Vacation Rental Analysis Help

[Account Closed]

Hi everybody!

My wife and I are looking to purchase a vacation home as rental property. I have seen many of you post success you have had with these types of rentals, however, I am having trouble finding property that will cash flow.

My numbers look like this:

• Purchase Price $175k

• Closing Cost (est) $5k

• Repairs $2k

• Down Payment $35

• Monthly Income $2000

• Maintenance $100/mth

• Capex $100/mth

• Electricity $200/mth

• Water/Sewer $55/mth

• HOA $250/mth

• Property Management $400/mth (20%)

• Insurance $62/mth

• Taxes $146/mth

• Debt Service $752/mth

• Internet/Phone/Cable $240/mth

• Total Expenses (rough est) $2300

This is one example of a property I have been analyzing, I have been using the same methodology each time. For those of you who have had success with vacation rentals, how did you find your property? Am I missing something? Everything I have looked at so far works out cash flow negative.

Please help me to understand if I am analyzing properly. Would appreciate any help and stories on how you started out.

Thanks!

[Aaron Smith]

Maybe it is just me, but I bought an oceanfront vacation property last year and did so knowing it wasn't going to cashflow at all, and would actually cost me a good chunk of $ each month.  It has about $40,000/year of mortgage/insurance/utilities/taxes/upkeep, but I gross about $25,000/year in rent, so it ends up costing me about $1,200/month.  I just wanted to be able to offset about 6 months of all expenses via the short term rentals in the summer, and it is able to do that.  I am only offering it for rent from April-October and I leave it off the market the rest of the time, as we bought it as our personal getaway to use as well (we live about 3 hours away), so cashflow was never a big deal.  Don't you have to factor in your personal use and enjoyment of a vacation property and thus, not worry if you are spending or losing $ on it?  In my opinion yes, but of course everyone thinks differently.  It had great terms on it, which I was able to get owner financing with me putting 20% down and the owner carrying a 20-year fixed note at 4.75%.  Also, I don't have to carry flood insurance, which was the main thing I needed to make sure I didn't have to get, as that is about $12,000/year.  

[Aaron Smith]

Originally posted by @Blair Russell:

On another note your Internet/Phone/Cable costs are really high, you don't need cable or phone for a VR. Just get a good high speed internet plan will cute that down by a 1/3

  I own a place at the beach, and I would love to get away from the $125/month I have to spend for internet, cable, and phone, but you must have it, as all places have it.  You don't offer cable and you shoot yourself in the foot.  I don't have cable on my personal property at home (we use Firestick, Netflix, etc), but you can't expect that to be used at a vacation rental.  Too technical and not easy enough for the average renter.

[Blair Russell]

@Aaron Smith In 5 years no one has ever asked for a landline, and only one group of guests has complained because they didn't have cable. It take me abut 10 minutes to prepare a step by step guide to use the television, but anyway it's really not that techinal (Step 1:Turn on TV, Step 2: press Netflix button ;p). People don't need television anyway, they will most likely watch on their computers.

[Aaron Smith]

Originally posted by @Blair Russell:

@Aaron Smith In 5 years no one has ever asked for a landline, and only one group of guests has complained because they didn't have cable. It take me abut 10 minutes to prepare a step by step guide to use the television, but anyway it's really not that techinal (Step 1:Turn on TV, Step 2: press Netflix button ;p). People don't need television anyway, they will most likely watch on their computers.

 I don't think you have much experience with older southern folks do you?   Trust me, alot don't even use computers or ipads, or the internet for that matter.  Just cable tv and sports.   And that is a HUGE chunk of the weekly renters at the beach.  They want a lot of live tv, and all the channels.

Also, it is cheaper to have the phone included than to just get internet + cable.  Would cost me more to get each a la carte from Spectrum.  Trust me, I have wanted to get away from it, but it would end up making me lose out in the end.

[Blair Russell]

@Aaron Smith I have lots of experience with older southern folks, lol, and people from all over the world. I'm just saying it's possible and actually once it's done not that hard for people to fathom. 

[Luke Carl]

@Account Closed I don't know  your market and I didn't read all the comments but obviously don't do this if those numbers are right. I need to be able to gross close to 3% of PP per month for a VR to be worth my while. They are more work. 

Why are you paying a property manager? In the VR world if you're not managing you're not making money. 

Come to the mountains I can find you huge returns and teach you how and much lower down payment. Message me. 

[Rochelle Wilkinson]

@Account Closed I have a friend who has 6 beach townhomes in deleware.. she goes down the week before memorial day , stays all summer.. every Saturday she coordinates the cleaning people for all 6 townhomes.the townhomes average in price from $450.000 ( bought years ago, to $595,000)  rent per week for each house fetches $3,800 a week, with 15 weeks in season so that's $57,000 a season for each unit.. the mortgages run about $2,400 a month  ( 57,000 minus $28,000 the yearly mortgage.. that leaves $29,000 per unit to cover taxes, and insurance,, as she manages the properties herself..

I own an operate a cleaning service, along with being a property manager and we are  3 hours away from the beach.. we are looking to start buying at the beach.. even if we break even, the plan is to get to 5 or 6 units and do the same thing.. go to the beach for the summer and self manage.. my business is flexible enough and I take most summers off as I have people who run the cleaning business for me.. so I would start one at the beach too.

[Mark DiPietro]

I am reading this thread, albeit a year late, and seeing the same things with our first rental vacation rental property.  I’d love to share a spreadsheet and have you guys looks at it and let me know what I’m missing and the best way to improve our cash flow position I’ve read the next number of years.  

Being new to this, and help would be incredibly appreciated.  

[Daniel Kauffman]

Monthly Income: I've found that Short-term Monthly Income is typically 2-3x what you we could get long-term.  $2K might be low. You could on Airdna.co and find and imitate the properties that are performing the best in the area that you are looking at. 

Property Management:  A good property manager is often the difference between a profitable and unprofitable property. I would focus on finding a local Airbnb superhost first. They might be invaluable helping you select best VR property. High quality Management fees are typically in the range of 15-20%.

Furnishings will likely set you back $10-15K. Here is a full list of furnishings that we used for our 3 bedroom VR. 

[Richard Lee]

As I understand it, quite a few listings indicate that they're inclusive of all furnishings.. ie everything conveys. Granted you'd likely have to replace some things (wear and tear, or just not the best style for the cabin) or add things.. but if furnishings convey that would save you some initial cash and let you modify contents over time vs all at once.