Buying a vacation home as an investment property? (1 Viewer)

[BassNBrew]

Example from our experience with a PM company-

Our agreement included we were to be paid on the 8th of the month and if they did a repair (stove goes out and they fix it), our agreement was they took care of anything under $500 and then took it out of the collected rent and then sent us the difference along with a receipt of the repair to explain the difference. In theory it makes sense, it's why you do this. You don't want to be 300 miles away and get a saturday night call about a leak in the sink.  they fix it, it happens.

Three months in a row we got reduced payments for several hundred dollars for the same exact part on a heat pump.  Cost was $300+ and after it repeated, we were like "hey, we just replaced this part a month ago...it should have a warranty or something. I shouldn't be paying to replace the exact same part two months in a row." The 3rd month, it was the same part "plus another part" and the cost actually went over the $500 and they should have contacted us prior.  But they didn't and we had to fight tooth and nail to get our money back on that and, in the end, we found out because we bulldogged them to get the paperwork, that it was  situation like you say.  We were charged $300+ but it turned out the actual receipt on the part was like $50 and the labor was $125 but the rest was a phantom charge that somebody pocketed.  

It was shady. 

My fridge leaked damaging the wood floor.  I brought this to their attention since they didn't see it the 20 times they and been in the home.  They sent someone to fixed and I paid the bill.  Six months it was leaking again.  I paid again because their wasn't a warranty.  the 3rd time they did actually notice a leak without me pointing it out.  I found this out when I received a 3rd invoice.

 

[Zegras11]

Yeah. In the end I have a feeling this is where we end up, assuming our financial situation remains stable. But nice to know if the crap hits the fan we can rent to get us some help with the carrying cost. 

So what are your wife's tastes for furniture on this new vaca home of yours?

 

[Shutout]

A friend does this and his advice is don’t do it as an investment — only do it if you’ll enjoy the place, and the rental income can just be gravy on top.  Lots of work and headache to rent.

We’re about to sign a contract on a place in the mountains.  (Still have a significant mortgage on our first home).  We don’t ski, but we love it up there in the Fall, and will install a pool and spend some time up there over the summer as well.  Like you, we may consider renting it out over peak season (winter, for all the ski nerds), but I’m not totally sold on it — don’t like the idea of strangers constantly trashing the place, don’t like the idea of the headaches that come with renters, and don’t like the idea of sleeping in other peoples’ filth in our nice house.  That said, we’d be passing up a nice rental income when we won’t be using it, and that income over the winter could probably pay 75% or more of the yearly carrying costs. So we may end up caving and renting (if so, only with a management company and someone to deal with all the headaches for us, even if it eats into the profit some).  We’ll see.

Please Otis, DO NOT.  I'm telling you, brother, I have been in that exact spot and it is ugly. 

I don't know exactly where your place is but I can tell you because I now own and live in a cabin in the mountains, yada yada yada, that there are a LOT of issues that come with owning a remote cabin/mountain place, even without renters.  

There are people who have places in this area that I have got to know and I'd say about 90% of them were all miserable when they rented.Especially with winter skiing, the people you get, the weather factors, heating (fireplaces, all those things that sound cozy and nice) are nightmares for the owners.  

It is OS appealing to think "wow, this place almost pays for itself IF we get this and rent this much, etc" but the reality is, I (and a good deal of the folks I have come to know) all agree that I would rather do without something elsewhere, drive a car a year or two longer before getting a new one, tighten the belt somewhere else, than to rent vacation/party/getaway places. Like I said above, I was a landlord in a typical rental and that was 100 times better than trying to rent a pleasure/getaway place.  

Give it some thought.  

 

[Michael Brown]

In 2017, we bought a condo in Asbury Park like 2 blocks from the beach. It was intended to be a second home, not an investment. But we had a few extensive summer vacations planned the first year after buying and we weren't gonna use it much, so we rented it out to offset the mortgage. Then my company shot holes through my work comp plan, costing me ~$40k or so in annual income so we kept it as a rental the next year. Financial situation is back to where it was previously, so we can use it again now. Problem is, now that we've been renting it for a few years, it's tough to suddenly decide, yeah no problem let's spend $40k annually just to have a summer home.

The issue with this is, the rent ($2300/month) doesn't even cover the mortgage + HOA ($3100/month). So I am essentially spending $10,000 per year to NOT have a place down the shore. So not only are we not making money on the place, we're not even getting to enjoy it! Fortunately, property values have continued to appreciate in town (condo value is up around $100k in the 3 years since we bought it) and it wasn't intended as an investment, because otherwise I woulda looked at this as an even worse "investment vehicle". Right now if we sold it, after realtor commissions and factoring in the money already put into it, we'd come away with a profit of around $53k in about three years' time. But without the Asbury real estate boom of the last few years, we'd be in a rough spot.

I've been following a finance blog called Financial Samurai for a few years, and he harps on the phrase "buy utility, rent luxury". In other words, I agree with him that you'd be much better off buying investment properties in the midwest and then using those profits to rent out awesome beachfront places (or whatever your retirement dream home is) every year for the rest of your life.

 

[BassNBrew]

Yeah. In the end I have a feeling this is where we end up, assuming our financial situation remains stable. But nice to know if the crap hits the fan we can rent to get us some help with the carrying cost. 

Talk to your accountant first.  You probably make too much to deduct the paper losses.  If you need a little cash, you might be better off leasing it Christmas and New Year's weekend for a 3-4X premium and staying under the window where you have to report the income.  You could probably cover 6 months of mortgage just leasing those two weeks.

 

[Shutout]

So what are your wife's tastes for furniture on this new vaca home of yours?

I am cringing at this thought (see my first post).  

I am telling you ALL (lol, but seriously)...if your partner (or you) are a person who wants this to be a nice comfy place, you WILL spurge on a few household items and you WILL grind the teeth out of your head when people trash it...And then you will not be willing to buy the things you want and end up with what feels like your college years apartment and you will NOT be happy and fulfilled with something that is supposed to be very relaxing and fulfilling. 

 

[Zegras11]

I am cringing at this thought (see my first post).  

I am telling you ALL (lol, but seriously)...if your partner (or you) are a person who wants this to be a nice comfy place, you WILL spurge on a few household items and you WILL grind the teeth out of your head when people trash it...And then you will not be willing to buy the things you want and end up with what feels like your college years apartment and you will NOT be happy and fulfilled with something that is supposed to be very relaxing and fulfilling. 

winner.  Anything  remotely decent will be trashed.

 

[BassNBrew]

In 2017, we bought a condo in Asbury Park like 2 blocks from the beach. It was intended to be a second home, not an investment. But we had a few extensive summer vacations planned the first year after buying and we weren't gonna use it much, so we rented it out to offset the mortgage. Then my company shot holes through my work comp plan, costing me ~$40k or so in annual income so we kept it as a rental the next year. Financial situation is back to where it was previously, so we can use it again now. Problem is, now that we've been renting it for a few years, it's tough to suddenly decide, yeah no problem let's spend $40k annually just to have a summer home.

The issue with this is, the rent ($2300/month) doesn't even cover the mortgage + HOA ($3100/month). So I am essentially spending $10,000 per year to NOT have a place down the shore. So not only are we not making money on the place, we're not even getting to enjoy it! Fortunately, property values have continued to appreciate in town (condo value is up around $100k in the 3 years since we bought it) and it wasn't intended as an investment, because otherwise I woulda looked at this as an even worse "investment vehicle". Right now if we sold it, after realtor commissions and factoring in the money already put into it, we'd come away with a profit of around $53k in about three years' time. But without the Asbury real estate boom of the last few years, we'd be in a rough spot.

I've been following a finance blog called Financial Samurai for a few years, and he harps on the phrase "buy utility, rent luxury". In other words, I agree with him that you'd be much better off buying investment properties in the midwest and then using those profits to rent out awesome beachfront places (or whatever your retirement dream home is) every year for the rest of your life.

Does that include your capital gains and repaying the depreciation you've taken over three years?

 

[Shutout]

Talk to your accountant first.  You probably make too much to deduct the paper losses.  If you need a little cash, you might be better off leasing it Christmas and New Year's weekend for a 3-4X premium and staying under the window where you have to report the income.  You could probably cover 6 months of mortgage just leasing those two weeks.

You have this 14 day period where, if you keep it in that range, you have much greater flexibility in what you report.  Another thing you have to keep in mind is you have to be committed to these places long term in order to not be absolutely smoked if you try to sell in the short run because, keep in mind, this isn't like your main home. The tax implications for second and vacation homes, regardless of improvements made, are quite different. 

 

[BassNBrew]

You have this 14 day period where, if you keep it in that range, you have much greater flexibility in what you report.  Another thing you have to keep in mind is you have to be committed to these places long term in order to not be absolutely smoked if you try to sell in the short run because, keep in mind, this isn't like your main home. The tax implications for second and vacation homes, regardless of improvements made, are quite different. 

Yup...hence my 1031 out of a vacation property into a true rental property.  If I hadn't of done that, about 60% of the proceeds would have been headed to Uncle Sam.

 

[Shutout]

Yup...hence my 1031 out of a vacation property into a true rental property.  If I hadn't of done that, about 60% of the proceeds would have been headed to Uncle Sam.

which, if you are doing it all on the level, means that you, the owner, shouldn't be spending as much time in this place as most people who are talking about having a place like this would want to.  It works if you are buying it, making it a true rental and then have the idea that someday way down the road when you have it paid for or a lot of it, you start using it more but in the current timeline, you really can't treat it like a place you spend 10-16 weeks a year at (or your family, etc).  

 

[rascal]

Woah man, chill with the hard sell!

Seriously though, we're just going to put $150k into a vacation fund, and whatever annual gain is our vacation budget for the next year (we'll add for inflation as we go)

Wife and I were discussing something similar.  I've got about the same amount of money sitting in my brokerage account, but we've made $35k on it this year.  Wife wants to just take those gains out now and use it for next 3 years.  I'm inclined to leave it, but I'm having a hard time justifying it.

 

[E-Z Glider]

Good stuff. Sounds like most of the problems are, again, issues with renters and PM companies.

I am hopeful that being on a strict schedule will alleviate some of the week-to-week hand-wringing. My thoughts are that I will pack-up (bring home or lock up in on-site storage) all my personal/valuable belongings at the end of May. It will then be a generic rental place for the whole summer (I wont even go there at any point unless there is an emergency). I will then return in September and unpack all of my personal/valuable belongings. So essentially, it will be like our own place from Sept-May, all of our stuff will be there, we can come and go as we please, there is no PM to deal with. And then it will be like we dont even own a place from June-August. PM handle's the minor stuff and we assess the damages at the end of the summer.

I think the problems arise when people try to bounce back-and-forth between being a rental and being your dream-home. It becomes a hassle, an inconvenience, and a point of contention when you see what each individual renter did. I feel like it will be less of an issue viewing it as our house for 9 months and a rental for 3 months. I could be way off on this too. Wouldnt be the first time. 

Another question for @BassNBrew (or anyone else).... how is "personal use" determined for tax purposes? Is that any time that the house isn't rented? Or is it just the actual number of days we spend there? And if actual days, is that just on the honor system?

 

[Tom Hagen]

Good stuff. Sounds like most of the problems are, again, issues with renters and PM companies.

I am hopeful that being on a strict schedule will alleviate some of the week-to-week hand-wringing. My thoughts are that I will pack-up (bring home or lock up in on-site storage) all my personal/valuable belongings at the end of May. It will then be a generic rental place for the whole summer (I wont even go there at any point unless there is an emergency). I will then return in September and unpack all of my personal/valuable belongings. So essentially, it will be like our own place from Sept-May, all of our stuff will be there, we can come and go as we please, there is no PM to deal with. And then it will be like we dont even own a place from June-August. PM handle's the minor stuff and we assess the damages at the end of the summer.

I think the problems arise when people try to bounce back-and-forth between being a rental and being your dream-home. It becomes a hassle, an inconvenience, and a point of contention when you see what each individual renter did. I feel like it will be less of an issue viewing it as our house for 9 months and a rental for 3 months. I could be way off on this too. Wouldnt be the first time. 

Another question for @BassNBrew (or anyone else).... how is "personal use" determined for tax purposes? Is that any time that the house isn't rented? Or is it just the actual number of days we spend there? And if actual days, is that just on the honor system?

A personal use day is any day you or a family member actually use the property or any day you let someone else use it at less than fair market value.  There is an exception if the primary purpose for being there is to perform maintenance.  That leaves some wiggle room to use the property without it being considered a personal use day as long as you can document that you went there primarily to do some work. 

It's pretty much on the honor system, but you should keep a calendar to document personal and rental use. 

 

[STEADYMOBBIN 22]

Wife and I are looking at land and beach places to buy in the future/post bubble.

 

[STEADYMOBBIN 22]

We have a place in Ocean City Maryland. I live in NY. We love it AND I dont have my home nortgage paid off yet like you do. 

We do not rent it out through a service though. However, we will rent it to people we know for $900 a week. The mortgage is around 1,000. So if I were to rent it out every week in the summer, I would definitely be able to not pay a dime out of pocket. the $900 we charge is low compared to what we could get. 

We love going there and are very happy we did it. This is our 8th year owning it. 

I was gonna PM you but maybe it’s more relevant to another poster- 

You dont have to tell me the name of the place if you’re not comfortable but what kinda place and genera area is it? 
 

We’re looking at either land or buying a condo at one of the high rises. We like the Golden Sands. Rehobeth, Dewey, Bethany, Berlin are all options.
 

Condo has condo fees but we like being up high and being in the beach, no land/exterior to take care of. 
 

Flip side is we don’t like people. Hehe. 

 

[Don't Toews Me]

Not me personally, but one friend of mine has a beach house. Few blocks from the beach. Rents it out the entire year outside of summer to mostly college kids (this would scare the **** out of me). Has it for him and his family in the summer. Renting it out 8 months of the year pays for itself. 

He's run into some problems with renting it out to the population that he rents it out to, but mostly no complaints from his end on the decision to buy a beach house. His family loves it in the summer. 

 

[E-Z Glider]

Not me personally, but one friend of mine has a beach house. Few blocks from the beach. Rents it out the entire year outside of summer to mostly college kids (this would scare the **** out of me). Has it for him and his family in the summer. Renting it out 8 months of the year pays for itself. 

He's run into some problems with renting it out to the population that he rents it out to, but mostly no complaints from his end on the decision to buy a beach house. His family loves it in the summer. 

Interesting. Pretty much the exact opposite of what I'm planning. Outside of the holidays, Id guess its tough to find renters November-March? Makes me feel better about my chances of breaking even by renting it out the entire summer. 

 

[BassNBrew]

Good stuff. Sounds like most of the problems are, again, issues with renters and PM companies.

I am hopeful that being on a strict schedule will alleviate some of the week-to-week hand-wringing. My thoughts are that I will pack-up (bring home or lock up in on-site storage) all my personal/valuable belongings at the end of May. It will then be a generic rental place for the whole summer (I wont even go there at any point unless there is an emergency). I will then return in September and unpack all of my personal/valuable belongings. So essentially, it will be like our own place from Sept-May, all of our stuff will be there, we can come and go as we please, there is no PM to deal with. And then it will be like we dont even own a place from June-August. PM handle's the minor stuff and we assess the damages at the end of the summer.

I think the problems arise when people try to bounce back-and-forth between being a rental and being your dream-home. It becomes a hassle, an inconvenience, and a point of contention when you see what each individual renter did. I feel like it will be less of an issue viewing it as our house for 9 months and a rental for 3 months. I could be way off on this too. Wouldnt be the first time. 

Another question for @BassNBrew (or anyone else).... how is "personal use" determined for tax purposes? Is that any time that the house isn't rented? Or is it just the actual number of days we spend there? And if actual days, is that just on the honor system?

Days available to rent is another key factor for tax purposes.  If you are taking it off the market from September to May, you will lose a lot of deductibility.

Kiplinger's had this to say...

1. If you rent out your house for 14 days or fewer during the year, you don't have to report the rental income on your tax return. And there's no limit to how much you can charge. The house is considered a personal residence so you deduct mortgage interest and property taxes just as you do for your primary home.

2. If you rent out your house for more than 14 days, you become a landlord in the eyes of the IRS. That means you have to report your rental income. But it also means you can deduct rental expenses. It can get complicated because you need to allocate costs between the time the property is used for personal purposes and the time it is rented.

3. If you use the place for more than 14 days or more than 10% of the number of days it is rented -- whichever is greater -- it is considered a personal residence. You can deduct rental expenses up to the level of rental income. But you can't deduct losses.

4. The definition of "personal use" days is fairly broad. They may include any days you or a family member use the house (even if the family member is paying rent). Personal days also include days on which you have donated use of the house -- say, to a charity auction -- or have rented it out for less than fair market value.

5. If you limit your personal use to 14 days or 10% of the time the vacation home is rented, it is considered a business. You can deduct expenses and, depending on your income, you may be able to deduct up to $25,000 in losses each year. That's why many vacation homeowners hold down leisure use and spend lots of time "maintaining" the property; fix-up days don't count as personal use.

 

[Chemical X]

We just bought a place on Topsail Island, but we don't rent.  Its a 1/1.5 we removated into a 1/2 full.  Sleeps 6.  Heavily governed by an HOA, which is nice, as we have a pool, good grounds and insurance is included (though you should get your own HO-6 policy).  Insurance is a big expense, so are you buying in a COBRA zone, HOA?  This is on top of your note.  So, if you want to say that your note and expenses are about $1500-/mo., this is 18k annually.  By me, units and properties rent weekly, for the most part, average about 1000-1500/per depending on what you can sleep.  Mgmt. company gets 18%, this includes cleaning.  Figure you can get what, 18 weeks, so say 22.5k for arguments sake.  So, you're staring at a breakeven to pay down your note.  Unexpected things come up, like last week my condo stack had 1/4 of the roof snap off from the wind.  Insurance covers it, but its time, aggravation, etc.  Then you want to use it after multiple people have slept in your bed and done whatever.  There are pros and cons, but for me, if i am going to use it, i am not renting it.  If and when we decide we are not users, i want my money out asap.  Just my thoughts....

 

[AcerFC]

I was gonna PM you but maybe it’s more relevant to another poster- 

You dont have to tell me the name of the place if you’re not comfortable but what kinda place and genera area is it? 
 

We’re looking at either land or buying a condo at one of the high rises. We like the Golden Sands. Rehobeth, Dewey, Bethany, Berlin are all options.
 

Condo has condo fees but we like being up high and being in the beach, no land/exterior to take care of. 
 

Flip side is we don’t like people. Hehe. 

No problem. We are up on 120th street in Heron Harbour. We have a 2 bedroom 2 bath condo. We are on the middle floor of 3. We have an end unit so we can see the bay from our balcony. 
We pay $4,000 in condo fees a year. That covers the outdoor pool, the indoor pool, the gym and tennis courts along with the maintenance of the property. 
I hear ya on the condo living aspect. But, We didn’t have the money for a house and we definitely didn’t have the money for a house on the beach. 
we drive by Rehobeth, Bethany and Dewey on our way. We picked OcMD bc of the amount of things it had for our kids. We bought it and my daughter was 5 and my son 2. They are 13 and 10 now. Still have zero issues with it, but could see being in Bethany as it is a little slower over there. 
Let me know if you have any other questions. 

 

[Shutout]

Good stuff. Sounds like most of the problems are, again, issues with renters and PM companies.

I am hopeful that being on a strict schedule will alleviate some of the week-to-week hand-wringing. My thoughts are that I will pack-up (bring home or lock up in on-site storage) all my personal/valuable belongings at the end of May. It will then be a generic rental place for the whole summer (I wont even go there at any point unless there is an emergency). I will then return in September and unpack all of my personal/valuable belongings. So essentially, it will be like our own place from Sept-May, all of our stuff will be there, we can come and go as we please, there is no PM to deal with. And then it will be like we dont even own a place from June-August. PM handle's the minor stuff and we assess the damages at the end of the summer.

I think the problems arise when people try to bounce back-and-forth between being a rental and being your dream-home. It becomes a hassle, an inconvenience, and a point of contention when you see what each individual renter did. I feel like it will be less of an issue viewing it as our house for 9 months and a rental for 3 months. I could be way off on this too. Wouldnt be the first time. 

Another question for @BassNBrew (or anyone else).... how is "personal use" determined for tax purposes? Is that any time that the house isn't rented? Or is it just the actual number of days we spend there? And if actual days, is that just on the honor system?

Check the 14 day rule I mentioned last night.  Look at IRS no.415 for some info.

To add to what a few people responded, in regards to the maintenance days, yes you have some leeway but you need to be careful and do things like make sure you purchase repair materials on the same days that you are claiming you were there for maintenance.  Failing to do so is a good flag to trigger audit (e.g., claiming you have the month of April as maintenance yet your expense and loss receipts show you bought stuff in June).  It is  also a flag when your maintenance claim times coincide with popular holidays, etc.  Nobody buys when your maintenance weeks just happen to always fall during Spring break, for example. 

Don't forget capital gains taxes if you sell.  If you do sell, however, DO NOT forget that you can take your sales proceeds and roll them into a new rental and bypass the taxes on capital gains. 

 

[Otis]

Please Otis, DO NOT.  I'm telling you, brother, I have been in that exact spot and it is ugly. 

I don't know exactly where your place is but I can tell you because I now own and live in a cabin in the mountains, yada yada yada, that there are a LOT of issues that come with owning a remote cabin/mountain place, even without renters.  

There are people who have places in this area that I have got to know and I'd say about 90% of them were all miserable when they rented.Especially with winter skiing, the people you get, the weather factors, heating (fireplaces, all those things that sound cozy and nice) are nightmares for the owners.  

It is OS appealing to think "wow, this place almost pays for itself IF we get this and rent this much, etc" but the reality is, I (and a good deal of the folks I have come to know) all agree that I would rather do without something elsewhere, drive a car a year or two longer before getting a new one, tighten the belt somewhere else, than to rent vacation/party/getaway places. Like I said above, I was a landlord in a typical rental and that was 100 times better than trying to rent a pleasure/getaway place.  

Give it some thought.  

Thanks for this. More and more leaning in the “not renting” category, especially after seeing advice like this.

 

[Otis]

So what are your wife's tastes for furniture on this new vaca home of yours?

It’s coming furnished. Lots of custom log furniture, befitting the log cabin style. My wife initially hated that style but has come to accept it’s what works in that type of hope and even starting to kind of like it. 

 

[kutta]

We own a second home in Prescott AZ, about an hour and a half from where we live in Phoenix. We do not rent it out because we treat it like a true second home. We don’t want anyone staying there. Heck, we barely even let family stay there. We are up there almost every weekend.

We love it, but I couldn’t imagine renting it out and wanting to stay there too. Too much weirdness with people messing with our stuff.

 

[bushdocda]

I’ll have to read through this. We had a bay front condo for a few seasons in Lewes DE and used it a ton bc we could get there in around 2 hrs so went with no renters - yay no random spooge.  Sold it to get more liquid during some job bumpiness and were fortunate to do so as the HOA tried to turn the min rental period to 2 weeks and almost tanked our closing.  
If we do it again, we would get something further away like NC, mgmt company rent it hard and take a our time late in the season in longer chunks. 

 

[Otis]

If we were ever to rent — and a big if — we’d basically set up a padlocked room or closet somewhere with all our good stuff, our own bed linens, etc. When we go into winter rental season we would put all our nice stuff in there and lock it down. Then bring it back out when we use it in our season, and swap out all the crappy rental stuff. It’s still not great because people will basically ruin and break everything else. But at least we won’t be laying in someone’s filth. 
 

Still, probably will look to avoid all that. All comes down to need. If my job remains as it has been the past 5 years or so, we’ll be fine. If something starts tanking or god forbid I lose my job entirely, that would have to change. 

 

[Sand]

Any FBG's offer any personal opinions or advise on the topic? Looking for any feedback. Both good and bad.

Either have zero rentals or 10.  If you have just one pray you have a great PM company to take care of stuff.  Even then the PM company, even a good one, is like a 2 year old you need to watch like a hawk.  They do stupid stuff, have errors all over the place, etc.  In my case we don't have a choice - the house is too far away and the rental is a short term vacation rental.

A personal use day is any day you or a family member actually use the property or any day you let someone else use it at less than fair market value.  There is an exception if the primary purpose for being there is to perform maintenance.  That leaves some wiggle room to use the property without it being considered a personal use day as long as you can document that you went there primarily to do some work. 

Good news on a beach place (mine is right on the gulf) that since the beach eats everything you always have something to maintain, paint, patch, etc.

Just sold mine.

That's a shame.  I loved it - great place, you had me there for free, and even fed me a bit.  

 

[Foosball God]

No problem. We are up on 120th street in Heron Harbour. We have a 2 bedroom 2 bath condo. We are on the middle floor of 3. We have an end unit so we can see the bay from our balcony. 
We pay $4,000 in condo fees a year. That covers the outdoor pool, the indoor pool, the gym and tennis courts along with the maintenance of the property. 
I hear ya on the condo living aspect. But, We didn’t have the money for a house and we definitely didn’t have the money for a house on the beach. 
we drive by Rehobeth, Bethany and Dewey on our way. We picked OcMD bc of the amount of things it had for our kids. We bought it and my daughter was 5 and my son 2. They are 13 and 10 now. Still have zero issues with it, but could see being in Bethany as it is a little slower over there. 
Let me know if you have any other questions. 

I can say from experience it is a great place, excellent location.

 

[AcerFC]

I can say from experience it is a great place, excellent location.

The Foosball family is why we DONT rent it out 

I kid, I kid. 

 

[Foosball God]

The Foosball family is why we DONT rent it out 

I kid, I kid. 

We brought gifts!!!

 

[NajehHejan]

We bought a condo in OCMD with my sister in law 50/50) last March. We like it so far. Got to enjoy it a lot in May and June. We’re in the 7th and final week of consecutive weekly rentals. I’ll come back and report on how the place looks after we check on it in a few weeks. The rental agency is very good so far. We only had 2 small issues with the same renter - they complained about an errant shower head and then a few days later a clogged tub. The agency sent in a repair guy each time for cheap. We look forward to enjoying it late August and September into October. The limited rentals covers the HOA, taxes, utilities, water and sewer, rental license, etc. Everything but the housing itself. We knew this going in and chose that route so we could recoup all the other costs but leave it open enough in the off season for us to enjoy it. 

 

[E-Z Glider]

We bought a condo in OCMD with my sister in law 50/50) last March. We like it so far. Got to enjoy it a lot in May and June. We’re in the 7th and final week of consecutive weekly rentals. I’ll come back and report on how the place looks after we check on it in a few weeks. The rental agency is very good so far. We only had 2 small issues with the same renter - they complained about an errant shower head and then a few days later a clogged tub. The agency sent in a repair guy each time for cheap. We look forward to enjoying it late August and September into October. The limited rentals covers the HOA, taxes, utilities, water and sewer, rental license, etc. Everything but the housing itself. We knew this going in and chose that route so we could recoup all the other costs but leave it open enough in the off season for us to enjoy it. 

Please do. This is exactly what Im thinking of doing, but for longer. What types of personal things did you remove? What types of personal things did you leave?

 

[Senor Schmutzig]

Here's my situation and I need some FBG advise so I can figure out if it makes sense to move forward.

I recently (last week) bought a property with/for my parents for $110,000. Technically, I'm the one holding the bank note but both of my parents and myself are on the title. 

I received a call yesterday from someone that is interested in buying the property from us for at least $150,000 (maybe a little higher). I won't get into the details because it's TL;DR but I consider the offer as legitimate. 

If we were to turn around and sell it, how would the $40,000 profit be taxed?

Is my tax burden equal to half of the profits ($20,000) x my personal tax rate (35% because FBG) and my parents (married, filing jointly) would be responsible for tax on the other half of the profits ($20,000 x 12% because NOT FBG)? Am I calculating that correctly or at least close?

If this was strictly an investment decision, the choice is already made. I would definitely do the deal regardless of tax implications due to the % of profit realized over the short term. 

That's not necessarily the case however because the purpose behind the purchase is to get them to move closer to me and find them a stable place to live. Long story, but they have been living in an RV for 16 years straight and it's time to move on from that lifestyle.

We bought this particular unit for the exact same reasons the new, interested buyer wants it. It has some specific things that were desirable to us. If we were to sell, I would have to try and find another property that would fit the exact needs of my parents. Not sure how long that could take so I have to take that into account when determining whether or not it makes sense to move forward. Everything has a price, I just need to figure out what that price is in order to determine if this transaction is worth it to us. Figuring out that price requires me to understand the tax implications if it makes sense to even consider this.

 

[comfortably numb]

Here's my situation and I need some FBG advise so I can figure out if it makes sense to move forward.

I recently (last week) bought a property with/for my parents for $110,000. Technically, I'm the one holding the bank note but both of my parents and myself are on the title. 

I received a call yesterday from someone that is interested in buying the property from us for at least $150,000 (maybe a little higher). I won't get into the details because it's TL;DR but I consider the offer as legitimate. 

If we were to turn around and sell it, how would the $40,000 profit be taxed?

Is my tax burden equal to half of the profits ($20,000) x my personal tax rate (35% because FBG) and my parents (married, filing jointly) would be responsible for tax on the other half of the profits ($20,000 x 12% because NOT FBG)? Am I calculating that correctly or at least close?

If this was strictly an investment decision, the choice is already made. I would definitely do the deal regardless of tax implications due to the % of profit realized over the short term. 

That's not necessarily the case however because the purpose behind the purchase is to get them to move closer to me and find them a stable place to live. Long story, but they have been living in an RV for 16 years straight and it's time to move on from that lifestyle.

We bought this particular unit for the exact same reasons the new, interested buyer wants it. It has some specific things that were desirable to us. If we were to sell, I would have to try and find another property that would fit the exact needs of my parents. Not sure how long that could take so I have to take that into account when determining whether or not it makes sense to move forward. Everything has a price, I just need to figure out what that price is in order to determine if this transaction is worth it to us. Figuring out that price requires me to understand the tax implications if it makes sense to even consider this.

Keep it...unless the extra 15k is life changing.

If the main purpose was to bring your parents closer you did so. Having to now look again, maybe pay more than 110 for a place...to me is not worth the headache. 

Congrats on what seemsbto be a good investment already appreciated in value

 

[gianmarco]

Keep it...unless the extra 15k is life changing.

If the main purpose was to bring your parents closer you did so. Having to now look again, maybe pay more than 110 for a place...to me is not worth the headache. 

Congrats on what seemsbto be a good investment already appreciated in value

Agreed. Not to mention closing costs involved with transactions and current historically low rates.

 

[Da Guru]

Here's my situation and I need some FBG advise so I can figure out if it makes sense to move forward.

I recently (last week) bought a property with/for my parents for $110,000. Technically, I'm the one holding the bank note but both of my parents and myself are on the title. 

I received a call yesterday from someone that is interested in buying the property from us for at least $150,000 (maybe a little higher). I won't get into the details because it's TL;DR but I consider the offer as legitimate. 

If we were to turn around and sell it, how would the $40,000 profit be taxed?

Is my tax burden equal to half of the profits ($20,000) x my personal tax rate (35% because FBG) and my parents (married, filing jointly) would be responsible for tax on the other half of the profits ($20,000 x 12% because NOT FBG)? Am I calculating that correctly or at least close?

If this was strictly an investment decision, the choice is already made. I would definitely do the deal regardless of tax implications due to the % of profit realized over the short term. 

That's not necessarily the case however because the purpose behind the purchase is to get them to move closer to me and find them a stable place to live. Long story, but they have been living in an RV for 16 years straight and it's time to move on from that lifestyle.

We bought this particular unit for the exact same reasons the new, interested buyer wants it. It has some specific things that were desirable to us. If we were to sell, I would have to try and find another property that would fit the exact needs of my parents. Not sure how long that could take so I have to take that into account when determining whether or not it makes sense to move forward. Everything has a price, I just need to figure out what that price is in order to determine if this transaction is worth it to us. Figuring out that price requires me to understand the tax implications if it makes sense to even consider this.

Why would someone offer 40K more one week after your made the purchase when they could have had it for 110k?     

Seems like if they are willing to go 40K more right away they might go 60K more.

 

[Ron Swanson]

Here's my situation and I need some FBG advise so I can figure out if it makes sense to move forward.

I recently (last week) bought a property with/for my parents for $110,000. Technically, I'm the one holding the bank note but both of my parents and myself are on the title. 

I received a call yesterday from someone that is interested in buying the property from us for at least $150,000 (maybe a little higher). I won't get into the details because it's TL;DR but I consider the offer as legitimate. 

If we were to turn around and sell it, how would the $40,000 profit be taxed?

Is my tax burden equal to half of the profits ($20,000) x my personal tax rate (35% because FBG) and my parents (married, filing jointly) would be responsible for tax on the other half of the profits ($20,000 x 12% because NOT FBG)? Am I calculating that correctly or at least close?

If this was strictly an investment decision, the choice is already made. I would definitely do the deal regardless of tax implications due to the % of profit realized over the short term. 

That's not necessarily the case however because the purpose behind the purchase is to get them to move closer to me and find them a stable place to live. Long story, but they have been living in an RV for 16 years straight and it's time to move on from that lifestyle.

We bought this particular unit for the exact same reasons the new, interested buyer wants it. It has some specific things that were desirable to us. If we were to sell, I would have to try and find another property that would fit the exact needs of my parents. Not sure how long that could take so I have to take that into account when determining whether or not it makes sense to move forward. Everything has a price, I just need to figure out what that price is in order to determine if this transaction is worth it to us. Figuring out that price requires me to understand the tax implications if it makes sense to even consider this.

I only do this deal if I know I can buy a similar place for 110k or less.

 

[gianmarco]

I only do this deal if I know I can buy a similar place for 110k or less.

Yeah, start looking around now and see if you can secure something.  If the person really wants it now, then they are likely still interested in 1-2 months from now.

 

[FreeBaGeL]

This is 1000% dependent on the location.

There are places where you could rent the thing out every day of the year and never use it yourself and still lose money.  On the flipside there are places you could hire a PM who takes a huge cut, use the place yourself 2 months every year, and still make money on the thing while building equity with absolutely zero work on your end.

Airdna.co and mashvisor.com are places you can research which category the area you are looking at falls into.

Here is a good starting point

 

[Senor Schmutzig]

Why would someone offer 40K more one week after your made the purchase when they could have had it for 110k?     

Seems like if they are willing to go 40K more right away they might go 60K more.

We made the offer first. We had a slight delay I being able to close and the real estate agent indicated they had another offer. Luckily we got our shot together and were able to close. Little did I know that they offer was considerably more than we were offering.

 

[Senor Schmutzig]

Keep it...unless the extra 15k is life changing.

If the main purpose was to bring your parents closer you did so. Having to now look again, maybe pay more than 110 for a place...to me is not worth the headache. 

Congrats on what seems to be a good investment already appreciated in value

It was a headache for sure. We ended up getting a mortgage because money is cheap and I didn't have the cash available right now that I wanted to commit. 

$15k isn't life changing and not worth the effort at this point, I agree. I'm just trying to make sure my math is right in case for some stupid reason, they interested buyer wants to go higher. 

 

[Senor Schmutzig]

I only do this deal if I know I can buy a similar place for 110k or less.

We have been looking and it took 8 months to find this spot. We are looking at one particular community however the unit we found ticked all of the boxes:

4-story building (there are also 2 story buildings here)
1st floor
End unit
Parking spot is close (right outside the door practically)

My dad isn't very mobile so all of these things were requirements. There are only so many of these in this community so once we found it, we jumped on it and made an offer. It just so happened it was right before this interested seller found it. He has the same impairments as my dad, which is the reason he would offer considerably more than we paid. 

So no, it wouldn't be easy to find another unit like this. 

 

[Foosball God]

We have been looking and it took 8 months to find this spot. We are looking at one particular community however the unit we found ticked all of the boxes:

4-story building (there are also 2 story buildings here)
1st floor
End unit
Parking spot is close (right outside the door practically)

My dad isn't very mobile so all of these things were requirements. There are only so many of these in this community so once we found it, we jumped on it and made an offer. It just so happened it was right before this interested seller found it. He has the same impairments as my dad, which is the reason he would offer considerably more than we paid. 

So no, it wouldn't be easy to find another unit like this. 

Sounds like you have your answer then.

 

[Tom Hagen]

Here's my situation and I need some FBG advise so I can figure out if it makes sense to move forward.

I recently (last week) bought a property with/for my parents for $110,000. Technically, I'm the one holding the bank note but both of my parents and myself are on the title. 

I received a call yesterday from someone that is interested in buying the property from us for at least $150,000 (maybe a little higher). I won't get into the details because it's TL;DR but I consider the offer as legitimate. 

If we were to turn around and sell it, how would the $40,000 profit be taxed?

Is my tax burden equal to half of the profits ($20,000) x my personal tax rate (35% because FBG) and my parents (married, filing jointly) would be responsible for tax on the other half of the profits ($20,000 x 12% because NOT FBG)? Am I calculating that correctly or at least close?

If this was strictly an investment decision, the choice is already made. I would definitely do the deal regardless of tax implications due to the % of profit realized over the short term. 

That's not necessarily the case however because the purpose behind the purchase is to get them to move closer to me and find them a stable place to live. Long story, but they have been living in an RV for 16 years straight and it's time to move on from that lifestyle.

We bought this particular unit for the exact same reasons the new, interested buyer wants it. It has some specific things that were desirable to us. If we were to sell, I would have to try and find another property that would fit the exact needs of my parents. Not sure how long that could take so I have to take that into account when determining whether or not it makes sense to move forward. Everything has a price, I just need to figure out what that price is in order to determine if this transaction is worth it to us. Figuring out that price requires me to understand the tax implications if it makes sense to even consider this.

It would be a short term capital gain so the gain would be taxed at the ordinary income tax rates of you and your parents. If there are 3 names on the deed, it would most likely be assumed to be owned 1/3 by each of you, so 2/3 of the gain would be at your parents rate.
 

Also, the gain would be sale price less purchase price less closing costs on both sides so it may be less than $40,000.

 

[Senor Schmutzig]

It would be a short term capital gain so the gain would be taxed at the ordinary income tax rates of you and your parents. If there are 3 names on the deed, it would most likely be assumed to be owned 1/3 by each of you, so 2/3 of the gain would be at your parents rate.
 

Also, the gain would be sale price less purchase price less closing costs on both sides so it may be less than $40,000.

Ok, thanks. That's really the answer I was looking for. At $150k it doesn't make sense however if the number goes higher for any reason, it may be something to consider. 

 

[NajehHejan]

We bought a condo in OCMD with my sister in law 50/50) last March. We like it so far. Got to enjoy it a lot in May and June. We’re in the 7th and final week of consecutive weekly rentals. I’ll come back and report on how the place looks after we check on it in a few weeks. The rental agency is very good so far. We only had 2 small issues with the same renter - they complained about an errant shower head and then a few days later a clogged tub. The agency sent in a repair guy each time for cheap. We look forward to enjoying it late August and September into October. The limited rentals covers the HOA, taxes, utilities, water and sewer, rental license, etc. Everything but the housing itself. We knew this going in and chose that route so we could recoup all the other costs but leave it open enough in the off season for us to enjoy it. 

Please do. This is exactly what Im thinking of doing, but for longer. What types of personal things did you remove? What types of personal things did you leave?

Very late in replying here, but so far, so good. We ended up getting an 8th week rented that had previously been canceled due to Covid. When we returned to the place after 8 weeks of rentals, the place looked the same, with no obvious damage or wear and tear. We were able to enjoy the place many times from Sept onward. As for personal things, we are fortunate in that we bought a place where the seller left everything - all furniture, kitchenware, etc. We added a few small things like an Echo speaker and a Roku - both were still there upon our return. We were fortunate in that many of the renters for the 8 weeks were repeat renters who have been staying there the same week for several years. Thankfully, 5 of the 8 weeks for next year are already rented to 3 repeat clients - 1 going for 1 week, and 2 going for 2 weeks. I feel very blessed that we found what seems to be almost the perfect situation - a property in a desirable location (half block from the beach) managed by an excellent realty company who does a great job in securing loyal/repeat renters. Since it is a 3 bedroom with 2 pull out couches (sleeps 12), it tends to attract extended families as opposed to young and rowdy folks. We are very pleased so far and are happy we took the plunge. We'll probably spend the week leading up to New Year's down there. Even though it will be cold, it's a nice getaway. The place is free from clutter whereas our home residence routinely looks like a bomb went off. It's nice to have the place as an escape. 

 

[AcerFC]

Very late in replying here, but so far, so good. We ended up getting an 8th week rented that had previously been canceled due to Covid. When we returned to the place after 8 weeks of rentals, the place looked the same, with no obvious damage or wear and tear. We were able to enjoy the place many times from Sept onward. As for personal things, we are fortunate in that we bought a place where the seller left everything - all furniture, kitchenware, etc. We added a few small things like an Echo speaker and a Roku - both were still there upon our return. We were fortunate in that many of the renters for the 8 weeks were repeat renters who have been staying there the same week for several years. Thankfully, 5 of the 8 weeks for next year are already rented to 3 repeat clients - 1 going for 1 week, and 2 going for 2 weeks. I feel very blessed that we found what seems to be almost the perfect situation - a property in a desirable location (half block from the beach) managed by an excellent realty company who does a great job in securing loyal/repeat renters. Since it is a 3 bedroom with 2 pull out couches (sleeps 12), it tends to attract extended families as opposed to young and rowdy folks. We are very pleased so far and are happy we took the plunge. We'll probably spend the week leading up to New Year's down there. Even though it will be cold, it's a nice getaway. The place is free from clutter whereas our home residence routinely looks like a bomb went off. It's nice to have the place as an escape. 

Im up on 120th. We plan on going down for New Years as well. If it wasnt covid, I would say we should meet up. Maybe when things get back to normal 

 

[Big League Chew]

We have a place in Ocean City Maryland. I live in NY. We love it AND I dont have my home nortgage paid off yet like you do. 

We do not rent it out through a service though. However, we will rent it to people we know for $900 a week. The mortgage is around 1,000. So if I were to rent it out every week in the summer, I would definitely be able to not pay a dime out of pocket. the $900 we charge is low compared to what we could get. 

We love going there and are very happy we did it. This is our 8th year owning it. 

Where in OC?

 

[AcerFC]

Where in OC?

up on 120th street by the Crabcake Factory.