@Gary Stern
Great question, and one that I get quite often. Speaking just about Colorado...It's has definitely gotten harder to cash flow in Colorado Ski Resort Areas. I wouldn't say impossible, but I would say difficult.
I'll split this post into two parts based on your question...
NUMBER 1: OBTAINING POSITIVE CASH FLOW
It comes down to many factors, but a few key factors that I have found that have the largest impact on the property's cash flow are below (The below generally holds true for any market. But you can always find an anomaly.):
#1: How much are you putting down?
- A traditional investment loan down payment of 25% down is doable but still hard to cash flow. In particular, I've seen potential for this to happen in Grand County (Winter Park & Fraser) + Mount Crested Butte. (Specifically speaking to Mt. Crested Butte where you can STR fairly easy vs. the town of Crested Butte where it is difficult to STR.)
- When I say Cash Flow, I'm generally talking a few hundred dollars a month max. Nothing crazy. But the property covers itself and you make a little bit. This is really the standard for something pre-built. You can get more if you do more work. See what I personally did in my comment below in #2!
- Out-of-state folks love Breckenridge because they do a good job marketing themselves. But in Summit County e.g. Breckenridge / Keystone / etc. you typically have to put down at least 50% to break even.
- If you want to be in a ski valley, but not right in the town. I've helped clients find success in Carbondale, CO. So down valley from all the Aspen resorts.
#2: How much work are you willing to do?
- Turn key gets you closer to that impossible side of the spectrum. Still doable, e.g. I found someone a condo in Mount Crested Butte about 6 months ago where the numbers would work to cash flow a little/break even including pricing management into our numbers.
- As with most forms of real estate. If you are willing to put in the work to build/remodel/update a property...i.e. create value, you not only generally increase your equity position, but also can often create more room to cash flow and/or cash flow at a higher % CoC.
- I have personally built two houses in Fraser, CO. I was able to get them for free in the end. (Free = $0 out of pocket.) In fact, I got paid to own them. How? I built high-end custom modular (e.g. stick built in a factory and shipped) for a significantly cheaper cost per sq foot than it would have cost to build with a local builder. I STR the larger home and LTR the smaller home. The past two years I've grossed over $130,000 on the property I STR. So I'm netting thousands of dollars of cash flow per month after expenses. Given the appreciation and my current equity position, I'm probably going to list and sell it this year so that I can pull the equity and roll it into something larger and/or multiple properties. More info on my RE Investing YouTube page if you want to learn more or feel free to respond to this post or message me. (The YouTube Channel is easy to find as it's just my name.) Anyway, not only does this allow you to build a good amount of equity. Because you've built that equity, but you also have the ability to adjust how much of that equity you keep in the property when you transition out of the construction loan into a more permanent loan to produce more cash flow.
#3: Are you going to self-manage or hire it out? (You answer to this will have a direct impact on the property's ability to Cash Flow.)
- I personally self manage some of my STRs and have all the others managed. In general, my personal preferece is to move all of my properties to management. It's a personal choice. Many mountain towns in the past have charged crazy rates to fully manage an STR in Colorado. Upwards of 30-40%. I've seen a trend lately of more options in the 20-25% range. Which IMO is more reasonable.
- Of course self managing will allow you to save and can sometimes be the difference maker of a property cash flowing. It's not for everyone. But if you do it, there are many tools to help facilitate self management.
As you know, a big driver is Supply & Demand. Many of these Colorado resort areas are becoming oversaturated with supply. I believe you can always incorporate various tactics to set your property apart. But at a certain point, your renter pool becomes smaller and there's a diminishing return on your investment to differentiate your property. Especially given the cost to ski in Colorado. Happy to provide more detail on this, but I don't want to get off-topic.
#4: Property Size (More of a wildcard as the location would make this more or less of a factor.)
- This isn't always a direct impact, but in some markets (e.g. The Winter Park area) Larger properties do better and have a better chance of creating more/greater cash flow. Why? There are many factors, but the main one is that many people from the Denver Metro area want a ski house and Winter Park is one of the closer ski areas. They are often buying the most affordable options on the market e.g. 1-4 bedroom properties. And then they put these properties on the STR market to help cover their costs. Meaning the market is saturated with properties of this size. This isn't as much the case with larger properties. Plus with larger properties, a few families can split/share the cost to rent. Often making it more affordable than renting multiple smaller properties. Meaning the larger properties end up offering greater versatility and flexibility in the face of shifting market dynamics.
NUMBER 2: "UNTAPPED" SKI RESORT TOWNS
I guess it depends on how you define untapped. I'm going to define it as room to grow from an appreciation perspective. Based on my opinion, the best market currently in Colorado is Grand County (Winter Park/Fraser). It's growing and growing fast. And may not be the best for long. But that's because it's located close to the Denver Metro Area and it's been overlooked for years. It wasn't that long ago when people just kept driving down I-70 to Summit County and passed the exit for Winter Park. But now of course it is found out. It's being developed. But there is still some meat on the bone from an appreciation perspective compared to other developed ski resort areas in CO like Breckenridge, Avon/Vail, etc. Yes there are some other smaller resorts in CO that could have potential. And I like Crested Butte as well. One of my favorites so definitely don't go there or buy anything there as I don't want it to change even though it is inevitable! :) But thinking about supply and demand created by Winter Parks proximity to Denver and the sq ft costs in Grand County versus another close area like Summit County...IMO it's a contender for a bit more growth. How much longer? TBD. But it's currently still there.
Other opportunities in CO? I don't do much work down in Southern Colorado...but have heard great things about Wolf Creek. Silverton is great. Maybe those will grow more than in the past. TBD.
A wildcard could be St Mary's Glacier, located in Idaho Springs, CO. You can actually buy an old ski resort there and that's super close to the Denver Metro area. It's cold as heck there, which is why there is still remants of a glacier. If someone buys that and develops it, then the lots in the small town of St. Mary's Glacier that are currently selling for around $14,000-$50,000 will significantly increase. At the moment it looks more like gambling. But a fairly low cost to gamble on at those prices.
This is already a long post. It's not all set in stone. Markets evolve. Just some of my thoughts based on my experience specific to Colorado.
