AskDong

I hope everyone had a great 4th of July weekend. I personally spent some time at “the Beach”, though not actually at the beach. The weather was not cooperative, and to be quite truthful I’m not much of a beach person. I like going to beaches in far away and “exotic” locales, but don’t like going to the beach just to go to the beach.

Everytime, I go away for the weekend within driving distance, I wonder if having a summer or winter home makes sense. Would I use it? Would it be a good investment? I have only mulled the question without really coming up with an answer.

Would I use it?
This is the most important question. While making a great investment is all good and dandy, the real reason to own a place is to enjoy it’s use. Living in boston I’m within two hours of both the mountains and the beach. I firmly believe that if it takes more than 4 hours to get “there,” it’s not worth it. Both summer beach homes and winter ski lodges are really only useful 3 to 4 months of the year. The question is, would I use it enough to make it worthwhile? Given my current habits, I know I wouldn’t. However, I can envision changing my habits. I would have to go on fewer long vacations and replace them with shorter trips to the vacation home.

Is it a worthwhile Investment?
The question of evaluating a property as investment is much more straightforward, or at least on the surface. But really the question can’t be fully answered without also taking into account the personal benefits. Vacation homes are rarely good investments in themselves, but can be a fantastic investment when they also provide weekends spent with family and friends. With the housing market in turmoil, this might be a great time to get a great deal on a place, or not.

The one area that Vacation homes can provide unique benefits is in the area of taxation. The IRS provides a great deal of flexibility on how a vacation home is treated depending on how much it gets used as personal property or as rental property. While I have my own personal reservations on why the Government should be giving tax breaks on mortgage interest, let alone second home mortgage interest, I can hardly argue against anyone for taking advantage of the rules as they are.

A Home on the Cape:
For example a 2 bedroom home on the Cape near the beach would cost me about 300-380kk. If I were able to put down the full 20% down of a 320k home that would leave me with a mortgage of about 256k and monthly payments of $1620 a month (assuming a 30 year term and 6.5% rate) or about a little over 19,000 a year, and more like $21,000 after considering property taxes. A realistic scenario would allow me to rent out the unit for 8 weeks of the year for $1000 a week. Renting it out for about 8 weeks would then leave me with 2 “prime” summer weeks, and another 4 weeks slightly out of season. Without considering the tax consequences or other complexities; the question is $13,000 worth 6 weeks of a vacation home? I could spend $13,000 and have a fantastic 4 week exotic vacation for my girlfriend and I.

The last part is the rub really. A vacation home is much more worthwhile when you have a family to share it with. Being unmarried and without children that benefit is greatly diminished. Without expectations of inflated real estate returns, the economics do not make sense. A vacation home is best used when more people are able to take advantage of it. That’s why, I’ve actually never seriously considered purchasing a vacation home on my own. I would much rather go into such an endeavor with either family or friends at this stage in my life.

The current state of the dollar has made international vacations much more difficult. 4 years ago, I went to London for vacation. I thought it was outrageously expensive then. 4 years ago the dollar was worth .56 British Pounds. Today the Dollar is worth .5 British pounds, a decline of 11 percent. Against the Euro the Dollar has declined from .8 to .63 Euros or nearly 21 percent. For that reason I’ve got no trips to Europe planned.

So where should I be planning my trips if buying power is my concern? Iceland, South Africa, and Hong Kong - according to this excellent currency exchange table tool. The U.S. dollar has gained against those three currencies. Against the other 18 currencies listed, it’s depreciated significantly. The Polish Zloty along with other currencies from Central Europe have shown the greatest appreciation. I noticed this first hand between my two trips to Hungary in 2000 and most recently in 2006. Central Europe was even cheaper 10 years previous right after the collapse of the Soviet Union. The appreciating currencies of central Europe is testament to the strong economic growth and greater ties to western Europe of the last 20 years.

As useful as the chart from tokyoahead might be, it ignores many relevant currencies at least from a U.S. vacation perspective. Most notably the Argentinean Peso. Argentina suffered a disastrous economic meltdown between 1999-2002. In 2002, Argentina was forced to drop it’s 1:1 exchange rate with the U.S. Dollar. Today the U.S. Dollar is worth 3.15Argentinean Pesos which is up from 2.975 in 2004. In Argentina, the dollar still goes far. Argentina is not the only country where the Dollar still has some buying power. Many of the island nations of the Caribbean peg their local currencies to the U.S. dollar and as result Americans can still manage to do OK on vacation.

I take more than my fair share of vacations. Last year I took about 3 one week or longer vacations. What I didn’t do very much was go away for the weekend. Vacations serve a utilitarian purpose. They are an opportunity to recharge. The daily grind is that for most people, a daily grind. Vacations can be great opportunity to break the what can be the monotony of work.

However, I’ll be the first to admit that I often have a hard time getting back to flow of things at work when I get back from Vacation. It’s hard at time to hit the floor running after a week in paradise. This year I’m thinking about taking more short vacations to augment my longer vacations. Short to me is 2 to 4 days.

So what do you prefer?

I was talking earlier today with a coworker about the vacation rental he was splitting with a few friends of his. He’s renting a ski house with a few buddies of his for the winter. Anyone who has rented a ski house knows that not all the rooms are the same, and we were discussing how they were splitting the rooms. There’s usually a nice comfy master bedroom often with a private bathroom. Then there are the smaller rooms, often containing tiny bunk beds. Given the disparity in accommodations, the master bedroom is usually highly sought after especially amongst vacationing sets of couples.

The question is then how do you decide who gets which room? For a shorter term rental I think it’s best try to be accommodating. For example if there’s one couple and three people who are are “alone”, the couple probably should get the nice room with the private bath. I think most people would agree on that. The problem is that more often than not, different individuals or couples have similar claims to the nicer room. Personally I’m ok with luck deciding the matter, but I generally don’t care that much about where I’m sleeping. I used to take a trip with a few buddies of mine to Whistler, and what we used to do was play cards each night for choice of sleeping locations. We played Asshole, and the rank at the end of night determined which bed or share of a bed each person got. The Asshole slept on the couch. We felt that was fair if not equitable.

I know others who think that the person who has done more work to book the house should get preference. On the surface this seems only fair. If you’ve done more work, you should reap the rewards of that work. However that begs the question of who gets the privilege of booking the house? Often times who does the booking is an arbitrary decision, other times its a perk more than a responsibility. Many people want to be the one booking because it allows for more control.

Like any matter concerning money and people, the clearest way to avoid problems is to spell things out in as much detail as possible beforehand. Don’t all show up and drop off your stuff in the master bedroom. I say if you think the choice of rooms is going to be an issue, set the terms of choice before arriving and make it financial. For example when a friend of mine and her roommate had to decide who got which room in their 1500 apartment they put out silent bids for the bigger room. The person who bid higher paid the average of the two bids. So my friend put in a bid of 800 and her roommate bid 900. Her friend got the bigger room and paid 850 while she paid 750 for her smaller room. This method gives the person who values the better room the better room at price that is fair to all involved. You can extend this method across multiple people and rooms by requiring a bid for each room.

When I had decided that I wanted to go to Kauai, I had also decided that I wanted to stay on the north shore. The north shore is more scenic than the other coasts. It’s certainly the greenest, receiving more rain than any other coast of Kauai. Hanalei Bay is the Crown Jewel of the north shore, and the Princeville resort the diamond. The Hanalei Bay Resort is the Princeville’s bastard half brother. They are located less than a half mile from each other in Princeville on the same side of the bay.

Bastard half brother it may be, the Hanalei Bay did give me great rate for 4 nights via Expedia. I paid $134/night with the 4th night thrown in for “free,” netting a total cost of a little over $100/night including tax. For comparison, the same period mountainview rooms at the Princeville were $380/night not including taxes. While there are cheaper hotels, and hostels for that matter, the Hanalei Bay I thought represented by the far the best value. Most guidebooks listed the hotel in a grade below the Princeville. On Orbitz it’s listed as 3 star versus the 5 star Princeville.

However once I arrived and checked in, I was very curious about both the 3 star rating, and the “very expensive” classification the resort is given in most guidebooks.  This is not the say Hanalei Bay is not a pleasant place to stay. Our room was large, and the king size bed plenty comfortable.  The small patio overlooked the mountains as promised.  The staff was helpful and courteous.  However, the Hanalei Bay Resort is not exactly what I would call a high end hotel despite being listed as such in many guides.

One of the reasons Hanalei Bay is the way it is simply a question of ownership.  Hanalei Bay is owned by developer Quintus Resorts.  Quintus is not a hotel management company like Marriot, Hyatt or Starwoods.  It only owns Hanalei Bay, and is currently developing a property in Nevada.  The company is primarily in the timeshare development business.  As a result most of the units at the Hanalei Bay are privately owned especially the larger units with kitchens.  I stayed in a hotel room owned by Quintus.

It’s possible to book a unit privately at Hanalei Bay with an owner directly. Some of these units have been extensively remodeled, others poorly maintained. The rooms owned by Quintus I imagine are like the one we had. Dated, but clean. In addition room service does not happen every day. According to a note in the room, room service could be requested for additional $30 for each visit or $10 just for towel service.  However I found my room cleaned the second day.  I believe room service happens every other day unless requested which is more than fine with me.

Some people look to receive a certain class of service from resorts. They want to be waited upon hand and foot from check in to check out as I felt when I stayed at Caneel Bay.  Hanalei Bay is not this type of resort.  The staff is friendly, casual and low key and nothing like the staff that might be found at a Four Seasons hotel.  For some this might be a good thing, for others unacceptable.  Given that my stay in Kauai was to enjoy the outdoors, I wasn’t particularly concerned with the lack of “plus” hotel service.  If you’re looking for that, stay at another hotel.  Stay at Hanalei Bay if you want in beautiful setting, at a resort that takes a hands off approach.  If you want a superior room at the resort, I would recommend researching different privately owned units at the Hanalei and booking such a unit directly with the owner.  The rooms owned by Quintus are unlikely to impress, but are certainly adequate enough for most people