Vacation Rental Pot...
 
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Vacation Rental Potential

 
KAJ1969
(@KAJ1969)
New Member

Hi all,

My husband and I had been performing research over the last year (a lot in these forums which has been helpful) about potential retirement locations and thought STX was a good fit for us, and our recent visit confirmed our desire to be here. We visited about two months ago on vacation/PMV with the thought of looking at condos and potentially making that our home in the future, but using the property as an investment until we are ready to make the move full time. My only concern is that since we are about 10 years away from becoming full time residents, we would have to use the property as a vacation rental and hopefully derive some income from it before we are ready to move.

In your experience of living/renting/being an owner in STX, what is the rental potential down there? The condo that we were thinking about is in a great place on the island and is in good condition. While I'm not figuring a full year of rentals, I was thinking about a 75% occupancy rate over a year. Is that too optimistic or am I at least in the ballpark? I have no idea what to expect, and if I can't at least break even (the HOA fees are pretty high), maybe it doesn't pay to make an offer now. Just curious if anyone has had a similar experience and could shed a little light on the rental situation.

Thanks.

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Topic starter Posted : July 31, 2015 12:05 pm
COLDER
(@COLDER)
Advanced Member

Went this route with our condo and the best you can hope for is to cover SOME of your expenses
With HOA fees, WAPA, management fees, wear and tear, VI taxes you will only see about 35 % - 40% of your rental income
75% occupancy will depend on your location, your marketing and your management
The best part of this type of rental is the federal tax write offs
If you have a loan on the property do not forget to figure in the hurricane insurance costs
Also. make sure the condo is in a area that is vacation friendly to outsiders
Last but not least...make sure your home owner's association is stable, financial secure and have a plan for maintaining the property.

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Posted : July 31, 2015 12:52 pm
Scubadoo
(@Scubadoo)
Trusted Member

12-14 weeks rental is probably typical depending on all other factors. If you really want to research check out availability of existing rentals on web sites that publish it.

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Posted : July 31, 2015 1:22 pm
explorer
(@explorer)
Advanced Member

Remember that you will have to pay Sales Tax that you will collect from the renters and have to submit it monthly.
You will need to obtain the License first to rent your condo.

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Posted : July 31, 2015 2:25 pm
Exit Zero
(@exit-zero)
Trusted Member Registered

At best I would think that it will be hard to even reach a 'break even point' but the rental income, tax advantages and limited personal use will certainly defray the overall purchase expenses.
I am not sure what the poster who mentioned sales tax meant.
Unit maintenance and furnishings updates - turnover cleaning and rental management fees - utility costs - appliance replacement -are all expenses to consider and having someone on island to deal with problems is another factor to think about for vacation rentals.
Renting long term gives a lower but consistent income and certainly alleviates many of the problems with ongoing weekly turnovers and could produce a better rate of return on a yearly basis especially if utilities are the renters responsibility.

tax considerations - http://homeguides.sfgate.com/irs-rules-deductibility-personal-use-rental-properties-72247.html

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Posted : July 31, 2015 2:44 pm
Alana33
(@alana33)
Expert

Think the mention of sales tax referred to the the VI government room tax of 10%.

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Posted : July 31, 2015 3:17 pm
explorer
(@explorer)
Advanced Member

Yes, I meant the VI government tax of 10%.
Thank you Alana for clarifying.

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Posted : July 31, 2015 3:35 pm
Afriend
(@afriend)
Trusted Member

We have a number of friends who rent out their homes and condos - few, if any, make a profit and those that do, make very little. Most don't even break even but only cover some of their expenses. Most are only able to rent out their units between 10 and 15 weeks each year so OP's estimate of a 75% occupancy rate is overly optimistic.

Things to consider:

1) You'll pay 30% or more of the rental income to your Property Manager.
2) Utility costs will be very high - renters (especially weekly renter) leave the A/C on 24/7 - that costs you lots of money.
3) You'll have to replace or re-frabric furnishing every few years - renters love sitting on your couch with wet bathing suits.
4) Expect to repaint the interior of your home twice as often as you would if you didn't rent it out.
5) Most of the demand for rentals will come in High Season between Christmas and Easter so if you plan to use the condo/house during that same period yourself your rental income will drop significantly.
6) You'll be constantly repairing and/or replacing appliances that are abused by your tenants.
7) Check with your tax account to determine if you can take any tax write offs. I'm no expert but if you claim the condo/home is an investment property you can only use it yourself for a limited time each year.
8) Now for the biggest caveat of them all - if you buy the condo/home now and rent it out but don't intend to retire for 10 years then in 10 years you'll own a very well worn dwelling that is probably in need of costly repairs & renovations.

My advice - DO NOT BUY now. Save and invest your money in something less risky. When you retire come to the island and rent for at least a year. Find out if island life is all you hope it will be - some people love it here, others leave after a few months. Once you decide that you want to make the move more permanent you'll be able to use your nest egg to purchase a property that meets your needs. The condos/homes you see now will still be there or you'll find newer and better ones have taken their place

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Posted : July 31, 2015 3:56 pm
OldTart
(@the-oldtart)
Expert

Excellent summation and advice, Afriend. (tu)

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Posted : July 31, 2015 7:04 pm
COLDER
(@COLDER)
Advanced Member

Afriend hit it right on the nose
We rented ours for 5 years before we moved in and all the points that where made are very. very true
Do not be fooled by what people/management companies are telling you about gross rentals running, $30,000, $40,000 or enver $50,00 per year
The wear and tear + furniture and appliance replacement will never equally the little bit of net income we received from the rentals
The only + is the tax right offs if you use the condo as a rental and only use it for personal use less that 15 days per year
After the 15 days it becomes a 2nd home to the IRS and you can write off expenses up to the amount of the income

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Posted : July 31, 2015 7:27 pm
STXBob
(@STXBob)
Trusted Member

You might get 75% occupancy if it's beach-front. And your maintenance will be higher because of salt exposure.

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Posted : August 1, 2015 1:56 am
Afriend
(@afriend)
Trusted Member

You might get 75% occupancy if it's beach-front. And your maintenance will be higher because of salt exposure.

The key word here is "might".

When you consider there's very little demand for vacation rentals between the last half of August through the middle of November (25% of a year) you only have 75% of the year left and the odds of renting out your condo for all of that remaining time (about 39 weeks) are indeed small.

Realistically, the BEST one could or should expect is a 50% occupancy (26 weeks) and even that is very optimistic The friends I know who rent out their homes to vacationers would be ecstatic if they had 26 weeks of rentals every year. As I said earlier, most get about half that. I have a friend who has a beachfront condo in one of the best complexes on the island (they no longer use it themselves so it's available for rent all year long) and they've never gotten more than 25 weekly rentals in any year. Their best year was when the did a single 4 month rental plus a few other weekly rentals.

Now, there's always the possibility that OP (or someone else) will experience a higher occupancy rate but for planning purposes (especially when hoping to use "profits" to help pay mortgage/carrying costs) it's always best to use conservative estimates. It's not always like those shows you see on HGTV where the host tells the buyers (and the viewers) how you can get your dream vacation home "for free".

One last hint - BEFORE deciding to rent out your home watch a few weeks of Judge Judy to see what problems landlords have with renters not paying their rent, knocking holes in walls, abusing furniture, strewing filth around the apartment, etc. - it will be an eyeopener and make you think twice about renting out your home.

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Posted : August 1, 2015 11:09 am
rmb2830
(@rmb2830)
Advanced Member

We've had various rental properties on stx for 30 years. Condos are very tough to make money on, and we can't see how anyone could if they have a mortgage, with the common charges so high. One year during the 80's we did get almost 80% occupancy in a beachfront condo, when there was a major travel crisis in Europe, and a major increase in off season family travel to the VI. (AND the management company never assigned rentals evenly, but gave more to some than others).
Never happened before or after, and in general 45% was a good year. The fees and expenses involved in short term rentals are high, and in off season there are lots of discounts given on the lower prices besides. These days even in season there are discounts at times. Listen to what afriend has to say.
We started liking seasonal rentals, for a month or two in season, especially when it was a good repeat tenant. Eventually we sold all our condos, and rent our houses long-term, except for our own house.

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Posted : August 1, 2015 10:05 pm
KAJ1969
(@KAJ1969)
New Member

Thanks for the feedback; some things I already knew were confirmed and I learned some additional things to think about making my decision. I am disappointed in the rental potential not being where I thought it would be but it's better to know now than be into something that's burning cash every month. Regardless, I still love STX and will be back soon!

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Topic starter Posted : August 4, 2015 1:31 pm
singlefin
(@singlefin)
Trusted Member

Have you considered land? Prices are starting to rebound down here, and with a ten year wait, it might be the better option. Taxes on vacant land are nominal and no property management issues to deal with. If you've got the time (sounds like you do), travel around and look for land, there really are some beautiful parcels out there. During the next ten years of visiting/vacationing you'll have a better feel for everything and know for sure by then if your willing to sink everything into STX and call it home.

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Posted : August 4, 2015 3:59 pm
KAJ1969
(@KAJ1969)
New Member

Honestly, I've never thought of purchasing land. I'll have to look into that option.

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Topic starter Posted : August 5, 2015 7:18 pm
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