In 2016, my wife and I bought a condo in the Catalina Foothills area of Tucson. The property allowed short term rentals, had very nice amenities - pools, hot tub, tennis courts, and it sounded like a great business for my wife to run while I maintained my day job as and engineer. We bought the property for $116,000 and put about $20,000 into it re-habing it and furnishing it. We listed it on Airbnb and VRBO. The business did pretty well. We rented it consistently throughout the year (mostly on HomeAway, now VRBO), made our mortgage payment and a little extra, and benefited from the tax benefits and appreciation.
My wife died suddenly in 2019 and I decided to sell the property. I listed it for $199,000 and lowered the price for six months to $182,000. I got no offers. After 6 months, the ability to benefit form stepped up capital gain tax rules expired, and I took the property off the market and relisted it as a short term rental. I knew nothing about dynamic pricing, or market analysis, and pretty much learned the business on my own. I did have a good housekeeping crew, handy man, and the ability to run it remotely.
I moved to California, and ran it remotely. After a period of time, I met my beautiful second wife, and she fell in love with the property in Tucson. She suggested expanding the business by buying a second property in the same complex. We enlisted our realtor, who had found us the first property. Property values and prices had really escalated since 2016, so the same type of condo was now costing $235,000 or more. We took a HELOC on the first property and armed ourselves with a down payment. After about 2 months, we found a second property. We made multiple offers on several properties, dealt with bidding wars, and buyers waiving inspections and appraisals. We ended up buying a property that cost $245,000 with the seller giving us $5,000 towards closing costs. The property had long term tenants, paying well below market rate in rent at $1,095/month.
We told them 7 months before their lease expired that we would not be extending their lease and offered them $4,000 to buy out the lease, which they refused. We gained control of the condo in April of 2022 and set out to remodel it. We found the condition of the condo to be that of a 1986 condo with all the wear and tear. Bad carpets, cracked floor and counter tile, some popcorn ceilings, dated fixtures, etc. We replaced the HVAC system ($7,400) while the tenants were in place, because it was 30+ years old and leaking coolant.
We tried to get multiple bids from contractors to put in new flooring, countertops, retile the shower and bath, paint the walls and ceiling, etc. Most contractors we contacted told us they were too busy for the work or that they couldn't even give us an estimate for three months. We ended up with two bid, one for $14,000 (way too low), and one for $34,000. We went with the higher estimate. Even with the rehab cost and the cost of furnishing, there was still profit to be made as a short term rental.
The contractors started demo on 5/1/22. They told us they would mostly be complete by the end of May. Well, the end of May came, and all that was done was demo. By the end of June, the granite countertops and new kitchen sink were installed. We met with the owner of the firm, and he said by the end of July it would be completed. In July, the luxury vinyl plank flooring was installed. The showers and bath were retiled. The new baseboards were installed. All new door hardware was installed. The whole place was painted. A few last minute electrical and plumbing jobs needed to be completed, and everything was done by the first week of August.
Overall, the place looks great. The only original thing from the condo that remains are the kitchen counters which were repainted. We're now in the process of furnishing it, installing new ceiling fans, and TVs. There was some touch up to do, but nothing major. All in all, the remodeling cost us about $34,000 to the contractor, which include the granite countertops, drywall work, and paint and tile labor charges. The flooring cost us $3,700. The tile cost about $1,000 in materials. The new kitchen appliance suite and washer/dryer for Costco was $3,400. And the HVAC was $7,400. So our investment was $245,000 + $34,000 + $3,700 + $1,000 + $3,400 + $7,400 = $294,500. That's just for the condo. We put 20% down (about $52,000) to buy the condo, so out of pocket costs are $101,500. Similar un-renovated condos in the same complex are still selling for $325,000. Of course the risks that in this economy, prices can and will drop. But the numbers still work for short term rental. We've kept the cost of furnishing it pretty low - Zinus beds on Amazon, TVs and various household items from Costco, ceiling fans from Lowe's, mini blinds from Home Depot, etc. So far less than $5,000 to furnish a two bedroom condo including new furniture. All of the furniture was bought on sale during the time the condo was remodeled.
We will have the condo listed by Labor Day. We already have people wanting to book the January through March timeframe (our high season) for around $7,500/month. During the summer months, our low season, nightly rates go down to about $90/night. And even in this recession, our first condo has stayed moderately booked and covered expenses. The net income from the condo has been (based on the first one) to be about $21,000/year. So I guess that equates to a 20.6% cash on cash return.
Thank you for reading my post and I hope it inspires others with ideas.
