REI Newb Looking for Sanity Check

[Ryan Berg]

Brand new to BP. Have been wanting to get into STR up in Frisco or Breck. From the area but living in Cleveland now and looking for a way to get back for 1 week in winter and summer seasons. Every place I look at seems to break even or perhaps lose money when you factor rent projects minus debt service and taxes. Can this be right?

[Cary P.]

Cash flow will always be an issue, but if it's well rented and maintained, you should be close to breaking even on paper. Capital improvements like replacing a hot water heater is considered income that is depreciable on your taxes. You depreciate the asset, minus land costs, (land costs typically based on tax assessments), every year and that helps offset the cash earned. You actually kind of want to be a little negative as far as the IRS is concerned - mortgage principal and cash flow are still income, capital improvements are income, mortgage interest and HOA fees are deductible as well as repairs and maintenance.

Colorado state taxes are currently 4.63%, but deductible off of your state taxes in Ohio as well as your feed taxes. Colorado does not have a transfer tax like Washington, Pennsylvania and some other states do. We also pay our taxes in arrears as opposed to current year.

Related, but it is always good to know about, make sure you read up on disposing of the asset in the future. As far as taxes go, look into 1031 Exchanges if you sell and buy a new property and depreciation recapture if you don't buy a new property.

Disclosure: my group is getting out of Colorado because of the speculators and high prices and moving to Ohio and other states. We rode the way up from 2007 to now, but are noticing a downtrend in Denver metro proper. I'm not sure what Breck and Frisco are like. Arapaho Basin is separating from Vail resorts after this ski season. They have not announced of they will hook up with another group like that.