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Vacational Rental Purchase

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Netcord
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Vacational Rental Purchase  Reply with quote  

We are considering buying a vacation rental in St Thomas, USVI.

We currently have a house in Tampa, Fl. worth around $260k - with no mortgage... it was paid off in full back in 2008.

We do not have the cash in hand to put down the necessary 20%+ on this new purchase at this time, so understand that we can't get a mortgage of say 90-100%.

I'm assuming our best path (all things being equal) is to mortgage our current house to raise this deposit of say 30% and to have 2 mortgages.

Was hoping you guys could give some guidance.

Thanks
Post Mon Mar 23, 2015 11:39 am
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littleroc02us
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To me, it would be hard to have a paid for house and want to go back into debt on it. I couldn't do it. Since you have no mortgage, don't you have a lot of disposable cash each month that you could save each month for a year. For example if you saved what would have been your mortgage payment of around $1200, plus another $800. That would be $2,000 each month and after a year you have 24k. Is that enough of a down payment for this house in St. Thomas? Or save for 2 years and now you have 48k as a DP.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Mon Mar 23, 2015 1:09 pm
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oldguy
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quote:
To me, it would be hard to have a paid for house and want to go back into debt on it. I couldn't do it.


lol - yes, but that is an emotion, not a calculation/analysis. Back in the 1980s, before I retired, I did that (3 times) - I shared what I did at lunch, wow, I was called everything from dumb to crazy. But each time I refi'd a paid-for house I used the cash-out to make down payments on more rental houses - and it worked out very well.

quote:
buying a vacation rental in St Thomas, USVI.


But the bigger issue - why on earth would you buy a vac/rental in the VI? Or anywhere else for that matter? They are a great deal for the SELLERS, that's why you see so many ads. IMO, they will become the new time-shares (the dogs of real estate). VI is beautiful, how about spending about $10k a year to rent a beautiful spot? And let the landlord clean up after you leave, worry about the PM keeping it rented, paying the hurricane insurance, calculating your depreciation for taxes, yada. Your vacations are for relaxing, not worrying about fixing the screen door, re-tiling the kitchen, putting on a new roof. Very Happy
Post Mon Mar 23, 2015 1:36 pm
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littleroc02us
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quote:

lol - yes, but that is an emotion, not a calculation/analysis. Back in the 1980s, before I retired, I did that (3 times) - I shared what I did at lunch, wow, I was called everything from dumb to crazy. But each time I refi'd a paid-for house I used the cash-out to make down payments on more rental houses - and it worked out very well.


Actually, it's more of a religious belief and a less risk adversed ideology that I practice. And yes it does feel great when you sleep at night and you don't have large mountains of debt hanging over your head.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Mon Mar 23, 2015 3:01 pm
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Wino
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I am looking at renting a condominium in Honduras. It will cost me less than $1000 per week for a place large enough for four people. Why would I want to spend $150K to buy the same place? That doesn't make sense to me, unless I retire and move there.

If I retire and move there, I could easily buy the place outright by selling my present place.

So, I see the same for you: Sell your current place and move there, or rent a place for a week or two at a time, and vacation there.

There is no way I'd mortgage my present place for a vacation place.
Post Mon Mar 23, 2015 3:15 pm
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Publius
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Is it that you don't have the cash on hand because you have everything else in some other investment vehicle, or do you not have any other liquid areas to pull from because your assets are tied up in paid for houses?

If it is the former, and you have enough that you could liquidate assets from, say, a brokerage account, I think it makes sense to leverage the paid for house. However, if it is the latter and you would be adding leverage to a situation where you don't have the liquid assets to cover the leverage you are adding, the risk might be too high for my tastes.
Post Mon Mar 23, 2015 4:21 pm
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Netcord
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Thanks for the feedback to date.

Littleroc02us - saving up the deposit is an option obviously but I want to consider a quicker option and potentially borrow against my house.

Oldguy - why the VI you ask? Well amongst other reasons I think you can get a better return on investment. For example purchase for $250k and ask for $1,500 per week. In my native Florida, you'd need to spend nearly $400k for the same weekly return. Another important point for me is that it's U.S. territory.
Also we have time and energy and ability to take it on as a project.

Wino - I have no intention of moving there for a variety of reasons. This is an investment that I expect to make a decent return.

Publius - again I see this as something that can make a decent return on investment. I don't have available cash to put down and other assets are tied up.

I know I need to do plenty of homework on this whole project and it's very early days. Thanks again for your time!
Post Mon Mar 23, 2015 11:36 pm
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oldguy
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quote:
For example purchase for $250k and ask for $1,500 per week. In my native Florida, you'd need to spend nearly $400k for the same weekly return.


There are some similar situations in the US that you could study to check your business model. Some in your state, FL. And Myrtle Beach, etc. The $1500/wk is enticing - but it is a different renter each week. And your Property Manager will be paid way more than a monthly, non-vacation, renter. The Vac property operates like a hotel - furnished, clean sheets & towels each week, a full weekly clean, often a carpet clean if near sand. Lots of maintenance, weekly renters are tough on things - not a criticism, just saying they have to move in/move out, learn the thermostat operation, and so on.

In the off-season and shoulder seasons, you'll need to lower the rates - and stand some vacancies.

If you do it, I would put the loan entirely on the home and pay cash for the rental. Owner Occupied loans go for about 4%/yr and NonOO houses go for about 5.5%/yr (I have a 5.75% on a rental from about 10 yrs ago).
Post Mon Mar 23, 2015 11:58 pm
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evanalfieleo
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When you go on a vacation, you have to book a holiday apartments for your pleasant stay. Rental apartments or hotel is one of the most consider things when we travel to a new place. These kind of facilities will be available us at online. As per the need and information such as destination place, cost, facilities. We can select the best one from the available options.

Mauritius Holiday Rental
Post Fri Aug 14, 2015 8:59 am
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clydewolf
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On a rental the mortgage interest is a deductible expense. Thus reducing any profits from the renatal.

The mortgage interest on your primary residence would not be deductible as a rental expense.
Post Sat Aug 22, 2015 8:52 pm
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