Monthly Cash Flow: The Big Lie

It seems like once a week, someone contacts me asking if a certain property will produce monthly income. If you are borrowing money to buy a vacation rental and expecting it to throw off monthly income to you after all expenses, you're not being realistic.  Unless you self manage, and in that case, you are really just buying yourself a part time job.  

Most of the time, it is unrealistic to expect, particularly in the early going, a mortgaged vacation rental to do anything more than cover all of the expenses.   So why should you bother even considering a vacation rental as an investment?  Because the value of the investment isn't in a few $ hundred dollars each month in income (or loss).  

The value of the investment is that:

1.  Guests are paying off your note.

2.  Your property is appreciating over time.

3.  Rents increase over time.

In 2005, I purchased my first STR in the Smokies.  I put $40K down on the loan.  I also subsidized expenses of another $40K in monthly "losses" for the first few years.  

Fast forward to today:

1.  The loan is paid off, thanks to my guests.

2.  The property is now worth $800K.  My total investment was $40K for the loan, and another $40K for monthly shortages for a few years.  The guests paid for everything else.

3.  Rents are 2.5 times what they were in 2005.  My net monthly income with no note is substantial.  

Bottom line:  My $80K investment turned into $800K in 17 years.  I've also banked over $250K in rents over and beyond all expenses.

The moral of today's story:  "Get out of the weeds" and quit focusing on whether you are "making" or "losing" money each month.   You are majoring in minors.  Sit back, relax, and enjoy other people paying off your investment.