Is this a viable transaction? :huh:

[jaana]

Hi,

Me and my husband are looking into investing a small amount of money that we have saved (about 12-13K). We live in Houston, and the like the beach. We found a small beach house in crystal beach, TX (about 60 miles from our house). the house is listed for 69K and we were tinking about offering them 62K for it.

This is intended as a recreational/rental property. Although 6th row, the house has clean beach view and private access to the beach. It is an open concept (no bedrooms - 750 sq. ft) but I can put in two bedrooms with minimal effort (about 2K expense worth).

As-is, the rental agent told us this will bring $430 a week and $250.00 per weekend. there are 8 rental weeks and 3 weekends in summer-rentals here. Also the house rents minimum of three weeks during rest of the year.

Some bad fixed costs are the annual hurricane/wind/flood insurance, it being on the beach for $1800 and taxes right at $940 a year) also during summer, the huse has to go on a trash pickup program at $15 a month. The water is fixed at $32 per month.

We were thinking about putting 10-15% down and renting it entire summer because as silly as it may sound, we never go to the beach in summer. We love going to beach in spring and fall and sometimes winter.

The houses appreciate at 3% annually in this neighborhood. I also understand that there will be a tax writeoff for conducting rental (our first).

We feel that even after renting this place, there ia a lot of money we have to put out of pocket like 4-5K a year just to keep the place.

Rental agency charges 20% of the rent to manage the place including cleaning and maintenence etc. They inform me that addition of bedrooms will bring in another $50 to the rent.

My credit is kinda shot (550 fica) and I et about 7-8% on the loan, however the market is very competitive in houston and they do not require PMI on investment loans with min 10% down.

I love the beach and the beach house. But my concern is that we made do without one for all of our life (we are in low 30's with two kids, 4 & 6). Is this a good enough investment/saving? or should we be looking for a positive cashflow property like a duplex in the city (no flood insurance required and no fixed $32 water bill).

My husband is very handy and probably can take care of most of the work alone, but stiol it is work needed to be done. This has been the best condition house we have seen among the 15-20 we have seen in this price range.

We also feelt hat rental agency is advising us to keep the price lower than others and also telling us a shorter period of rental than they actually rent for (the agency officer is old and very conservative). We can also help them advertise this property more.

Confused though. Is this a good investment? We get about 50% of our annual expenses from rental but thats about it.

Help!!!!!!!!!!!!!

[jaana]

there are thirteen rental weeks and many weekends, but these are what rental agency predicts it will minimally rent for.

[Dan Auito]

Hi,

Me and my husband are looking into investing a small amount of money that we have saved (about 12-13K). We live in Houston, and the like the beach. We found a small beach house in crystal beach, TX (about 60 miles from our house). the house is listed for 69K and we were tinking about offering them 62K for it.

This is intended as a recreational/rental property. Although 6th row, the house has clean beach view and private access to the beach. It is an open concept (no bedrooms - 750 sq. ft) but I can put in two bedrooms with minimal effort (about 2K expense worth).

As-is, the rental agent told us this will bring $430 a week and $250.00 per weekend. there are 8 rental weeks and 3 weekends in summer-rentals here. Also the house rents minimum of three weeks during rest of the year.

Some bad fixed costs are the annual hurricane/wind/flood insurance, it being on the beach for $1800 and taxes right at $940 a year) also during summer, the huse has to go on a trash pickup program at $15 a month. The water is fixed at $32 per month.

We were thinking about putting 10-15% down and renting it entire summer because as silly as it may sound, we never go to the beach in summer. We love going to beach in spring and fall and sometimes winter.

The houses appreciate at 3% annually in this neighborhood. I also understand that there will be a tax writeoff for conducting rental (our first).

We feel that even after renting this place, there ia a lot of money we have to put out of pocket like 4-5K a year just to keep the place.

Rental agency charges 20% of the rent to manage the place including cleaning and maintenence etc. They inform me that addition of bedrooms will bring in another $50 to the rent.

My credit is kinda shot (550 fica) and I et about 7-8% on the loan, however the market is very competitive in houston and they do not require PMI on investment loans with min 10% down.

I love the beach and the beach house. But my concern is that we made do without one for all of our life (we are in low 30's with two kids, 4 & 6). Is this a good enough investment/saving? or should we be looking for a positive cashflow property like a duplex in the city (no flood insurance required and no fixed $32 water bill).

My husband is very handy and probably can take care of most of the work alone, but stiol it is work needed to be done. This has been the best condition house we have seen among the 15-20 we have seen in this price range.

We also feelt hat rental agency is advising us to keep the price lower than others and also telling us a shorter period of rental than they actually rent for (the agency officer is old and very conservative). We can also help them advertise this property more.

Confused though. Is this a good investment? We get about 50% of our annual expenses from rental but thats about it.

Help!!!!!!!!!!!!!

Hi Jaana, looking at the whole deal and what you've said gets me thinking creatively with this as a first attempt, what I would try to find out is whether or not the owners own it free and clear and if they would be willing to owner finance it with say $10,000 down, payments ammortized over 30 years @6% with a balloon in 15yrs which at that time you could refi and pay them off. Why do this? First to see if you could avoid that flood insurance bill, I know many will howl at not carrying flood insurance but how long has that house stood until now, if you have ceramic tile floors then just rinse it out after the flood, plus no carpet to wear out either.

If you have looked at 20 homes then no doubt you have your price fix and market knowledge in place so it probably is your best deal going, as for management companies this is your first nightmare waiting to happen unless of course you get lucky, history tells us that they are never as good as an owner who can attend to their own affairs but it would be a real hassle for you on this daily/weekly rental period plan.

As they say, they ain't makin no more beachfront property so you might consider acquiring it and renting it out annually for the first couple of years to ensure the cashflow will be adequate enough to cover the whole thing initially(is this feasable? could you find an annual tenant?) Granted you wouldn't be able to use it personally for the first year or two but atleast you protect yourself from never having it period! (no management company would be required for an annual rental as you're close enough to manage an annual).

Playing Devils advocate, let's say you bought it and went with the seasonally managed rental plan, what if the income was only half of what you expected, would it sink you or could you withstand the added expense, I guess I would say how bad do you want it? The price is relatively low on this property and if worse came to worse you could probably sell before you ever lost it, so why not learn the ins and outs of it by doing, that means do your due diligence and take the leap, there is no better way to learn than by hands on experience and this one seems relatively safe regarding the low dollar values at stake.

Hope this helps and I hope others chime in with there insights as well. Dan

[jaana]

Thanks Dan for your insightful input. What do you think in terms of finances as far as the value of this house is concerned? The listing agent was trying to explain that we should look at 3 ways this house will contribute towards the positive:

1) positive cash flow generated via summer rental
2) appreciation at the rate of 3% a year
3) tax write-off benefits

Do you think these are real benefits and should be considered in our game plan to purchase and operate this rental property? because considering all the above factors, it is a feasible deal. Otherwise, the rental program in summer just helps us offset the annual cost of owning this property by 50%.

I agree that this might be a good first time experience for us, but then again, since we are not that financially strong, this may leave us to not be able to find anything else for a couple of years, until we have another base investment saved for future purchases. Any thoughts, ideas? DO you think we should start off with a cheaper investment closer to town that would rent on a yearly/monthly basis?

[Dan Auito]

It all depends Jaana, certainly you can do much better and more assuredly expect a positive cashflow property by buying a duplex close to where you live and actively managing it yourselves.

Appreciation, Tax benefits, mortgage reduction and seasonal income are certainly real but positive cashflow is king and will help keep you in the black, If your heart is not set on the beach location and you think prices will remain reasonable there then yes I would look towards a multiple income property closer to home that could be actively managed as opposed to giving a management co, the control and profit.

Another thing to consider, since your hubby is handy is picking on a fixer-upper and improving it to create more value, buy low, rent higher and have a higher appraised value in the immediate future.

Hope this helps! Dan