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biophase

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Reply with quote  #1 

My friends and I have been making an annual trip to Crested Butte, Colorado every year for 6 years.  We normally rent a condo/townhome for a week or 10 days. 

 

Lately, we've been seriously thinking about buying a vacation home out there so we don't have to rent.  Obviously, if we had bought a vacation in 2001 (our first year) we would have enjoyed tremendous appreciation by now.  However, we did not.  We are not buying this property with an investment mindset.  I know it will not come close to cashflowing.  It's just something we've been meaning to do for a while and it seems like it may be a good time to 1031 out of bubble towns and into one.

 

We have two thoughts on vacation homes. 

 

1) We buy a desirable property near town, near the lifts and make it available as a vacation rental during the times we aren't there.  The cons of this are that a desirable property is more expensive and smaller and that the home wouldn't feel like ours because renters would gradually wear out the furniture, appliances, etc...  The pros are that it is in or close to town, near all the action.

 

2) We buy a property about 10-15 minutes from town and leave it empty when we aren't there.  The pros of this are that it is our home and it is a bigger home, we can leave our clothes, skis, bikes, equipment, etc... in the property when we aren't there and it will feel like our home.  The main con is that we'd have to drive to town.

 

By my calculations... the negative cashflow would roughly be equal in both scenarios because a desirable property would cost between $500-$700k (subsidized by rental income) and a out-of-town property would be $300k-$350k.

 

My main concern now is if the real estate "bubble" will affect these types of homes in these types of towns?  And if so, how much?  Due to the price of the homes in this town, I don't see it a place where flippers or investors tend to flock.  I see it as a place where weathly people purchase $1 million dollar homes and use it 2 weeks a year.  The prices have not dropped or gone up since we were there last year.

 

Another town we are looking at purchasing in is Ketchum, ID.

 

 

 

taddyangle

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Reply with quote  #2 

I am big on vacation property and vacation cities.

However, the recent runs in RE have made vacation homes a tough call if you need to rely on income from these properties. 

 

We have had a vacation home for almost three years, and if we were smart we would have sold it 6 months ago.  Price are decling, but after using it these last three years it is just something I don't want to give up.

 

As far as the two areas you identify, I would look at the data and see what it tells you.  You may find that there is still some appreciation, or you may determine that it is at it peak.  If you read Dent's book, if I recall corretly he thinks there is still some life until 2010 for these types of properties, if you listen to others you may conclude that with the Baby Boomer population there will also be a demand for these properties, who knows.

 

If you are using it only once a year it may be a tough to justify unless your filthy rich.  Also, if you exchange, you will need to generate some income to meet the exchange requirements.

 

If you go with a rental, I would go close where the action is, in the long run you will be better protected if things go south.  Also typical property management costs are about 40-50% of income. 

 

Go with the largest unit you can afford, more bedrooms means more rental income.  The larger units are rented more often. The listing agent has the income that is generated by these properties.  You can call PM, but most are not willing to share this detailed info.   They will tell you which condos are more desirable, but tend not to want to share rental income numbers.

 

We have purchased three vacation/seasonal rentals (Palm Springs, Park City, and Padre/Mustang Island) and we have been extremly happy with the results.  We just turned our PC rental to a year round rental since we generate more income this way, but plan to turn it back to a seasonal rental in about three years. 

 

 


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curious1

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Reply with quote  #3 
Taddy what's your take on the future of Padre Island and Corpus Christi area?
taddyangle

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Reply with quote  #4 

We passed on Chorpus becasue it did not cash flow, but we looked out there late in the game (Jan 06). 

 

I recall sometime in 2004 reading or speaking to someone that told me to get into TX.  I kinda blew it off for AZ. 

 

I did the Cambell method for Chorpus, and the anaysis I did in Jan indicated that it was a little late.  Unfortunatly that data is on my old lap top and I don't have access to it any longer.

 

Becasue markets are not appreciating at the levels they did in the years past we have decided not to purchase unless there is cash flow.  We have found it impossible to find cash flowing property that we are comfortable managing/owning without placing more than 20% down.  Anyone else having this problem?

 

 

 

 

 

 


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Gekko

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Reply with quote  #5 

-

 

 

"In resort areas - given the number of days people actually use their second home - staying at the Ritz for $500 a night could be a much better deal. Do the math; it's not pretty." - http://www.moneyweek.com/file/10891/six-months-to-housing-hell.html

 

 

bbn

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Reply with quote  #6 

I enjoy vacationing as often as possible and find it difficult to spend a few hundred thousand for a vacation home and then having to do the maintenance etc.  What we have done for 25 yrs. in the spring and summer is use an r.v..We have been in the r.v. industry for as many years so from the inside looking at this lifestyle it makes great sense.  In the fall and winter for 15 yrs we take advantage of the many benefits of timeshare.  When you take the time to figure how cheaply you can stay in very nice facilities it is extremely cost effective.  To purchase a week through eBay or other inexpensive source is the way to go.   Once you own a week the opportunity to exchange or purchase unused weeks all over world is at your disposal for as little as $149.00 a week.  This is what I prefer to do instead of tying money up in a home/condo for vacation which doesn't provide monetary return on investment.   I have been an real estate investor in Idaho for 30 + years and this is my philosophy on vacation property...having fun

 

do less and accomplish more

 

biophase

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Reply with quote  #7 

I realize that as an investment it doesn't make sense... we just stayed in a place for $300/night last week which would sell for $1.1M.  I'm not concerned about the investment numbers (ROI, COCR) as I am with the property's overall value decreasing.

niravmd

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Reply with quote  #8 
according to my CPA, vacation homes in popular places do not make financial sense. even if you rent them out and don't use them for personal use, they usually do not break even. this was based on his experience with wealthy clients who have them in places like park city.

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HungryBear

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Reply with quote  #9 
Quote:
Originally Posted by biophase

I realize that as an investment it doesn't make sense... we just stayed in a place for $300/night last week which would sell for $1.1M.  I'm not concerned about the investment numbers (ROI, COCR) as I am with the property's overall value decreasing.

There is a major glut of these homes developing

 

http://www.realestatejournal.com/buysell/markettrends/20060601-blumenthal.html

 

The only people who should be buying these homes are those who are so rich they could not care less if the value drops by 50% or more.  If you are worried that the value may go down, you should not buy it.

biophase

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Reply with quote  #10 

I noticed that the article did not mention any ski towns, it seemed to mention the warmer climate cities that had the run up in the past years.  Looking at towns like Vail, Breckenridge, Aspen I don't know if they are in the same category as FL or AZ.

taddyangle

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Reply with quote  #11 
Quote:
Originally Posted by biophase

  I'm not concerned about the investment numbers (ROI, COCR) as I am with the property's overall value decreasing.

 

Given the current RE market you should be concerned about price declines.  If the areas you have been looking at have seen high appreciation over the last three-four years, and the prices are above or equal to other similar resort towns, and building permits are down, and sales are down, and prices are at their peak then you could conclude that it would not be an ideal time to purchase if you have concerns about a price decline.

 

On the other hand if you have cash to support the property then I would do it.  If your in for the long haul and you can afford it then price does not really matter.


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