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Started By
Message
Your summer home / beach condo: Dream or Disaster?
Posted on 12/5/18 at 7:10 am
Posted on 12/5/18 at 7:10 am
My spouse and I are seriously considering purchasing a beach condo in Orange Beach, AL. The rationale is that we go there a few times a year anyway, are already real estate investors and can manage property, so why not branch out and invest there?
What's your experience with owning property outside of your hometown? If you bought it for your own recreation, do you use it? Did you get tired of it? Did it stop you from traveling elsewhere because it was easier/less expensive just to go to the property you own? Was it like the old boat joke: "Happiest day is when I bought it. Second happiest is when I sold it!"
That last one is biggie for me. While I think the Orange Beach area is lovely and I relax when there, there are many other places I want to bring my family. I don't want all of our travel budget going to that one location -- and truly we can rent more affordably than buying. The buying option has appeal only if it serves as a sound investment. My preliminary numbers suggest an 8% cap rate but depending on capital improvements & condo assessments, it may not cash flow in the early years of ownership. The final motivator is that the 20% down payment is sitting in a money market at 1.85%. I'd like that money to be working harder somewhere. If it's somewhere that I can also have fun, that could be a win/win.
Any thoughts?
Thanks.
What's your experience with owning property outside of your hometown? If you bought it for your own recreation, do you use it? Did you get tired of it? Did it stop you from traveling elsewhere because it was easier/less expensive just to go to the property you own? Was it like the old boat joke: "Happiest day is when I bought it. Second happiest is when I sold it!"
That last one is biggie for me. While I think the Orange Beach area is lovely and I relax when there, there are many other places I want to bring my family. I don't want all of our travel budget going to that one location -- and truly we can rent more affordably than buying. The buying option has appeal only if it serves as a sound investment. My preliminary numbers suggest an 8% cap rate but depending on capital improvements & condo assessments, it may not cash flow in the early years of ownership. The final motivator is that the 20% down payment is sitting in a money market at 1.85%. I'd like that money to be working harder somewhere. If it's somewhere that I can also have fun, that could be a win/win.
Any thoughts?
Thanks.
9
Posted on 12/5/18 at 7:39 am to Unlockthedream
You say you don’t want to go to that one location & you can rent more affordably than buying: that would make it a hard no-go for me. Investments should be judged on their own merits, not on their vacation suitability.
Posted on 12/5/18 at 7:52 am to Unlockthedream
I get the idea, but in this day and age with VRBO and AirBNB, I don't think I could commit to purchasing a vacation spot. You'd be pressed to spend every time off at that one spot and limit experiences.
The gulf coast has soooooo many rental options that the prices are suppressed. I don't see that changing.
The gulf coast has soooooo many rental options that the prices are suppressed. I don't see that changing.
Posted on 12/5/18 at 8:33 am to Unlockthedream
I’d just use the money set aside for investment locally (if you’re set on real estate) and use the profits from that to fund vacations wherever you please.
Posted on 12/5/18 at 8:40 am to Unlockthedream
I think it definitely depends on where you live and how you want to use it. We have owned a beach and lake house. The beach house lost its luster after one year because we could only use it 2-3 times a year and had to pre-plan our timing because it was rented out the majority of the year. Beach house was roughly 4.5 hours away. Not something you could necessarily jump in the car and go for the weekend.
We sold for a net neutral and bought a lake house. Flat 60 minutes from the house. Used it every weekend in the summer and every other/3rd in the winter months. Although upfront costs were pretty steep (boat, jet skis, toys, ins, etc), when we moved to New Orleans and sold the place for a modest gain after all said and done.
Currently looking at options but my situation is a little different. I am not looking for something to provide CF to offset its cost, I look to 1031 to build value, trying to reduce my taxable income.
We sold for a net neutral and bought a lake house. Flat 60 minutes from the house. Used it every weekend in the summer and every other/3rd in the winter months. Although upfront costs were pretty steep (boat, jet skis, toys, ins, etc), when we moved to New Orleans and sold the place for a modest gain after all said and done.
Currently looking at options but my situation is a little different. I am not looking for something to provide CF to offset its cost, I look to 1031 to build value, trying to reduce my taxable income.
Posted on 12/5/18 at 11:32 am to Unlockthedream
I’m in the business so I’ll offer some advice. The real estate buyers market is high right now. Finding good investments is not easy. If you are buying with 20% down, you will have a difficult time cash flowing. Most are around 3-6% gross before financing. So 4-6% financing doesn’t give you much wiggle room.
If you already go there routinely and have no plans to change, it can absolutely be worth it. The key to vacation rentals as an investment is enjoying the off season and shoulder season. If your wife only wants to go during the summer to a beach condo and let it sit all winter empty, it won’t make sense investment wise. But if you want to spend a month or ore in the winter there and enjoy September and late spring a lot, it can be great.
I’m not convinced this market has a lot of room to grow and it could easily drop, so just be careful on your purchase. Get a rental pro forma from 2-3 management companies so you have an accurate as possible prediction of rental income. Using only one and you could easily fall to an overestimate for a sales pitch.
If you already go there routinely and have no plans to change, it can absolutely be worth it. The key to vacation rentals as an investment is enjoying the off season and shoulder season. If your wife only wants to go during the summer to a beach condo and let it sit all winter empty, it won’t make sense investment wise. But if you want to spend a month or ore in the winter there and enjoy September and late spring a lot, it can be great.
I’m not convinced this market has a lot of room to grow and it could easily drop, so just be careful on your purchase. Get a rental pro forma from 2-3 management companies so you have an accurate as possible prediction of rental income. Using only one and you could easily fall to an overestimate for a sales pitch.
This post was edited on 12/5/18 at 11:34 am
Posted on 12/5/18 at 11:41 am to Unlockthedream
I love the beach, and have gone at least once a year for the last 35 years, for many years we rented the same house, and buying our own place was considered. I couldn't get past the fact that when the vacation was over, and the door lock clicked that was the last time I had to think about the place until the next year, that was worth a lot more to me.
Posted on 12/5/18 at 5:10 pm to EA6B
quote:
I couldn't get past the fact that when the vacation was over, and the door lock clicked that was the last time I had to think about the place until the next year, that was worth a lot more to me.
Agree. I don't want to get worried every time a storm brews in the Gulf, or deal with repairs/maintenance issues from afar.
I know someone who owned a condo that was hit in a storm and filled with sand, and they wasted many a weekend and vacation day driving down there to deal with it.
We went through several years where we went to the beach a couple times a year. Then we wanted to do other things. No problem as a renter. Just move on.
Posted on 12/5/18 at 7:46 pm to Twenty 49
One acronym: HOA’s. They take away any profits to be made.
Posted on 12/5/18 at 7:48 pm to Twenty 49
Re: storms in Gulf, this x100 if your primary residence is in a hurricane/flood zone. Twice the worry, ugh, no thanks.
Posted on 12/6/18 at 8:58 pm to Unlockthedream
We have a second home for vacations, don’t want strangers in our house so we don’t rent it out. We just use it when we use it. It’s worth it to us, we love it but yes we know it’s a poor investment and we absolutely don’t care. Having that place to say frick it and head to on a long weekend is awesome, and having it be your home with your stuff is way better than a hotel or someone else’s place through airbnb
Posted on 12/7/18 at 7:16 am to montana
quote:
One acronym: HOA’s. They take away any profits to be made.
This is a myth. One of my condos is about to have a $500k paint job to the building for 31 units. It’s a once every 10 year thing on the beach. All paid for by the HOa dues.
Hoa’s have a pool which saves drastically to share the costs, landscaping, cable tv and internet, and drywall out insurance. So the structure is covered in a hurricane.
The only actual ‘cost’ to an hoa is the management, and generally speaking that’s 20-30% of your hoa dues. But you about break even due to cost savings on everything else by sharing as a group.
Posted on 12/8/18 at 8:33 pm to baldona
SIL bought 2 condos in 2013 and 2015, both in Phoenix condos
Dont know which ones, both prices were around 500 k
Recently decided to sell, both at around a 50 k loss
Yes she had rental income
The area is WAY overbuilt for condos............
Dont know which ones, both prices were around 500 k
Recently decided to sell, both at around a 50 k loss
Yes she had rental income
The area is WAY overbuilt for condos............
Posted on 12/10/18 at 10:02 am to Drop4Loss
quote:
Dont know which ones, both prices were around 500 k
Recently decided to sell, both at around a 50 k loss
There's more to the story here, I'm sorry. If she bought something in 2013 and she lost $50k in that time then she either WAAAAAAY overpaid or there was a major issue or change since 2013. Even 2015.
Most places are hitting record prices ever right now. I know of multiple buildings that dropped 40% in 2008-2009 over 2006ish and they are now hitting record prices.
I'm not a realtor. I'll be the first to tell you prices are high and its not a good time to buy right now. But I don't know why someone that bought in 2013 would be losing 10% selling right now with all else being equal.
Posted on 12/10/18 at 12:54 pm to Unlockthedream
I've said this on here numerous time, if you want to buy a house, particularly along the Gulf Coast, understand that you will probably break even or lose slightly on a year over year basis.
The only return will be if the house appreciates.
My mother and sister both own houses on 30 A. The rental support, maintenance, etc. eats up all of your profit.
The point of the house for you to use. The renters are there to help subsidize your mortgage and vacations, but they aren't going to make you money.
The only return will be if the house appreciates.
My mother and sister both own houses on 30 A. The rental support, maintenance, etc. eats up all of your profit.
The point of the house for you to use. The renters are there to help subsidize your mortgage and vacations, but they aren't going to make you money.
Posted on 12/10/18 at 10:53 pm to Unlockthedream
Best to find an old beach house to fix up, rather than condos. Get that sweat equity.
This post was edited on 12/10/18 at 10:54 pm
Posted on 12/11/18 at 2:22 am to baldona
quote:
This is a myth. One of my condos is about to have a $500k paint job to the building for 31 units. It’s a once every 10 year thing on the beach. All paid for by the HOa dues.
You have a well managed HOA, with adequate cash reserves, but there seem to be a lot of complexes that do not where the owners are hit with special assessments for building repairs, and improvements.
Posted on 12/11/18 at 6:40 am to EA6B
quote:
You have a well managed HOA, with adequate cash reserves, but there seem to be a lot of complexes that do not where the owners are hit with special assessments for building repairs, and improvements.
Certainly. My last post wasn’t very clear either. That stuff happens. I had another unit that was 2100 sq ft get hit with a special assessment for $3,000 to replace the roof due to Formosa termite damage, not really covered by insurance. That’s a lot of money, but own a house or townhome in which you are solely responsible for the roof and you are looking at multiples of that for a 2000 sq ft place.
I’m simply saying that yes HOA dues are expensive, but most large Beach condos buildings are professionally managed and have professional 3rd parties depreciate the building every 3-5 years with replacement schedules on things like elevators, roof, paint, pool, etc. and they have to save for items like this.
Owning a beach property is expensive especially if you have a pool, which if you rent it out is almost a necessity. If HOA dues are keeping you away then you really shouldn’t buy as the likelihood of owning a house is going to be basically the same price except it’s going to be in personal special assessments.
The biggest mistake people make is mixing ‘investment’ with a wife’s idea of a vacation property. I say this all the time, some places rent great and appreciate well due to location others suck at both. A lot of people give up location for things like being newer or bigger, because that’s what they want. Well location is important to everyone but you at that point.
There are insanely beautiful homes on 30a for example many blocks from the beach. Take Watercolor as an example, rows and rows of $3 mil+ beautiful homes 4,5,6 blocks from the beach. Idiot realtors sell them on the ‘investment’ when they rent for like 40,000 gross a year because there are so many of them and no demand to be that far from the beach. Yet these wives want these insane 6,000 sq ft master pieces to sleep their whole family once every 3 years.
This post was edited on 12/11/18 at 6:46 am
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