Is your IRA cash flowing? A heathier way to look at investing in a vacation rental

[Collin Hays]

Over the last several years, all of the talk has been "how much cashflow can I make with my vacation rental investment?"  And while that is a worthwhile goal, it ignores that fact that, even without cashflow, investing in a vacation rental will likely beat the pants off of your IRA contribution, which oh, by the way, isn't "cash flowing" either.

Let's do a comparison:

With your IRA, assume you are 45 years old, have $100,000 in it, and are committed to contributing $12,000 per year for the next 15 years. If your return is approximately that of the S&P 500 - around 10 percent annual - you will have a nice sum of $280,000.

On the other hand, let's say you buy a $500,000 cabin with 20 percent down ($100,000), on a 15-year note.  Let's assume the thing is a real stinker and it's negative cash flow $1,000 per month.  Assuming that the property doesn't go up one dime in value, and assuming that it is a negative cash flow of $1000 per month from now on, 15 years later, you have a property that is completely paid off, worth $500,000.  

Maybe we need to quit obsessing over cashflow and look at our vacation rental as a long-term investment, similar to our IRA account.