Vacation rental property - reasonable investment idea?

[TexasHusker]

If you're not borrowing against it and don't plan on unloading it soon, today's value means very little anyway. It's an income producing tool.

What's wrong with leveraging a property? I leveraged mine to fund opening up another business location. I'd rather borrow from myself than a bank.

[Nutria]

What's wrong with leveraging a property? I leveraged mine to fund opening up another business location. I'd rather borrow from myself than a bank.

Huh?

Isn't "leveraging a property" the same as taking out a mortgage (i.e., borrowing from the bank) on the property so as to try to make even more money?

[TexasHusker]

Huh?

Isn't "leveraging a property" the same as taking out a mortgage (i.e., borrowing from the bank) on the property so as to try to make even more money?

Yessir. You are essentially borrowing from yourself. The bank is just greasing the skids and charging you a little interest for the trouble.

That's why the interest rate on a home equity loan is half or less what it would be on a non-collateral loan.

A little secret: Most banks only lend money when you're borrowing from yourself. Few actually "lend" their own money - money that is un-collateralized.

By leveraging equity in real estate, I have been able to buy several more good, high-income properties, as well as finance the start-up of two businesses that now throw off about $300K a year in profit.

Leverage works.

[DaveInPgh]

5 year old thread alert.

All,
Please take a moment and look at the date in the upper left hand corner of the thread before replying. I am guilty of sometimes replying to an ancient thread as well, but I do try to remember to look before posting. Spammers love to dig up old threads.

I really don't know why this is. I assume they use some kind of automatic search to find threads on a certain topic but it is horribly annoying.

Just yesterday I saw someone criticize a member (although the wrong member) for creating a NEW thread about a topic that has been discussed multiple times.

As moderators, how old is too old in your opinion for a thread to be brought back to life?

[DaveInPgh]

If you retain a property management company, they are going to take anywhere from 30 to 50 percent of your rents, BUT they will be responsible for minding, managing, and booking it. These three things are worth a lot, if you don't have time to fool with them yourself.

I am not going to suggest I have more knowledge about real estate than you, as I am fully aware I do not.

However, like most aspects of real estate, costs associated with property management depends on location. When I was looking to buy at a Florida beach, the range was 15% (off site) to 30% (on site). That was a few years back, so those numbers might be a bit higher now. However, I would be shocked if that particular location would be that high even today.

[LivingAlmostLarge]

Texas how do you know of vacation rentals will also be so solidly income producing? I ask because I'd love to buy a place but how do you keep qualifying for purchasing all these places while working and carrying multiple mortgages? That's something I've always struggled with. But part of my problem has been that rentals where ever we've lived has not been cash flow positive so I would t invesf

[TexasHusker]

Texas how do you know of vacation rentals will also be so solidly income producing? I ask because I'd love to buy a place but how do you keep qualifying for purchasing all these places while working and carrying multiple mortgages? That's something I've always struggled with. But part of my problem has been that rentals where ever we've lived has not been cash flow positive so I would t invesf

I'm not sure I follow the question(s), but:

1. You can borrow and buy as many pieces of real estate that the bank will allow you to. A lot of lenders really like this or that property type. If your bank isn't a player, find a bank that is.

2. There are always buying opportunities in real estate - somewhere. Usually you can find good deals right in your own backyard. We will never run out of good deals. Usually, the key is a motivated seller, though not always.

Don't listen to people that say "yeah, real estate just isn't the investment it was two years ago." Baloney. That's like saying "you know, the Pacific just isn't the same ocean it was a couple years ago."

[DaveInPgh]

For anyone looking for an online forum dedicated to Real Estate, you should check out https://www.biggerpockets.com/

A lot of useful information and conversations, as well as a great way to network. The site has a premium version that cost money, but I found the site useful without it.

[Nutria]

A little secret: Most banks only lend money when you're borrowing from yourself. Few actually "lend" their own money - money that is un-collateralized.

Except you aren't sending yourself a check every month, and when you stop sending those checks, you don't seize your own property.

So the bank is lending you their money (well, money on deposit from other people).

[TexasHusker]

Except you aren't sending yourself a check every month, and when you stop sending those checks, you don't seize your own property.

So the bank is lending you their money (well, money on deposit from other people).

Carry on.

[Nutria]

Carry on.

This is your response to a valid counter-response. Very disappointing.

[TexasHusker]

This is your response to a valid counter-response. Very disappointing.

It breaks my heart to disappoint you. I just don't have time tonight for a pissing match. Maybe this weekend ?

[Nutria]

It breaks my heart to disappoint you. I just don't have time tonight for a pissing match.

Who's pissing? (Obviously, you're going to say that I am. In what way do you think I'm pissing?)

[LivingAlmostLarge]

Texas we've only lived in HCOLA and never do the numbers work to be landlords at least not small time one. Bigger apartment buildings or going further was the tips from a few different realtors. They did suggest vacation rentals farther away. But I was hesitant to get into something I wouldn't want to use and how to do it.

I can say this because I'm good friends with person who does vacation rental investing and two realtors who do it as well. They lived in our HCOLA and did it because the returns where we were wasn't good enough to justify they said. They said people who did landlording where we were often lost money to gamble on appreciation versus always being cash flow positive and able to make money from get go.

My worry is capital to get into vacation rentals. Where do you get DP? What happens if you can't cover emergencies? What if it doesn't rent?

[TexasHusker]

Texas we've only lived in HCOLA and never do the numbers work to be landlords at least not small time one. Bigger apartment buildings or going further was the tips from a few different realtors. They did suggest vacation rentals farther away. But I was hesitant to get into something I wouldn't want to use and how to do it.

I can say this because I'm good friends with person who does vacation rental investing and two realtors who do it as well. They lived in our HCOLA and did it because the returns where we were wasn't good enough to justify they said. They said people who did landlording where we were often lost money to gamble on appreciation versus always being cash flow positive and able to make money from get go.

My worry is capital to get into vacation rentals. Where do you get DP? What happens if you can't cover emergencies? What if it doesn't rent?

I have identified a specific area that I invest in - the Smoky Mountains region. I started investing there in 2005 and have come to know the market there fairly well. I have a pretty good idea what a particular house will yield annually. I personally only buy properties that are river or creek front - that is my niche, and I know full well these rent fir more, and more often, than most other properties.

I take an annual view of my properties - I know each of them is going to rent 200-220 nights per year. I also know that I will spend about $10K a year on repairs and maintenance (new roof on one in two weeks), and I budget $1200 per month for all utilities.

I like the Smoky Mountains area because it is somewhat of a year round destination except for Jan/Feb - I have a lot of vacancy those months. But for June, July, and August, gross income will be $13-15K per month total.

Your profit is dependent on three factors:

1. How much you paid for it
2. How many nights a year it will rent, and how much per night
3. How much you are paying a management co. to watch over it, if anything.

Most property owners can do without a management co. if they are willing to commit a little time to the thing.

Most banks want 20% down on a vacation home. I would keep a cash reserve of $10K for emergencies though you will likely not need it.