$1mil vacation rental analysis

[John D.]

          I'm considering buying another large vacation rental in the Palm Springs area.  I'm curious, would you do this deal?  These are the ballpark numbers:

-8 bed 6 bath house on 1 acre, pool, nice grounds, etc.  Requires little/no rehab.

-$1mil purchase price.  20% down.  $50k furnishing (some included with sale) = ~$270k cash outlay including closing costs.

-PITI+maintenance+capex= ~$9k per month.

-After 6 months building some reputation, the property should gross $200k per year in vacation rents, or ~$16k per month.  After property management fees, $13k per month.

-Net operating income $4k per month, or ~$48k per year.

-That equates to 18% cash-on-cash returns.

     Thoughts?  I feel confident these numbers are +/- 20%.

[Eric Dowling]

@John D. looks good, I got similar numbers when I ran the numbers as well. 

I'm curious how you are calculating your gross income? When I do it I come up with an average rent per day and use 48% occupancy (which seems like a typical occupancy for the first year of a new VR).

What is your target market with an 8 bedroom house? I would assume wedding are big, especially if you have an acre to work with.

[John D.]

@Eric Dowling Mostly using comps.  The larger property management companies are fairly open to sharing data on what some of their other properties gross, once you build a relationship.  Year 1 proper would probably be less, I was pegging months 6-18 (giving a 6 month breaking in) before forecasting the $200k annual.  Months 18-30 (year 2 after the break in period) I'd peg around $240k.

   I'm just getting started with the wedding market, those estimates are largely exclusive of weddings and larger events.  They should provide some upside potential.

[Ariel G.]

Hi John,

You can also get reliable data about short term rentals on the sites below. I've used airdna and everbooked and they provide a lot of key metrics on their reports.

https://www.airdna.co/

www.everbooked.com

https://www.mashvisor.com