Would some of you be willing to share advice or experience concerning short term vacation rentals and their financing.

The property I am looking at is in a very sought after vacation town.

Listing is $1.175 mil. The gross rental revenue for Jan to Oct of 2021 was $134k and Net to the Owner was $57k. HOA dues are $3670 per month. For Jan to Oct this is $36,760. So after dues, the owner netted $19,452.

Any idea what type of down payment would be ideal?

I assume this is a condo in a resort area? If so it is likely a cond-tel which has different financing financing ability.

Yes it is. Do you have any information on the different financing ability you mentioned?

yes, we do a lot of condo-tels. They are NOT eligible for conventional financing or the vast majority of jumbo programs. They will require at least 25% down and have higher rates then a single family home. Be happy to show you some numbers. Email is my screen name here.

I appreciate that!

The "condotel" word was enough to fuel a
google search. Looks like financing is harder to come by and requires 25% down and 43 debt to income.

yeah, sounds like it can be an issue for sure.

Many lenders were convinced my parents place at Pointe West has a "condotel" for the longest time. They didn't want to touch it.

So what are rates like assuming nonissues with other qualifications and high credit score?

We can get condotel 30 year fixed in the mid 4's. It takes a while for a lot of folks to understand that is WAY better then most options because they just assume it will be the same as a single family property.

We also can do a debt service coverage approach where we use the appraiser's determination of the rental income to qualify instead of W-2/Tax returns.

Do you have a product using the debt service coverage approach with STR income instead of long term rental?

Edit Perhaps this is what you meant and I was just confused by the word appraiser

On a refinance we can use the actual income from the STR for the debt service loans. But, on a purchase we have to use the appraisers market rent on the 1007 market rent in the report. Appraisers in resort areas typically do a decent job of coming up with a reasonable STR rent rate. But, if you are looking for a STR in a non resort area you are going to be looking at more typical12 month rent numbers.

the DSCR looks to be pretty terrible in the OP's deal. Do any of the condotel's actually cash flow? seems nearly impossible considering the onerous maint fees, plus management, property tax, etc.

I would think the rental pool goal would be mainly to defer some of the expenses

Thanks for the feedback. I'm new at all of this.

My goal is to find a place to park some cash that I can enjoy as opposed to a brokerage account. It needs to have some major financial advantages over renting every year.

Yes, some do cash flow. But, as with most income producing assets with so many folks searching for yield on their capital, the prices have been bid up to some nose bleed levels. Same thing I believe is happening in storage facilities, mobile home parks etc.

Of course these condotels, if done as a second home, have personal utility. So a lot of buyers look at it as if any income is better then none. They are generally turn key lock the door and walk away situations. But, yes you are correct on the HOA as you never know when you will be hit with a large special assessment. Of course that is true in all condo building.

Jay@AgsReward.com said:

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Yes, some do cash flow. But, as with most income producing assets with so many folks searching for yield on their capital, the prices have been bid up to some nose bleed levels. Same thing I believe is happening in storage facilities, mobile home parks etc.

Of course these condotels, if done as a second home, have personal utility. So a lot of buyers look at it as if any income is better then none. They are generally turn key lock the door and walk away situations. But, yes you are correct on the HOA as you never know when you will be hit with a large special assessment. Of course that is true in all condo building.

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good info Jay.

I must admit I have a disdain for condos in general ever since I took over management of my FIL's. I'm sure they make sense in some markets but between the ever increasing fees/assessments and the burdensome rules/regs for renting and rehabbing it's like they want to depress values.

CaptnCarl said:

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Thanks for the feedback. I'm new at all of this.

My goal is to find a place to park some cash that I can enjoy as opposed to a brokerage account. It needs to have some major financial advantages over renting every year.

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That was my general issue with our beach house.

If you want to defray expenses and put it in a rental pool, that inherently takes away a lot of advantages to a second home. You have to clear out all your food from the fridge, cram all the clothes and stuff you don't want to grow legs in the renters closet, and generally deal with people treating your place like crap.

You always feel like you need to "take advantage" of the second home as well, so you can get stuck in that rut as well (for some this isn't an issue but I like a little variety).

In the end, the rental income covered about 1/2-2/3's of the nut and we felt like renters in our own place.

At a certain point, we decided it was better for us to have the flexibility to rent a spot when and where we wanted and let someone else deal with paying for new elevators.

Diggity said:

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That was my general issue with our beach house.

If you want to defer expenses and put it in a rental pool, that inherently takes away a lot of advantages to a second home. You have to clear out all your food from the fridge, cram all the clothes and stuff you don't want to grow legs in the renters closet, and generally deal with people treating your place like crap.

You always feel like you need to "take advantage" of the second home as well, so you can get stuck in that rut as well (for some this isn't an issue but I like a little variety).

In the end, the rental income covered about 1/2-2/3's of the nut and we felt like renters in our own place.

At a certain point, we decided it was better for us to have the flexibility to rent a spot when and where we wanted and let someone else deal with paying for new elevators.

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This was my experience to a T. It's almost like I wrote it.

Our financial guy was like, "For the money you are spending on this beach house, you could take your whole family to Hawaii multiple times a year."

Eventually the rising costs and looming repairs forced our hand, and we sold. Now we use VRBO/AirBnB to visit lots of places.

If I ever bought a second home again, I would not rent it out.

I and another Ag who posts here own condotels (same condo) and they cash flow quite well. First 12 mos of ownership will provide ~28% CoC return on total initial investment. That of course is a highly simplistic evaluation, but it's doing well.

Would be even better if the aforementioned special assessment for capital improvements went away.

CaptnCarl said:

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Would some of you be willing to share advice or experience concerning short term vacation rentals and their financing.

The property I am looking at is in a very sought after vacation town.

Listing is $1.175 mil. The gross rental revenue for Jan to Oct of 2021 was $134k and Net to the Owner was $57k. HOA dues are $3670 per month. For Jan to Oct this is $36,760. So after dues, the owner netted $19,452.

Any idea what type of down payment would be ideal?

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Financing aside, let's talk about the numbers of this deal. If owner netted (I assume this means payment of property taxes, management fees, cleaning fees, premium hoa dues, etc.) then $1945/month and say November and December are more productive generating $3000/month instead, $25k on 1.175mm acquisition price is really rough. Even if by chance the $57k after 10 months includes payment of HOA dues, those numbers are still really rough. Avoid from a numbers standpoint if truly looking for it to be an investment, too small of margins. My 0.02

Premium HOA dues and the unknown that comes with their volatility and special assessments is yet another reason.