Vacation Property Landlords
Are there many of you that own small condos on the water that you rent out primarily to people on vacation? I understand that an on-site management company can help with this and that I need to really do my due dilligence. My partner and I are looking at picking up a small efficiency (500 sq ft or so) on the ocean in Daytona and using it to rent on a multiple day or weekly basis. There are many for sale that range from 36K to 80K for small 1-2 br units (not condotels) right on the ocean. It seems like a relatively safe investment (because of the low cost), but my partner seems a bit skeptical due to the fact that we live in GA and the unit is in Fla. We are planning to talk with local agents in Daytona, check the rental market in Daytona, speak with several Manangement companies and look at several units before making a decision. Is there anything I am leaving out? We understand that this is not going to be a rapidly appreciating investment (if any at all) but simply vehicle to get started with, with relatively low risk. We both also love to travel to the beach and know that we will have plenty of vacancy for which to use the unit.
Any suggestions or feedback?
Thanks in advance.
Brian
You have never landlorded before and you want to get your feet wet with a vacation property that you will operate as a daily rental because (fill in the blank)???
A vacation rental such as you describe should provide a nice place for you to visit when you want or need to. However, don't expect the property to ever cash flow. The best you would hope for is breakeven, and only then if you have future appreciation to look forward to.
Because you say this property is not expected to appreciation, you can take this incentive to purchase out of the equation.
Property management for a daily vacation rental is expensive -- expect to pay 25% to 40% in property management fees. After each occupancy, expect to have some charges to replace supplies due to consumption and breakage. Linen service and daily cleaning will always be an issue too. You will have a better occupancy rate if your management company takes credit cards, so a small usage fee (merchant processing fee) may be passed through to you for credit card processing.
Because of the daily turnover, you may experience more repair calls than you would normally encounter with long term rentals. Also furniture will need to be replaced on a higher than normal frequency (you do plan on furnishing the unit, right?).
Lastly, a rental such as you describe is a business -- not a passive rental activity -- so all your income and expenses will be reported on Schedule C and taxed at your ordinary income tax rate. If your Schedule C shows a net profit for the year, you calculate self-employment income taxes on Schedule SE.
After you end up paying managment overhead, taxes, insurance, and daily operating costs will you have any cash flow? Not likely, unless the rental rates are really high.
Because this property fails to meet any sound business criteria for an investment acquisition, you should go forward only on the basis that you need to have a vacation home at the beach to go to. Perhaps a time share investment will suit you better.