Buying condo in beach area for personal use and rental

Questions on how we spend our money and our time - consumer goods and services, home and vehicle, leisure and recreational activities
Post Reply
Topic Author
BuckyBadger
Posts: 1221
Joined: Tue Nov 01, 2011 11:28 am

Buying condo in beach area for personal use and rental

Post by BuckyBadger »

Since we've had our Little Badger we've found ourselves gravitating to a specific beach vacation spot. It's a popular tourist location about 3 hours and 15 minutes away with lots of things to do at her age and for years in the future. We've gone about 6 times over the past two years - so even during Covid we traveled there and could have gone more. We've stayed almost exclusively at a specific "resort" that is a high rise condo that has a lot of kids pools and activities and whatnot.

On our last visit we toyed a little with considering buying a unit in the high rise condo. The units themselves aren't super pricy (~$150k for a 1 bedroom, ~250k for a two, and ~350k for a three with minor variations based on view and floor). The HOA fees are quite high as they include EVERYTHING (utilities, insurance, etc.) as well, of course, as dealing with potential hurricane damage and maintaining the amenities. 1BR ~$550, 2BR ~$1100, and 3BR ~$1600 per month.

Although you could do your own rental via airbnb or such, there is a rental program where the program takes care of everything, including maintenance and repairs. The owner blocks off their weeks and then the building rents the place out for the other weeks. Owner gets 60% and rental/building management gets 40%. According to my preliminary research looking at some grosses provided by the agents who sell the units, looks like the 1BR make the most profit as rentals but would be the least useful for personal use. 2BR would be the sweet spot for profit and use. 2BR break even on rental and would be nice to have an extra bedroom to bring more people with us, but isn't totally necessary.

Has anyone done a setup like this?

Cons:
To be in the rental program, place has to remain substantially similar, so we can't really personalize it i.e. can't buy a comfier couch.
Will have to plan trips in advance - can't go spur of the moment
In neighboring state, so taxes might be a pain?
The whole "do you always want to go to the same place?" question

Pros:
Rental profit or at least profit from appreciation
Owners closet for stuff so that we can travel lighter which is nice with kids
If we decide that we won't go there much at any point, can just leave it full time in the rental program and stop going

I don't know... Part of me says it's better to just spend the money when we want to go, but it's expensive to go when we want to, and we do like to go pretty regularly. And we really do like to go there and find ourselves going there pretty much any time we go on vacation - it's an ideal place for our family and for what we like to do.

Does anyone have experience with this sort of rental agreement as a hands-off owner in a situation like this? Apparently there are owners who have never been there, never seen their units, and never lifted a single finger to do a thing with their unit. The hands-off approach is the only reason why we're considering it. I didn't realize that's how it worked.

ETA: The condo is in Myrtle Beach
Last edited by BuckyBadger on Wed Sep 22, 2021 12:49 pm, edited 1 time in total.
Masterblaster
Posts: 73
Joined: Tue Jan 31, 2017 5:36 pm

Re: Buying condo in beach area for personal use and rental

Post by Masterblaster »

Were you aware that the IRS restricts personal use of rental property to 14 days per year. That is if you want to write off your expenses/depreciation.

Also families and kids take a toll on rentals. Some people treat rentals very poorly. Be prepared to spend more that you think on maintenance and upkeep. If you don't keep the unit spic and span then the rental office will favor other (better) units to rent out. That minimizes problems for the rental office.
Last edited by Masterblaster on Wed Sep 22, 2021 12:17 pm, edited 1 time in total.
Topic Author
BuckyBadger
Posts: 1221
Joined: Tue Nov 01, 2011 11:28 am

Re: Buying condo in beach area for personal use and rental

Post by BuckyBadger »

Masterblaster wrote: Wed Sep 22, 2021 12:13 pm Were you aware that the IRS restricts personal use of rental property to 15 days per year. That is if you want to write off your expenses/depreciation.

Also families and kids take a toll on rentals. Some people treat rentals very poorly. Be prepared to spend more that you think on maintenance and upkeep.
I'm not sure about depreciation, but there would be no expenses outside of the HOA fees, so I'm not sure if a 15 day limit would matter to us, but that's definitely something to look into.

As far as maintenance and upkeep, that's not a concern. If a renter ruins the carpet, the rental management replaces it. The fact that it's so hands-off is key to us even considering it. The management company keep everything to the same level of finish and cleanliness, so there should be no work on our part to make the place "better" than other units. They are all equivalent and get rented out equally.
Last edited by BuckyBadger on Wed Sep 22, 2021 12:22 pm, edited 1 time in total.
Masterblaster
Posts: 73
Joined: Tue Jan 31, 2017 5:36 pm

Re: Buying condo in beach area for personal use and rental

Post by Masterblaster »

The 15 days was a typo. It should have read 14 days.

And you should depreciate the property. There is no downside other than when you sell you must pay some recapture taxes
Ping Pong
Posts: 708
Joined: Fri Feb 20, 2009 11:51 am

Re: Buying condo in beach area for personal use and rental

Post by Ping Pong »

Keep in mind that these types of places will prioritize rentals of company owned units and units that provide unspoken kickbacks to the people who decide which units get booked. So plan on only getting revenue in the weeks that are sold out.
psteinx
Posts: 5801
Joined: Tue Mar 13, 2007 2:24 pm

Re: Buying condo in beach area for personal use and rental

Post by psteinx »

How much do the 1/2/3BR units typically rent for, for a prime season week?

Your name implies Wisconsin, but the rest of the post implies that you live elsewhere (Florida-ish?) and that the unit under consideration is near there. If you could provide more geography, you might get more useful answers.

What do owners who use the program get for their 40%, besides the flow of customers? Does that 40% include cleaning before/after a rental?

Are more junior badgers likely on the way in the next few years?

Do you have friends and/or (non-immediate) family who might also use the place?
OnceARunner
Posts: 425
Joined: Wed Apr 23, 2014 1:50 pm

Re: Buying condo in beach area for personal use and rental

Post by OnceARunner »

Masterblaster wrote: Wed Sep 22, 2021 12:13 pm Were you aware that the IRS restricts personal use of rental property to 14 days per year. That is if you want to write off your expenses/depreciation.
There is also an "OR" in that scenario. It is the greater of 14 days or 10% of the days you rent to others at market price.

So if you rent it out for 300 days, you can still use it personally for 30 days for example and claim full expenses.

If you do exceed that, you can still claim expenses, it just had to be divided by the days you rented it vs the days for personal use. You can only claim the percentage of expenses for the days it was actual rented out. It isn't all or nothing.
Topic Author
BuckyBadger
Posts: 1221
Joined: Tue Nov 01, 2011 11:28 am

Re: Buying condo in beach area for personal use and rental

Post by BuckyBadger »

psteinx wrote: Wed Sep 22, 2021 12:28 pm How much do the 1/2/3BR units typically rent for, for a prime season week?

Your name implies Wisconsin, but the rest of the post implies that you live elsewhere (Florida-ish?) and that the unit under consideration is near there. If you could provide more geography, you might get more useful answers.

What do owners who use the program get for their 40%, besides the flow of customers? Does that 40% include cleaning before/after a rental?

Are more junior badgers likely on the way in the next few years?

Do you have friends and/or (non-immediate) family who might also use the place?
When I joined, we were in Wisconsin! Now we're in NC and the condo is in Myrtle Beach, SC.

No more badgers in the plans.

40% includes cleaning before and after and any repairs due to damage cause by renter. If the dishwasher breaks, they replace it.

We've rented 2BR for about $350 per night in the shoulder season season. It's more during the peak season, and I think goes down to about $150 in the real off season.

Definitely have friends or family who might be interested, but they'd have to give us dates early because there is some notice required to give to the rental management company so they know how many units they have to rent on any given weekend.
BruinBones
Posts: 273
Joined: Sun Apr 22, 2018 5:39 pm

Re: Buying condo in beach area for personal use and rental

Post by BruinBones »

We did this for a few years. The beach property was just 30 minutes from our home. Unfortunately the Property Manager changed 3 times in 3 years. They also kept changing cleaning services because they could not find one that was acceptable to owners. This was at the most popular condos for rent on this beach. Then there was a huge HOA dispute about what to do with the feral cats that were populating the island, and our property location in particular.
As mentioned by a previous poster, you may deduct your expenses as a business if you (or family members) only personally occupy it up to 14 days or less than 10% of the days it is rented. Initially, our property manager wasn’t even aware of the improvements we made to the condo unit, so it remained on the lower priority level for management’s recommendations to inquiring customers. This resulted in fewer days rented such that our 14 days exceeded the 10% rule every year. Needless to say, not a good experience for us. (We had neighbors on the property who managed it themselves, with all of the attendant responsibilities, but we chose not to do that). We did make a nice profit upon selling after 3 years.
Like any transaction, just be aware of all potential risks if your are going to buy.
User avatar
hand
Posts: 2201
Joined: Sun May 17, 2009 8:42 pm

Re: Buying condo in beach area for personal use and rental

Post by hand »

A couple of thoughts:

- 3.25 hours (presumably longer during peak periods) is a long drive each way for a weekend stay and will get old quickly
- Is one bedroom or two bedrooms large enough for you to work? If not, your usage will be limited based on your vacation days at work.
- Often weeklong rentals are Sat-Sat which limits your ability to use for the full weekend (Fri-Sun/Mon) on both sides of the rental
- While it is great that there are lots of activities for Little Badger, your use as she gets older is less likely to be defined by available activities and more likely to be defined by whether a) she has friends at the vacation destination, b) whether she has sports or social commitments at home
seppatown
Posts: 64
Joined: Mon Jan 05, 2015 1:46 am

Re: Buying condo in beach area for personal use and rental

Post by seppatown »

The building owners/developers run this lease-back model for a reason. It's like a timeshare x 10.

All the unknown variables work against you. The low entry price + high HOA fees guarantees them a constant revenue stream. As you mentioned, the 2-br offerings have low rent-appeal. It's causing you to grasp at straws to lock yourself into an extremely undesirable 1-br setup. I would also be very careful not to romanticize the "all-inclusive" component to the HOA. It's set up that way for a reason (alongside the 40% cut for rental management).

Everything you've described provides guaranteed benefits for building management and little for you.

Of the half a dozen trips you make per year, how much do you spend on accommodations each time? 1k, 2k, 4k? I wouldn't remotely begin to consider this unless it were somewhere near the 3rd number, and based on purchasing price, I'm guessing it's nowhere near.
Shallowpockets
Posts: 2533
Joined: Fri Nov 20, 2015 9:26 am

Re: Buying condo in beach area for personal use and rental

Post by Shallowpockets »

A quick search on booking.com for mid June next year seems to belie anyone paying $350 a night for a 2 BR condo. You can get a resort for that price, or less. I would not pay that $350 for a condo that doesn't even have all the amenities of a resort.
That is just me. You may run the numbers better for yourself.
ThankYouJack
Posts: 5704
Joined: Wed Oct 08, 2014 7:27 pm

Re: Buying condo in beach area for personal use and rental

Post by ThankYouJack »

OP, I think the first step to take is to find a unit for sale and ask the management company for the rental history for the last couple years. Then post back and dig deeper into the numbers.

I've looked into this before but decided it wasn't worth it for us (we like to travel to different places, often split rentals with friends or rent friend's places for cheap). In fact, we could have had a $200k beach condo bought for us, but weren't willing to pay the extremely high HOA fees. If I planned to go to the same place many (5x+) times a year maybe buying a place would be worth it, but 40% is quite a steep fee to pay to the management company so not sure I'd be willing to pay that.
Last edited by ThankYouJack on Wed Sep 22, 2021 1:30 pm, edited 1 time in total.
psteinx
Posts: 5801
Joined: Tue Mar 13, 2007 2:24 pm

Re: Buying condo in beach area for personal use and rental

Post by psteinx »

The monthly HOA fees for a 2BR are $1100/mo*.

That's $13,200/year. You've used it 6x in last 2 years, so 3x/year. Even if it was a full week per time, that's $4,400 per 1 week usage, and it sounds like some of your usage is non-peak. I would guess that $4,400 would go a long way towards renting other places.

The rest of the proposition is sort of an "investment" play - you pay capital costs, hope for appreciation, hope the 60/40 thing offsets much of your cost. If, instead, you compared it mentally to, say, a $5K annual budget for beach rentals for your family, plus deploying $150-350K in your best possible investment, would you really choose the investment side of this?

If you could comfortably fit your family into a 1BR, and your finances are secure, I'd be more inclined to just buy the 1BR, not put it in the 60/40 program, use it yourself, gift non-used time to friends and family, and anticipate that in 4-8 years you'll be ready for something different and want to sell it.

* BTW, the scaling on the HOA fees seems weird: 550/1100/1600 is nearly linear to # of BRs. But the overall unit size (counting kitchen, living room, etc.), as well as demand on facilities usage (pool, etc.) likely follows a shallower curve. This fee structure seems to relatively undercharge 1BR, overcharge 2 and 3BR...
User avatar
cchrissyy
Posts: 2355
Joined: Fri May 05, 2017 10:35 pm
Location: SF bay area

Re: Buying condo in beach area for personal use and rental

Post by cchrissyy »

BuckyBadger wrote: Wed Sep 22, 2021 12:17 pm I'm not sure about depreciation, but there would be no expenses outside of the HOA fees, so I'm not sure if a 15 day limit would matter to us, but that's definitely something to look into.
you want expenses because they cancel out the taxable income
60-20-20 us-intl-bond
User avatar
Watty
Posts: 28859
Joined: Wed Oct 10, 2007 3:55 pm

Re: Buying condo in beach area for personal use and rental

Post by Watty »

I did not own it but years ago I knew someone who did something similar with a condo at a ski resort.

They had a couple of problem;

1) They found that they wanted to use it during the prime rental season which would really cut into the rental time. For example if they wanted to use it over Christmas and New Years they would lose renting it at the highest rates of the year. There was not a lot of demand for a ski condo the rest of the year so taking out a few prime weeks had a big impact on their rental income.

2) They needed to schedule their personal use time far in advance since people often book properties like that 6+ months in advance.

3) They could not take spur of the moment trips there because the condo was already booked.

4) They also ran into the limitations on the number of days they could use it for the tax reasons that people already posted about.

All the limitations meant that when they wanted to go skiing they could not use the condo so they sometimes actually rented a different condo at the same resort where they owned a condo. :D
psteinx
Posts: 5801
Joined: Tue Mar 13, 2007 2:24 pm

Re: Buying condo in beach area for personal use and rental

Post by psteinx »

Watty's post confirms my inclination. If you want it and can afford it, buy exactly what YOU want (not what's best for the rental program), decorate it exatly how YOU want, use it when YOU want, offer it to friends and family outside of your usage, and look at it as a vacation extravagance that fits your needs, not as a hybrid investment/vacation spot.
BrendanP
Posts: 92
Joined: Sat Sep 17, 2016 8:35 pm

Re: Buying condo in beach area for personal use and rental

Post by BrendanP »

We bought a beach condo which we use for personal use. Unfortunately rents are restricted to a full year lease but its near a college so that could be a backup if something really came up.

Anyways,it's only 1.25-1.5 hrs away from our home and we go often especially May -October. We had looked at places 2.5 hrs away and really glad we didn't go that route. Especially battling Shore traffic on the weekends.

Six times over 2 years just doesn't seem like a lot to me and those hefty maintenance fees will add up quick.
Jimsad
Posts: 935
Joined: Mon Mar 20, 2017 5:54 pm

Re: Buying condo in beach area for personal use and rental

Post by Jimsad »

BuckyBadger wrote: Wed Sep 22, 2021 11:59 am Since we've had our Little Badger we've found ourselves gravitating to a specific beach vacation spot. It's a popular tourist location about 3 hours and 15 minutes away with lots of things to do at her age and for years in the future. We've gone about 6 times over the past two years - so even during Covid we traveled there and could have gone more. We've stayed almost exclusively at a specific "resort" that is a high rise condo that has a lot of kids pools and activities and whatnot.

On our last visit we toyed a little with considering buying a unit in the high rise condo. The units themselves aren't super pricy (~$150k for a 1 bedroom, ~250k for a two, and ~350k for a three with minor variations based on view and floor). The HOA fees are quite high as they include EVERYTHING (utilities, insurance, etc.) as well, of course, as dealing with potential hurricane damage and maintaining the amenities. 1BR ~$550, 2BR ~$1100, and 3BR ~$1600 per month.

Although you could do your own rental via airbnb or such, there is a rental program where the program takes care of everything, including maintenance and repairs. The owner blocks off their weeks and then the building rents the place out for the other weeks. Owner gets 60% and rental/building management gets 40%. According to my preliminary research looking at some grosses provided by the agents who sell the units, looks like the 1BR make the most profit as rentals but would be the least useful for personal use. 2BR would be the sweet spot for profit and use. 2BR break even on rental and would be nice to have an extra bedroom to bring more people with us, but isn't totally necessary.

Has anyone done a setup like this?

Cons:
To be in the rental program, place has to remain substantially similar, so we can't really personalize it i.e. can't buy a comfier couch.
Will have to plan trips in advance - can't go spur of the moment
In neighboring state, so taxes might be a pain?
The whole "do you always want to go to the same place?" question

Pros:
Rental profit or at least profit from appreciation
Owners closet for stuff so that we can travel lighter which is nice with kids
If we decide that we won't go there much at any point, can just leave it full time in the rental program and stop going

I don't know... Part of me says it's better to just spend the money when we want to go, but it's expensive to go when we want to, and we do like to go pretty regularly. And we really do like to go there and find ourselves going there pretty much any time we go on vacation - it's an ideal place for our family and for what we like to do.

Does anyone have experience with this sort of rental agreement as a hands-off owner in a situation like this? Apparently there are owners who have never been there, never seen their units, and never lifted a single finger to do a thing with their unit. The hands-off approach is the only reason why we're considering it. I didn't realize that's how it worked.

ETA: The condo is in Myrtle Beach
We bought a unit within the last year similar to what you described.
We were clear that it was a ‘life style ‘ investment for us to enjoy till we get bored and we just wanted it to break even in costs .
No regrets so far .
User avatar
celia
Posts: 16774
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: Buying condo in beach area for personal use and rental

Post by celia »

With a whole world out there to explore, why would you keep repeating the same trip? Why not expand your horizons?
lws
Posts: 831
Joined: Tue Apr 25, 2017 6:12 pm

Re: Buying condo in beach area for personal use and rental

Post by lws »

Spend the money when you want to go.
oldmotos
Posts: 205
Joined: Fri Aug 04, 2017 9:37 pm

Re: Buying condo in beach area for personal use and rental

Post by oldmotos »

We have a beachfront condo that we rent through a management company that charges 20% of the rent. The IRS does not count days that you are working on the condo towards the 14 day limit so we feel comfortable using it 30 days per year. It is a 40 year old condo that we are updating so there are always things to do. You can also write off your travel and many other costs which helps it pencil out. We had an off beach condo before this one that appreciated nicely over the 11 years we owned it so we have mostly enjoyed the experience. There will always be some headaches with real estate so it is not for everyone.
phxjcc
Posts: 1329
Joined: Thu Aug 23, 2018 3:47 pm

Re: Buying condo in beach area for personal use and rental

Post by phxjcc »

BuckyBadger wrote: Wed Sep 22, 2021 12:17 pm
Masterblaster wrote: Wed Sep 22, 2021 12:13 pm Were you aware that the IRS restricts personal use of rental property to 15 days per year. That is if you want to write off your expenses/depreciation.

Also families and kids take a toll on rentals. Some people treat rentals very poorly. Be prepared to spend more that you think on maintenance and upkeep.
I'm not sure about depreciation, but there would be no expenses outside of the HOA fees, so I'm not sure if a 15 day limit would matter to us, but that's definitely something to look into.

As far as maintenance and upkeep, that's not a concern. If a renter ruins the carpet, the rental management replaces it. The fact that it's so hands-off is key to us even considering it. The management company keep everything to the same level of finish and cleanliness, so there should be no work on our part to make the place "better" than other units. They are all equivalent and get rented out equally.
Someone else should confirm this, but I believe the "depreciation recapture" is mandatory--as in even if you do not declare it on you tax filings every year, the IRS demands that you calculate it as if you did when you sell.

:confused

I knew people that done something similar in the desert and are happy.
Rentals seem to run 60% on an annual basis and 75-80% in shoulder and 90%+ in prime.
Even summer in the desert runs over 40%.

Tip: call and try to make a reservation and see if you can get ahold of a REAL PERSON; and are not trapped in some VRU feedback loop.
IMO
Posts: 1569
Joined: Fri May 05, 2017 6:01 pm

Re: Buying condo in beach area for personal use and rental

Post by IMO »

I always look at a 2nd home primarily as a lifestyle choice. As such, do the numbers as they fit into your personal financial situation. It's my recommendation you do the numbers entirely having the place as a personal use 2nd home. If you choose to do any rental, either on your own, or via the service you mention, I would just consider that a bonus, but don't go into it counting on the additional money. So often I see people look at these things and they are undertaking their plan that is based on many many unknowns to make it "work."

To respond to a post, one MUST depreciate rental property. When people do these personal use combined with VRBO/AirBnB type rentals, I do always wonder how they accurately track depreciation? Do you just depreciate things like you would for the entire year, and then only take the percentage of the depreciation that was for rental use? If one's ever done their own taxes for rental properties, you'll understand items need to have a placed in service date added and then it gives your depreciation for the tax year. This includes the home itself, appliances, etc, and one must also factor in the type of property and the depreciation schedule (for example 5 yr property, 7 yr property, etc) and separate repairs from capital expenditures. I could be wrong, but do programs like Turbo Tax do the percentage depreciation calculations for you? I suppose I should post that as a topic and not derail the OP's question.
Post Reply