All Forum Posts by: Eric Rosiello

@Becky Fischer

Very helpful, thank you for the response!

In looking at your site, $2500 seems like a fair, conservative ballpark price for the high season. The property is 1.1 miles from Forest Beach and 1.5 miles to Ridgevale Beach. It has A/C, WiFi, a large deck, patio, grill, enclosed outdoor shower, waterfall, and fire pit.

For a property that rents for $2500 during high season, do the below expectations look somewhat reasonable? Am I too optimistic / not optimistic enough in some months?

Any input is greatly appreciated! Thanks!

Hi Group - @Kenneth Silva @Paul Brockmann @William Leahy @Kristopher K. @Becky Fischer

I am evaluating the purchase of a property in South Chatham, Massachusetts. The property is a single-family, 4 bed / 3 bath (sleeps 12), ~2400 sq ft, and is in excellent condition. The closest beach is a 5 minute drive. In taking a conservative look at VRBO, this place appears to be in the $250-400 per day range for the prime summer weeks (July/Aug).

I'm interested to hear how many weeks you are able to get "max" rent and how your rental rates and length of stay changes during the shoulder and off-season.

Any input is greatly appreciated!! My experience to this point has only been in the Boston area where the assumption is that rental income will be received in the form of fixed monthly rental payments.

Thanks!

Eric

@John Underwood

Thank you for the response! In taking a look at VRBO, my guess it would fall in the $250-$400 per night range for the summer months.

In regards to the offseason, it sounds like you are suggesting to continue to rent as a weekly or monthly rental? That is interesting ... my initial thoughts were that the demand wouldn't be there week-to-week and therefore vacancy rates would be high. 

Do you happen to have a sense of what the demand is for vacation rentals on the Cape during the offseason?

Thanks!

Eric

Hello,

I am evaluating the purchase of a property in South Chatham, Massachusetts. The property is a single-family, 4 bed / 3 bath, ~2400 sq ft, and is in excellent condition. The closest beach is a 5 minute drive and there are several beaches within a 15 minute driving radius.

To this point, I've only evaluated/invested in multi family properties in the Boston area. The assumption has always been that rental income will be received in the form of fixed monthly rental payments.

My thought is that a Cape Cod rental would perform better using a different rental strategy, or at the very least, other strategies should be considered.

One thought I had is to do week-to-week vacation rentals in the summer and target an off-season tenant for the rest of the year. Another idea is a 9 month off-season lease and a separate 3 month summer lease at a higher rate, giving the tenant an option to stay for all seasons.

I'm interested to hear what others have found to be successful (or unsuccessful) rental strategies on the Cape!

Regards,

Eric

Hello,

I am evaluating the purchase of a property in South Chatham, Massachusetts. The property is a single-family, 4 bed / 3 bath, ~2400 sq ft, and is in excellent condition. The closest beach is a 5 minute drive and there are several beaches within a 15 minute driving radius.

To this point, I've only evaluated/invested in multi family properties in the Boston area. The assumption has always been that rental income will be received in the form of fixed monthly rental payments.

My thought is that a Cape Cod rental would perform better using a different rental strategy, or at the very least, other strategies should be considered. 

One thought I had is to do week-to-week vacation rentals in the summer and target an off-season tenant for the rest of the year. Another idea is a 9 month off-season lease and a separate 3 month summer lease at a higher rate, giving the tenant an option to stay for all seasons.

I'm interested to hear what others have found to be successful (or unsuccessful) rental strategies on the Cape!

Regards,

Eric

My opinion is that, regardless of who the President is, we are in the late upswing stage of the business cycle. Business confidence is high and unemployment is low. Wages are starting to increase, and inflation is slowly ticking up. Risk assets (stocks, real estate) are likely to continue appreciating for some time, perhaps rapidly. However, the Fed is, and will continue to, raise interest rates to combat inflationary pressures. At some point in the not too distant future, higher interest rates and wages will deter investment and reduce corporate earnings, the economy will slow, confidence will fall, and risk asset prices will pull back. Just not right now.

I am new to REI but this is how I evaluate the profitability of an investment. Hopefully this makes sense and is useful for others. I'd also be interested in hearing what people think of this analysis. It's hard to show calculations on a forum post but I will do my best to make things clear.

Formula:

(End of Period Property Value * 0.95 + Total Period Cumulative Cash Flow – End of Period Loan Balance – Initial Cash Investment) / Initial Cash Investment

Concept:

• End of Period Property Value * 0.95 is the amount you can expect to receive if you sell the property, after selling costs
• Then add in everything you’ve made (or lost) in monthly cash flow. This is the Total Period Cumulative Cash Flow
• Then you want to subtract the amount you have to pay back to the bank upon sale. This is the End of Period Loan Balance
• Then subtract the money you put into the property up-front (Initial Cash Investment = down payment + closing costs + rehab costs)
• This will give you your realized dollar profit after you have sold the property. This is a good figure in itself. I also divide this number by my Initial Cash Investment and then annualize to find my annualized % return over the period.

Example (Assuming a 1-Year Holding Period):

• End of Period Property Value = ARV * (1 + expected inflation)
• o508,768.75 = 501,250 * 1.015
• Total Period Cumulative Cash Flow
• o926.27
• End of Period Loan Balance
• o433,873.55
• Initial Cash Investment
• o39,750

$10,663.03 = 508,768.75 * 0.95 + 926.27 – 433,873.55 – 39,750

26.75% = 10,663.03 / 39,750

Things get a bit more complicated once you move past a 1-Year holding period, and I’ve used certain assumptions to get to these figures. I am happy to explain further if there are any questions!

@Thomas Butler

Thanks again for the response - I've sent a connection request to you and Mark. Looks like there's no getting around the 20% number.

@Chris Masons

Hi Chris - thank you for your response! It's good to know that 20% is an obtainable figure - although I would love to find a way to pay less, if possible! I have excellent credit and just $5k remaining in student loans. My business partner and I have roughly $50,000 in expenses on $160,000 of income and virtually no debt obligations.

At 20% down with 5% repairs and 5% capex assumptions, the property cashflows $157.52/door. However, it's only producing a 9.37% cash on cash return and tying up all my capital.

@Thomas Butler

Thank you for the follow up!

I see ... so 25% down is a requirement for the loan to be packaged/sold? I agree this will make scaling much more difficult.

If this is the case maybe I should look into getting a separate loan for the excess 10-15% of the down payment.

Unfortunately, no I have not spoken to lenders yet - it is something I definitely plan to do soon. Any that you would recommend for the Worcester area?

Thanks again for all your feedback!

Eric

@Steve Bracero, @Thomas Butler

Thank you for your responses, they are very helpful!

It is interesting how sensitive the model is to minor changes to the inputs. For instance, when I change the Repairs & Capex to 5% ($313/mo combined) from 8% per Thomas' suggestion, the property now cash flows $114/door, good for a 12.08% cash on cash return in year 1.

I'm starting to think the best way for me to estimate Capex is to allocate a higher amount the first year, and reduce that amount as time goes on. If a lot of my liquid cash is going into the down payment, I think I'll need a cash buffer in case something goes on me in the first year or two. So something like 9% in year 1, 7.5% in year 2, 6% in year 3, and 4.5-5% going forward. At the end of the day any unused amount allocated to Capex will become profit anyways. Do people think this makes sense, or is this being too conservative?

@Thomas Butler

Thank you for the insight into realistic financing options. Ideally I'd like to put as little down as possible, but it sounds like that number might not go below 20%. I am hoping the ~$160,000 in combined W2 income (and no other debt) will provide lenders with the assurance they need to take less than 20% down...

I have a friend in a similar financial position as us (although he makes the $160,000 and maybe more on his own) who managed to get an 80 (2.9%) - 10 (~5%) - 10 (down) on a condo in Boston's North End.

Thanks everyone for your responses!