Common Myths - Buying A Vacation Home; AKA "Investment Property"
This idea of investment property could mean something different from one person to another. To me an investment is something that turns a profit. Hey, I'm sure we can all agree on this! However, the time line may be this biggest misconception I come across.
I receive many inquiries from folks looking to buy a house or condo, close to the beach, and offset all expenses (including mortgage) by placing the property on a vacation rental program. Well, before we dig into the concept of buying an investment property. Let me briefly go over "all expenses". All expenses to me are going to be every dime you saturate into your property on a yearly basis. Too often folks are so concerned with offsetting the routine expenses like the mortgage, taxes, insurance, and utilities - They completely forget about cost to maintain a property taking rental abuse or the cost of special assessments as they come. As a general rule of thumb you should plan to set aside and additional 10% of your gross income for upgrades & repairs needed to keep your property producing a solid rental income year after year. As time passes renters will start to consider your property "dated" without continuous upgrades and repairs. A great example would be a new coat of paint, new carpet, updated appliances, or a needed HVAC system. If you have a house how about that new roof, landscaping expense, or siding that needs attention. Special assessments can surprise folks as well....Although you pay into your monthly HOA, there may be a building expense that needs to be assessed to all the homeowners in the building. Same as the house I mentioned, there will be exterior upgrades & repairs that need to be addressed to maintain the curb appeal to make sure your building is a renter favorite year after year. None of us want to stay in that dated/rough looking building when we take our family on our yearly vacation, right? Ever been on an iffy elevator? Well, I know I have and would have a tough time getting my wife and kids on and off one for a week long vacation. Those elevators take a lot of abuse. I mean they are continuously running many months out of the year. With use like that, it's only a matter of time before repairs or updates need addressed and I assume this isn't cheap!
Now, the purpose of this article is to give you an informative approach when looking at investment properties. There are agents out there that might leave the details above completely out of the equation to make a sell. Well, this is not my style to say they very least! I'm never trying to sell anything! This isn't good for my reputation and residual business for my long term career. It should be our responsibility as agents to inform folks of all the details and not assume they are real estate savvy enough to figure it out themselves. Now, please know I'm not writing this article to challenge your experience or knowledge. Trust me, I don't have all the answers! I just approach every potential client with the intention of being as helpful as possible through the process. I feel it is our responsibility to "inform" not "SELL" anything! An agent should be there to help you the whole way through.
All that said, you can find a property that will offset routine expenses and a portion of your mortgage. But, please don't forget about the other associated long term cost. I’m here to prepare you so you know there’s a possibility of receiving that unexpected phone call from owner services, mid summer, bearing the terrible news your HVAC system has just gone caput and they are sending someone out to replace it that same day at a cost of $5,500. Are you prepared to pay for that expense at the drop of a hat?
Now let's quickly go over my approach to what an "investment property' is to me...
What about the value of the tax break you’ll receive, potential appreciation in value over the next 10 years, or even the value of the vacation use for you and your family? How much do you typically spend on your yearly family vacation? I do think there is tremendous value of buying a vacation home; AKA “investment property”. It's just all about how you rate value and ROI.
Still have questions? You should! I always encourage them. If you want any additional info on buying or selling in the area, just give me a buzz...I'd love to hear from you! 843.446.2893
Here's a quick rental cashflow for a unit sold in Surfside....