I guess the investment decision between beachfront condos that permit short-term rentals vs. buildings that require longer-term tenancies hinges on whether the investor is short term oriented or long term, plus whether they can tolerate the hassle factor.
To me, the big money is in long-run appreciation, so I look at existing and future trends: age and condition of building, direction of the neighborhood, HOA quality, and especially percentage of owner-occupiers. I suspect the only thing worse than buying into a complex with a lot of tenants is to pick one with weekly rentals at the beach to students and vacationers. Talk about management intensive.
I once served on the Board at La Jolla Vista Townhomes, a well-located older complex at Genesee and I 805. Bought 3 units there in the early and mid-1990s and rented them out, mainly to UCSD students. It was then 1/3 tenants and very well-maintained.
I quickly learned that a virtual state of war existed between the owner-occupiers and the students and their lackadaisical amateur landlords. I sided with the owner-occupiers who tried conscientiously to pick up the trash, enforce CC&R rules, plan and execute deferred maintenance projects, and keep values up for the long run. It was a losing battle, and owner-occupiers steadily gave up and left, despite the superb location. Seeing the trends, and the now-two-thirds tenant occupied rate, I sold out in about 2000-1.
Interestingly, I never had tenant problems because I put the fear of God into beginning tenants, got their (usually) rich parents to co-sign, and got everyone to sign a separate CC&R “rules summary” in an addendum to the lease. Tried but failed to get other landlords to do the same…it would have saved them a lot of grief.
The complex now looks awful, and values have really fallen lately. While I made great capital gains, I couldn’t fight the trends, and am glad I’m out. Sorry for the long-winded discourse.
As far as becoming a landlord to weekly tenants at a beach location, that’s fine if you look at it as a new occupation. To do it right, and profitably, there is a whole new learning curve for you to master: maintenance, furniture rental, weekly window washing (its the beach), cleaning, CC&R compliance, HOA relations, marketing on an ongoing basis (fielding calls, meeting people, taking apps, credit checks, turn-downs, checking references, etc.), evictions, recognizing druggies vs. non-druggies, etc. Your applicants won’t be golf tournament or Del Mar race types, so brace yourself. As to those tempting-sounding weekly rents, be sure to plug in 25% – 35% vacancy rates for the summer season–talk to existing practicioners to confirm this.
Above all, go to these complexes and talk informally with residents, especially owner-occupiers. Attend a HOA meeting, and arrive early to chat with attendees. Of course ask various lenders if there is a differential in LTV and interest rates for this type of project. Can any lenders or realtors enlighten us on this?
The one type of summer beach rental that makes some economic sense, and has stood the test of time, is students during the academic year and vacationers during the summer. Downtimes are minimized, but still surprisingly high during prime vacation times–50% not uncommon. I know Mission Beach landlords who do this who simply keep the students year around since turnover is so frequent among vacationers. Penny Realtors in Mission Beach has long been the company to find these tenants, but they take a big bite out of rent–1/4 or 1/3 I believe.
Let’s hear from Piggs who have beach rentals…
