I’m away on vacation this week (and it is expensive), but here’s frequent contributor Kosmo with an article about his last vacation.
No, we didn’t go to Disney World.
In 2017, we made our first trip to Door County, Wisconsin. For those who aren’t familiar, it’s the “pinky finger” on the eastern border of Wisconsin – a peninsula with Lake Michigan to the east and Green Bay to the west. After the initial trip, we decided that we’d definitely make a return trip. We planned a trip in 2019, but it was derailed by a family health situation. Last year, it was postponed because of COVID. This year, we finally made a return trip. Even with a somewhat limited set of activities (because our 11-year-old isn’t old enough to be vaccinated), it was great. We’ll definitely be back.
A funny thing happened. We started looking at homes on Realtor.com. Just goofing around at first. What would we do with a second house? Especially a house that’s considerably more expensive (per square foot) than our primary residence. That’s just crazy.
Maybe?
The idea percolated and eventually turned into a new idea. Perhaps a rental property that we use for a couple of weeks per year, plus some sporadic weekends.
Financially, we’re in a position where we could try this. I’m 46 years old. We have about 75% equity in our house and have a bit of money in an investment account. We would swing the down payment and setup, and even get through some lean years with limited rentals, if worst came to worst. I actually don’t think we’d have trouble renting a place, because it’s a very high-demand area.
The hard part
The bigger factor is the fact that we live 400 miles away. Even if we bought something that didn’t require a lot of maintenance, trying to get things set up on weekends would cause the setup to stretch longer than we’d like. Setting up a short-term rental takes a bit more work than setting up a long-term rental. You need to furnish virtually everything. Not just beds, a couch, table, chairs, and TV, but things like spatulas, corkscrews, and frisbees. And, of course, toilet paper. Nobody wants to check into an Airbnb and realize there’s no Charmin.
We would also have to hire a local cleaning service, as well as have some sort of arrangement with a local maintenance person to handle any acute issues that arise. If there’s a leaky pipe on a Wednesday, I wouldn’t be able to jump in the car and go fix it, since I have a day job. Nor could I mow the lawn every week or clear snow in the winter. Naturally, paying locals to assist would cut into the profitability of the venture.
Does it make sense?
Of course, the venture doesn’t actually need to make a profit. We’d be getting some personal use out of the property, plus the likely appreciation in property values. We could lose a bit of money every year and wouldn’t cry about it. If we could simply defray a decent chunk of the costs, that would be great.
We’re going to dip our toes in the water. My wife (a CPA) and I are both the type to plan things. We’re putting together a list of the furnishings we’d need, so that we can get our arms around the potential cost. Everything from bed frames to pizza cutters.
We have a local realtor that we’ve used to buy two houses and sell one. We’ve always enjoyed working with him. It seems like a longshot that he’d know some realtors 400 miles away, but we asked. Yep, he knows a couple of people. He’s going to get their information to us today, and we’ll engage with them very soon.
Your thoughts?
Do any of you own and remotely manage short-term rentals? What has your experience? Is it worth the cost and effort? Are there potential pitfalls that I should be aware of?
Yes, we did this last year! We should be making enough to cover mortgage payments but not internet, tv, utilities and property taxes. The cottage is almost 3 hours from our house. We use a realtor to rent it out, arrange cleaning etc but we pay a hefty cost for that. Most places come furnished especially if they were already an Airbnb and it’s so easy to find used items.
For us, the most important thing is starting. Next year we can look into doing things ourselves and also renting during other seasons besides summer and make more money. We have been conservative in the past and have missed out on opportunities! The cottage has gone up in value already.
After further discussion, it’s probably a two year plan for us, but we’ll seriously consider it as we watch to see what prices do. We’re hoping to see a slight pullback from current prices, since the current market is a bit crazy.
We’ve run the numbers, and I think the 35th percentile situation is probably break-even. Even if the revenue runs a bit below projections, we’d probably be looking at negative cash flow of a couple hundred bucks per month, which we could handle even longer term.
We’d definitely have to use a management company for almost everything. It’s just not feasible to jump in a car and drive 14 hours round trip to address an issue, especially since both of us have 9-to-5 type jobs.
I live in a very remote area, but 95% vacation home community, in Concan Tx. People like us who actually want to live here love to be your “housekeeper” for all things cleaning and maintenance. We have many management companies here that do the same but they keep more of the profits then we do, but they are bigger and more overhead as well. In any case, the majority of the folks that buy homes here pay them off in 7-8 years with just the rental income. My daughter and best friend just purchased homes so I’ll know first hand soon if that is a true statement. In addition, the majority of the homes that sell here, mine included, sell fully furnished because they are already rentals so you may get lucky to find one in Door County that will as well. We negotiated that out of our contract since we had our own and intended to be full-time residents.
We used to live in IL and Door County was my most favorite place to vacation to near home. I have some of the most beautiful pictures in the fall. The colors are just magnificent. Much luck to you and your family and if you purchase I’d love your Airbnb link. I long for the day to go back. We still have family in IL and up that way often!
Getting something furnished would be optimal. Trying to handle the deliveries of various furniture items would be a nightmare, and I don’t really relish the task of buy all the various kitchen item.
I lived in central Illinois (BloNo) for five years back in the 90s/00s.
I think the risk/reward ratio of long distance rentals is way way past my comfort level. You won’t live long enough to pay off the start up costs of a venture like this by the VRBO fees you avoid. You might cover them with the rent income, but it isn’t a slam dunk. Doing this will require advance planning on your vacations, forget about just dropping everything and heading across the country tomorrow because your place is currently rented out. Plus there is the mental burden of having a load of debt and some equity 400 miles away where a vacationing Hell’s Angels reunion meet up is changing the oil for a Harley chopper in your living room. It works out for a lot of people, but I love letting other people wash the sheets, fix the plumbing and handle the yard work at the VRBO’s we stay at. I only had one experience renting out property long ago but that taught me I’m not the person to do that successfully, I’m sure that is affecting my judgement here.
A key part that I didn’t mention in the article is that this would eventually transition into a longer term summer home for us, as we eventually each retirement age. At that point, we might be living there several months a year. Going this route would allow us to lock in a place at current prices in a hot market, and let the rental income build equity.
You raise a good point that this isn’t without risk. And it’s even possible that our brokerage account could outperform the real estate market in Door County, which would allow us to buy a house there in 15-20 years with less real financial cost.
Good luck! It sounds like a great plan in theory.
But it wouldn’t work for us. We like to visit new locations so a 2nd home wouldn’t make sense for us.