Seasonal or Yearly Rental?

[element926]

Hi all,

I purchased a oceanfront property in March of 2015 and plan on moving to another part of the state in Fall of 2017. I'm trying to decide on whether or not I should make my property a seasonal or yearly rental. This is my first rental so anybody with seasonal rental experience would be greatly appreciated.

The numbers.

Required monthly mortgage: $2,600
- I have been paying an additional amount making it $3,200 a month to try and pay the house of in 20 years vs. 30 years. I'd prefer to keep this up!
- I expect a monthly utilize bill of $300 for a seasonal rental.
- The best / recommended property management firm in the area takes 17% for weekly rentals and 10% for monthly offseason rentals.
- Expecting May, June, July, and August to be the peak season.
- A comparable property rents weekly for around $2,300 and around $2,500 monthly. Give or take.

It comes down to this...

A) I make it a monthly rental and will likely pull in $2,200 (after subtracting the PM fees). This means I'm guaranteed to take a loss. However, there is less turnover, less stress, and less property damage. The renter will also take care of the utilities.

B) If I turn it into a seasonal I'll have the negatives I outlined in A. However, I'll turn a slight profit (I expect) and pay the mortgage + the extra payment.

I see more positive with making it a seasonal rental, but it has more risk.

Thoughts?

[disneysteve]

I see more positive with making it a seasonal rental, but it has more risk.

Why is there more risk with a seasonal rental? I would think there would be greater risk going monthly, especially since you'd be losing money on the deal.

[element926]

Fair question. This might be more of a perception thing, but here is the risk that comes to mind:

1) Less likely to fill every week then simply a yearly term.
2) More damage to the property

[disneysteve]

Fair question. This might be more of a perception thing, but here is the risk that comes to mind:

1) Less likely to fill every week then simply a yearly term.
2) More damage to the property

Sorry, I may have misunderstood you. When you say monthly, do you mean renting to someone who lives there year-round but pays monthly? If so, then I understand why seasonal would have added risk.

[element926]

Yes, my mistake. Yearly rental / monthly basis. Vs season which would be weekly in the summer and normally 6 months in the offseason.

[TexasHusker]

You'll make a lot more $$ as a nightly rental. And it is actually much easier on your home - the guests are usually only sleeping there, out doing tourist stuff most of the time.

And you'll make good $$ only renting it about 200 days a year, meaning the other 165 days, it will have no wear and tear whatsoever.

[element926]

Like airbnb style? That's a pretty good point. The only challenge is I won't be in the area...I suppose I could get creative on that part though.

[TexasHusker]

Like airbnb style? That's a pretty good point. The only challenge is I won't be in the area...I suppose I could get creative on that part though.

I've done it from 1100 miles away. Pretty easy. Find you a housekeeper and let her husband be the handy man. Charge $75 cleaning fee, pay the housekeeper $65 of it, and put the other $10 in your repairs fund.

I recommend listing it on VRBO because as of now, they don't charge you a commission like air does.

[sv2007]

Is there a reason why you want to go into rental?

You can look at it (strictly financially) via cash flow and appreciation. Since you are likely to get a negative cash flow (you must factor in repair and maintenance costs too), then you are down to appreciation. Will this house appreciate more than, say, your favorite stock/fund?

We've rented out some houses where it made no sense financially because we wanted to be able to move back into those houses should we want to. Turns out we've ever only moved back into 1 of them. So, if I had to do it all over, I'd just take my chances and sell those houses. We aren't too picky, so we can always buy something else and be happy.

Also, we've dealt with a few property managers; getting a dishonest one can really kill off any chances of any returns. You must be careful.

[element926]

I purchased the property with the original intent to always make it a rental. It's in my hometown and in an area that is under massive growth. I believe it will provide for a very good investment in the long run. If I did it again, I probably would have purchased something easier with a smaller mortgage and make it a simple yearly rental to pay for the mortgage.

Either way - now I'm here and it just doesn't make sense to sell it so I'm trying to determine the best next option. As it stands now, a seasonal rental makes the most sense.

[TexasHusker]

Is there a reason why you want to go into rental?

You can look at it (strictly financially) via cash flow and appreciation. Since you are likely to get a negative cash flow (you must factor in repair and maintenance costs too), then you are down to appreciation. Will this house appreciate more than, say, your favorite stock/fund?

We've rented out some houses where it made no sense financially because we wanted to be able to move back into those houses should we want to. Turns out we've ever only moved back into 1 of them. So, if I had to do it all over, I'd just take my chances and sell those houses. We aren't too picky, so we can always buy something else and be happy.

Also, we've dealt with a few property managers; getting a dishonest one can really kill off any chances of any returns. You must be careful.

Any time you put a third party in charge of your investment, your return is jeopardized.