rental market is like. What is the average number of weeks rented? Keep in mind that if you plan to use the house for 4-6 weeks in peak season, those are weeks it won't be rented.

Overall, I'm not crazy about the idea of you being a landlord to a home in Utah when you live in Georgia. I realize lots of people do it, however. In the Disney World area, a high percentage of rental homes are actually owned by British folks. I guess it works for them but no matter how I ran the numbers, I couldn't see how it made sense or how it would be a decent investment.

[bjl584]

You will have to run the numbers and find out what the average selling price of a vacation home in that area is and what the average rents are for that tpe of place. There is an off season in those areas so there will be a time of the year where you will need to rent at a discount or possible have the house sit vacant. Having weekly parties of guests in and out will take its toll on the place so have money set aside for repairs. Also, shop around for property management companies and see what the going rates are and what they offer. If you can achieve positive monthly cash flow after expenses, then it may be a good investment to pursue.

[JoshuaHeckathorn]

I've thought about this myself many times. I've even taken a look at places in UT, but I still haven't pulled the trigger.

After running the numbers, I basically came to the conclusion that it wouldn't be a great investment. It would really be more of a convenience, and if I made some money in the end then that would be great. I think that's how you need to look at it if you really want to move forward and buy a place.

It would be awesome to have your own place that you can use as much as you like around some of the greatest skiing in the world. If I could spend 6-8 weeks there every year, I would probably do it, although I would do it with the understanding that my money could probably be better invested elsewhere.

Of course, all the fresh tracks on pow days would make up for that in my mind.

[PetMom]

This would be your other home that you own and have a property management company manage and you refer to tenants being other people that rent for a vacation time such as a few weeks?

Or tenants that rent for 6 months as real tenants that live there.

Hopefully you mean the first one.

Don't know the tenant laws in Colorado but in some states they have a lot of rights and are hard to evict if they don't pay rent and still stay (this refers to tenants not vacation renters).

Also a property management company is a good idea but check them out. Do they go visit the property to make sure it is being maintained, holding up, or has had some big party people come in and trash it on their vacay?

Do the tenants (vacay or other) call them at 4:00 a.m. for any emergencies that a landlord would need to fix?

Do they arrange for home maintenance and yard keeping and have good companies with references.

Have you checked the insurance policies that would be involved. A family coming for a short vacay rental might have a toddler and the property might have and 'attractive nuisance' such as a hot tub and that could affect costs. A broken step and someone falls - what happens then? That ice buildup on the walkway or slippery packed down snow and someone slips?

Check out what type of insurance is needed; FEMA is re routing a lot of homes for flooding, what hazards are common there?

Would people bring their pets?

Any new building/fire codes going on? Is the home 'up to code'? Check zoning to make sure a big mall is not going to be built right at the scenic backyard property line.

Have a very strict home inspector go over the home.

Check out the property taxes, some places are quite pricey.

Also, do a good lien research on the property - do not rely on a do it yourself public record search. There are many complicated liens that affect clear title. A real estate specialist attorney in the area would be a good idea.

[mcfroggin]

Rental properties are rarely good investments. Unless you are willing to handle the daily sweat to manage the property, you are not likely to profit on this venture.

[StellarSaver]

Thanks, all, for the advice and feedback. If I do decide to get more serious about this, I would definitely do the research and talk to local property owners and management companies to get their take on it. As several of you mentioned, there are a number of drawbacks to the scenario I'm contemplating, and the last thing I want is to create a situation that ends up costing me either financially or in time spent devoted to keeping the place rented, maintained, etc. When I really sit down and think about it, I figure I can spend something like $4,000 each winter for two nice, long ski trips (3-4 weeks total), trying out many different areas over the years, and probably come out financially not too much worse off than if I had been renting out my own condo/cabin near one ski area. To me, this has the clear advantage of giving me unlimited variety in my skiing destinations, instead of being tied to one area that I may end up getting bored with.

[YLTL_Dan]

We go to Disney World annually, usually for 2 weeks, and we always rent a vacation home. Obviously, the thought of buying a place, using it when we visit and renting it the rest of the time crossed our minds too. I researched that possibility pretty extensively and decided against it. I spoke to other current owners in the area as well as a couple of area property managers. The data they gave me regarding average weeks rented and associated costs just weren't very promising. Also, the number of hours per week that the owners told me they devoted to listing the home, responding to rental inquiries, communicating with the property managers, etc. was far more time than I was willing to spend for what would have been a very small profit (if any).

I am not at all familiar with the rental market in ski country but I would urge you to do the same thing I did. Speak with other owners (there may be an online forum where they hang out). Speak with a couple of realtors and property managers. Find out what the local rental market is like. What is the average number of weeks rented? Keep in mind that if you plan to use the house for 4-6 weeks in peak season, those are weeks it won't be rented.

Overall, I'm not crazy about the idea of you being a landlord to a home in Utah when you live in Georgia. I realize lots of people do it, however. In the Disney World area, a high percentage of rental homes are actually owned by British folks. I guess it works for them but no matter how I ran the numbers, I couldn't see how it made sense or how it would be a decent investment.

Excellent analysis! I've always had the same thoughts about a vacation home, but this is a great process to go through. It would sound cool to say you own a vacation home, but the amount of time you spend thinking about the upkeep of it would be burdensome.

My wife and I love skiing, but we also like exploring new mountains... I agree with the OP's final assessment... pay for the rental for the week and then be done with it!

[disneysteve]

When I really sit down and think about it, I figure I can spend something like $4,000 each winter for two nice, long ski trips (3-4 weeks total), trying out many different areas over the years, and probably come out financially not too much worse off than if I had been renting out my own condo/cabin near one ski area. To me, this has the clear advantage of giving me unlimited variety in my skiing destinations, instead of being tied to one area that I may end up getting bored with.

I agree. I think that is the better way to go. No hassles. Not tied to one property or one location. Owning a rental property is a part-time job at least, even if you hire a property manager. And once you own, just like your own home, things wear out, things break, etc. It can quickly become a money pit.

[charlieh]

Rental Property

In terms of vacation rental properties if you pay cash you may just have a worthwhile investment. Given the dip we are in now you could probably find a place for a reasonable amount of money, and expect to realize a profit in your time frame, simply based on historical real estate growth trends.
Most importantly though in terms of your investment is what you pointed out - the lifestyle portion. You will have a place to spend time with your family and friends and have a chance to make great memories. This differs entirely from simply using your money to take bets on a stock or sector.
Real Estate has always been a good place to invest as long as your thinking is long term. I think this plan of yours is great. Go DEER VALLEY - america's #1 ski resort. Home of the best snow on earth.

[sgwyo]

The real advantage

We have two "real" rental properties that so far are working out well. What you may not be looking at is that the idea is not to make a fat profit. Profits increase your tax liability. According to the tax pros, the best scenario is to break even or lose a little, thereby reducing your tax liability on your income from your true profession. The good side of this is that you can make improvements and maintain the real estate so that when you are ready to get out of the landlord business, your rental property is attractive to the next buyer and is well-maintained, making it easier to rent while you own it. I'm researching vacation rental properties because we are under six years from retirement, and a rental with a scenic view that we could use part of the year sounds good. I would definitely use a property management company if I bought real estate farther than 2 hours away.

[SeanH]

In the last 5 years - how many different places have you spent time skiing at? ie. different towns, different states etc. Do you ski every year? If you rent this property how will you feel about always having to be based out of it? Do you ski with friends? Do they like skiing at a variety of places or would they be comfortable skiing with you at the same place? In short - will this affect your flexibility. I think its a neat idea - recreation meets investment, but its easy to get caught up in how sweet it sounds.

[ecoadapt]

After running the numbers, I basically came to the conclusion that it wouldn't be a great investment. It would really be more of a convenience, and if I made some money in the end then that would be great. I think that's how you need to look at it if you really want to move forward and buy a place.

You have a point there,basically it's all about 'convenience' it offers you but come to think of it in a business manner,it will give you big chance on profiting!

[StellarSaver]

SeanH, to answer some of your questions:
- I have only been into skiing for the past 2-3 years, but it's turned into one of my favorite pastimes.
- I typically do two major ski trips each year, each one around a week long.
- I ski with friends, by myself, and with a ski club. Varies quite a bit depending on who's available and how much I've planned things out in advance.
- I think it would be nice to have my own place somewhere near a ski area I really like, but on the flip side there's the potential boredom factor. Maybe after 5-10 years going to the same place all the time, I'd get utterly bored with it.
- If I bought a ski condo/cabin, I'm sure my friends would love to ski with me there, and that would certainly be a big part of the appeal.

For now, I've decided to hold off and just continue to do my yearly trips to different ski areas. Maybe in the coming years I'll find someplace that really seems perfect for me and I'll take the plunge, but I think that would only happen if I could really get comfortable with the financials and the time commitments, as discussed by myself and others above.