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Gavin17

Does anyone here rent out their lake house?

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Gavin17

So mostly I'm just brainstorming and I've been reading on rental forums getting ideas but I was curious if any crew members tried this.  

We visit a big lake where I grew up a few times a year.  I just booked a rental house for July and started talking to the owner. He said his rental business doesn't really make anything but he esentially has a free house. That sounded pretty good to me.  My wife and I each own separate business and do customer service every day. Having the lake house to host events could actually help both of our other business. I dont mind putting in the work and don't really care if it makes much of a profit.  I'm really just excited about the personal use aspect and the 10-20 years of lake front property appreciation.  

 

I'm estimating that for a 300k house our break even point would be 30k annual rental income which is possible for the area but certainly won't be a given. 

 

Has anyone else tried this?

 

 

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Stevo

What state / lake?

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Nitrousbird

I've never owned a lake house, but have a rental right now.  Just evicted the tenant that has been in there for 5 years, who trashed the place and owes me over 4k in back rent (plus damages, late fees and any utilities I will end up being stuck with).  I will never own a rental again - not worth it IMO.  I was a VERY good landlord and regret being one, sadly enough.  Now I am dealing with that disaster for the next month to prep it for sale - nothing like needing to power wash a garage that was used as some sort of kennel because the house smells into the street of feces.  Lovely. 

Obviously a lake house is a week-to-week rental situation and different than a full-time rental, but just takes one group of people to trash it. 

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Sixball

I think the OP is talking a week at a time? But I am with you Nitrousbird. Rental laws today at least in Michigan are very bad for the owner and give a dead beat every ability to screw the owner.   Done it and never again.  I thought I might try some smaller homes on my lake when the housing market took the big dive. Then I thought about it harder and said NO! 

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Chatty21VLX

How are you figuring your $30k rental income? If your boating season is 5 months long in Kentucky, you would need 15 weeks booked at $2k/  week or $1,500/ week at 20 weeks to make it. Obviously, each scenario assumes you can book every week. 

Not sure what your plan is for personal use, but the 15 week option leaves you with about 5 weeks of seasonal use, while the 20 week option leaves little to no personal seasonal use. I'm omitting off -season rental because I don't know if there is a market for an off season lake rental. Maybe there is if it's in a scenic area?

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Sixer

We used to own a rental property (not on a lake) and have stayed at a VRBO on Norris Lake.  The one on Norris was a $1 million+ house that a group of us rented for a week.  All of the owners in the area had a management company that took care of the property and cleaned after guests were there.  That'll dig into profits.  The place we stayed at was very nice, but there were a couple of holes in the wall by the pool table, dirty carpets, and etc.  You have to think of your expenses too.  Granted, the hole in the wall was likely covered by somebody's deposit.  But here are a few things to consider: annual taxes, appliances going out or not working properly (dishwasher, garbage disposal, washer/dryer, fridge, freezer, TV's, DVD players), painting and cleaning fees, pets, trash disposal, furnace, hot tub, air conditioner, water heater, wifi/cable etc all cost money to maintain.  The thing about it that I wouldn't like is that people never care for your things as much as they care for their own, and different people won't treat things as maybe you would.  So when you'd go stay there for the weekend, how would you feel that 60 other people have slept in your bed (and done who knows what) over the past few months?  The owners said they would typically stay there 3 or 4 weeks out of the year.  Nice to get a "free" place to stay, but what a headache.  Even dealing with people trying to rent it out on a weekly basis (or even less.........a lot of people only want to stay 3-4 nights).  

Our rental property was a PITA too.  It was built in 2005 so it's not like it was that dated, but there was ALWAYS something that needed to be fixed or looked at.  Yes, we were getting rent for it, but it was enough to cover the mortgage payment on it, and a little extra on top, but after paying for repairs and etc, we ended up frustrated and selling the property for a loss.  It didn't take long to become tired of being a landlord and cleaning up somebody else's mess.

Is there another way around it?  Could you just write off part of it when having business gatherings or whatever out there??  On a side note, not sure about in Kentucky, but around here 300k will not buy you a very nice lake home or even cabin for that matter.   

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wheelman

I have a lake place which I rent out,but only to close friends or close referrals. I charge under the going rate and have my place stocked with everything that the people would need for an amazing holiday. I have found by doing this I have the same people book for the  next year before their stay is even over. I do not need to rent my place out or do I to afford it. However it is always nice to pocket a little extra money when I know I am not going to be using it and knowing i have great people in there. I would never advertise my place for rent or rent to someone that I do not know. If you can not afford the place with out relying on rental income I would not buy. Also keep in mind that you will want to use it in the prime time so rental time may be limited. 

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Gavin17

300k is fine for the area.  In fact if you spent much more you'd never break even. It's a very seasonal area but there are winter tennants on hunting trips, which surprised me.  Getting a deal on a presentable house would be the first challenge. I've looked at the numbers quite a bit and all the issues listed above are real. Not to mention whenever someone has an issue in vacation it's an emergency.  

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oldjeep
14 minutes ago, Chatty21VLX said:

How are you figuring your $30k rental income? If your boating season is 5 months long in Kentucky, you would need 15 weeks booked at $2k/  week or $1,500/ week at 20 weeks to make it. Obviously, each scenario assumes you can book every week. 

Not sure what your plan is for personal use, but the 15 week option leaves you with about 5 weeks of seasonal use, while the 20 week option leaves little to no personal seasonal use. I'm omitting off -season rental because I don't know if there is a market for an off season lake rental. Maybe there is if it's in a scenic area?

2k a week would be pretty cheap depending on size.

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Gavin17

I was figuring about 75% ocupancy for the prime 3 months and much less for the rest.  Anything we hosted would be non prime boating season.  When I started researching I was really surprised how many rentals there were in the winter during hunting season.  It's nothing like the summer season but it was greater than zero, which I had expected.   

I'm really only interested if we can turn it into a business.  If not I'd just invest in something else that's less hands on.

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braindamage

I've had a rental on a lake in Michigan for 13 years. My season is super short, only July-August. I take 2 prime weeks for myself. I rent weekly.

my input:

-you will not make money. You will not break even. I make enough to cover the taxes. The maintenance, improvements, utilities, and taxes will eat up any profits. I know many people who rent and they all say the same thing.

- The decision has to be because you love the lake and owning your own property. My family goes there even in the off-season for skiing as it's close to a good ski hill. We also sometimes go for holidays or for fall colors. My family and I love it.

- get a local manager to deal with the booking and daily issues. I've paid between 25-30% plus cleaning for this . I use vrbo plus a local manager that I trust implicitly. Otherwise it's waaaaay too urgent and unpredictable to do on the side.

- only rent to families, and preferably families that want to come back every year. don't rent to golfers, fishermen, hunters, downhill skiers, or snowmobilers. They will wreck the place and no deposit amount will cover it in the long run.

in the end I say that "emotional decisions are justified by fact and logic". If you have already emotionally decided this is what you want then do it, but with eyes wide open. I have never regretted my decision.

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pawhitejr

We don't have a lake home as a rental property, but we had a high end beach property that we rented out for a couple of years.  Braindamage did a great summary.  Here are a couple of things that I would add:

  • If you are going to go down this path.  Spend a little bit of time reading through IRS publication 527 (https://www.irs.gov/publications/p527/) to understand the tax ramifications of having a dual use property (Personal Use and Vacation Rental).  Pay close attention to the days of personal use - it is capped at 14 days or 10% of the number days of rental use.  If you cross the days of personal use, it will be considered a home and not a rental property.  You don't want that to happen.  If you are doing maintenance and repair on the property for a certain number of hours on a given day, it is considered a work day and not a personal use day - so keep that in mind.
  • Braindamage is right on with who you choose to rent to.  When we arrived at our beach property, it was always depressing to see the additional wear and tear that the property went through with the most recent tenants.
  • A local manager definitely made the process of getting tenants and collecting rents much easier.  It was worth the 25% they took.  They kept a higher occupancy rate in the property than I would have been able to.
  • Depending on your combined family income and your status as a "real estate professional", you might not be able to deduct current losses from your taxable income.  They aren't lost - they just increase your basis in the property when you finally sell it.
  • We purchased a "stretch" beach property with the intention of having the collected rents help us carry it.  After our experience with the beach property, we elected to buy a smaller house near the lake that we simply maintain as a second home.
  • During peak season, we often found it difficult to take time at the property for ourselves because of the opportunity cost of not renting out for that weekend.
  • Our experience didn't sour us on rental real estate, but it did make me decide that I won't mix "business with pleasure."  I may end up owning another vacation rental, but I will own it for that specific purpose.

Good luck.  

 

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RevWil

We just purchased our lake property, a second home that is 20 miles from us. We are considering renting it out for the max of 14 days a year. Don't need to but if we can rent it out when we are going to be unable to use it in the prime season it could be a good thing. I've started talking to my neighbors about it and they frown on it because they assume the worse. I think a smaller number for tenants would keep things a more tame. We have 3 bedrooms and one will have bunks. 

I have 4 rental properties in the area we live in and this is a great income source for us. Our homes rent between 1595 - 2150. We don't chase rent and they keep the home nice. Tennant screening is the key. That is the one thing I haven't worked out is how to have great tenant screening for short term rentals. So when someone chimes in on having success with renting to people other than family, close friends and referrals; I'd like to hear what they are doing to keep their property from being rented by people who might abuse it.

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Gavin17

Lots of good info here, most of the ideas I'd considered but several I had not. I'm definitely planning on using a local property maanger since we'd be too far to handle everything. I'd like to do the bookings myself but if someone had experience with that they could be better than me.  

As far as screening customers all you really have to go on is the note they wrote with the rental request.  Only renting to family's and not hunters may take away any possible winter rentals but I can see how that's probabaly worth it.  

 

Braindamage, is your property a rental for tax purposes or personal use?  I've read the personal use laws and I'm fine with meeting the restrictions for a rental. I'd want to be able to expense the costs.  But my question has always been how does the IRS know when the owner is there.  And if I go down on a weekend to make repairs who decides if it's personal time or not? Edit: I see pawhitejr answered that.

This guy has a similar setup to my plan.  https://www.leisurelakehouse.com

Edited by Gavin17

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braindamage

i have declared it as vacation some years and rental on others. My tax accountant makes that call. I used to know all the rules but after 10 yrs of my accountant doing my taxes I'm probably not up to par on the details. Be aware that the more you swap back and forth the higher the likelihood of an audit.

i declare all the maintenance costs, taxes, mortgage, and mgt fees as costs. I don't expense my mileage or expenses when I travel to and from there. I can't declare a loss and the existing expenses already make it a loss. It's not worth the risk if you ask me.

i did a major remodel a few years back and have that as well as a loss that can be taken over the next several years.

as far as screening. That can work for a long term rental, but for a weekly it's really difficult. That's why you need a local manager who can watch during their stay and redirect if they are out of line.

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popsdz
On 2/25/2017 at 5:29 PM, wheelman said:

I have a lake place which I rent out,but only to close friends or close referrals. I charge under the going rate and have my place stocked with everything that the people would need for an amazing holiday. I have found by doing this I have the same people book for the  next year before their stay is even over. I do not need to rent my place out or do I to afford it. However it is always nice to pocket a little extra money when I know I am not going to be using it and knowing i have great people in there. I would never advertise my place for rent or rent to someone that I do not know. If you can not afford the place with out relying on rental income I would not buy. Also keep in mind that you will want to use it in the prime time so rental time may be limited. 

What lake are you on? I love going somewhere new every once and a while.

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Rednucleus
2 hours ago, popsdz said:

What lake are you on? I love going somewhere new every once and a while.

And don't forget that all important Bu Crew discount! 

Edited by Rednucleus

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MattMatt

I have a condo on the lake (Moses Lake, WA) that we rent out on AirBnB when we are not there. It helps offset some of the costs, but I never plan on the money. Luckily there are people who come into town for temp engineering work in the winter and that pays for a fair chunck of our annual costs. I'm guessing most lake houses don't have any winter demand.

In regards to rentals in general, listen carefully to the warnings already given on this thread. Real estate, and especially rentals are like Vegas stories. Most are BS and nobody is honest about their losses. Be very carefully and make sure you can afford the property even if it sat vacant for a long time.

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