re: Beachfront house: Good investment

Not doubting the booking rate or price you are paying. I’m doubting the 50% occupancy rate you came up with in the show times which is skewing your overall gross income estimate. Also you won’t get the summer rate in the winter

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Prices in Destin seem very high now.

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You are correct. Also rental condo prices are thru the freakin roof

I’m sure mingo will come along and chime in I don’t know what I’m talking about. But our family has a portfolio of properties along the gulf coast. It’s a portion of our portfolio simply to diversify that everyone is happy with.

I’ll explain a couple things as someone that has owned for over 10 years.

The $28k number is not rent, you aren’t getting 80% of that in a 20% commission split. That’s gross cost to renter. You have 10-15% sales tax (gulf shores is 15, Okaloosa 12, and Walton 13 idk PCB). You have cleaning fee of 7-10% usually and then you have other management fee costs which are usually 5%. So your net rent from that $28k is going to be closer to $18-20k.

Each week of summer is worth about 5% of your yearly gross rents. Winter is worth almost 0%. Stay there for things like Thanksgiving and winter holidays like MLK, Columbus Day, etc for long weekends when kids are out of school. Rent the peak times exclusively or you’ll get hammered on your ROI. Remind yourself and family this is a small business like a restaurant. You don’t eat at your own restaurant at the best table on Friday night. You go on a Tuesday for an early dinner.

Insurance has come down a bit. Sales have come down a bit but beachfront higher end have still held strong.

The one and only play here, is to diversify your portfolio in a situation you would own a vacation home anyway. Do this with the mindset of being happy with a net 2-4% yearly return over 5-8+ years will make sense including the sale. Planning for anything different is planning to fail, imo.

ETA: finally, your wife and family need to know it’s a business first and then a home. You need to make the beds and other situations for the business first. Don’t let her put some stupid twin bed for the grand kid that stays once a year over having a king bed for a couple that rents. Put your money into things renters will want and enjoy.

That is what I came here for. Real world experience and good info on actual expenses.

Thanks.

I’d suggest for most vacation homes in my experience is something like this, owners ROI is probably around:
5% make over 10% in rents
20% make 5-10%
25% make 2-5%
25% make 0-2%
25% lose money on avg yearly in rents

You have your purchase and sale price which are incredibly important for overall ROI. Where most people hate on them is not understanding diversifying out of the stock market into something you can enjoy (recreational land, vacation home, etc) when you have a 8 figure net worth and would potentially otherwise purchase a non rented vacation home which will have yearly costs. Even renting a 2nd home that loses money in rents compared to expenses is better than having a non rental at all that’s losing more money, often times.

I’m not trying to persuade you or others, but that’s the reality imo.

There's a few we're looking at, but sales prices have really increased in the past few years.

Sound advice, and much appreciated.

One of the worst value storage assets as it requires a substantial tax, mortgage, insurance and maintenance cost not to mention utility costs

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One of the worst value storage assets as it requires a substantial tax, mortgage, and maintenance cost not to mention utility costs

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Very true, except for one thing. There's few "investments" that you can enjoy with your wife, kids, and grandkids. I heard a bullshite sales pitch from a realtor, "you don't see anyone taking photos with their grandkids and their bond certificates".

Its also a way for your wife to enjoy your wealth that could be an appreciable asset. There's not a whole lot of those around. Its the main reason that the 2nd home market skyrocketed during Covid.

OP is talking about multimillion dollar properties. If he can afford $5 mil with a mortgage and maybe cash he could easily afford a $1 mil or so place with cash.

At that net worth, its really just a matter of how diversified and how you want your portfolio to be. Sometimes the diversification itself with little to no income can be worth something just as much as the ROI is for other investments.

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Rents have went up 10% per year and still bookings are solid for beachfront.

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After Covid this was true. As of 2024, that is no longer true.

Also, if you are going to rent you need to consider accelerated depreciation (renters do not care about your property) and management fees cutting into any profits.