Buying a vacation property that will be used as a rental. Our use will be under 14 days per year. I know more than that and expenses have to be taken proportionally to your use. I'm not worried about the calculation from an affordability standpoint as we made the decision to buy based on comfortably being able to afford if rental income went to $0.

That being said this property has produced $60-$70k in revenue two years in a row and trying to figure out what a rough estimate would be to just break even based on the rental income and wanted to see if those on here had any thoughts on what I am overlooking:

Monthly revenue - management fee - mortgage interest/property taxes - operational costs/repairs - income taxes on that after costs total - mortgage principal = $0

This is the basic formula I'm using to find that break even number. Those with experience, what am I overlooking?

Maybe what, if any, time you spend on it? Other than that, I'll let others with more experience chime in on the costs portion.

But, is the true breakeven really $0? There is an opportunity cost there....

How much are you putting down? With rates where they are, what would that get you in a 4.5% HYSA, to be conservative?

htxag09 said:

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Maybe what, if any, time you spend on it? Other than that, I'll let others with more experience chime in on the costs portion.

But, is the true breakeven really $0? There is an opportunity cost there....

How much are you putting down? With rates where they are, what would that get you in a 4.5% HYSA, to be conservative?

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Yeah I do understand that. Break even was probably a vague term. Simply ignoring the opportunity cost and looking at the break even of just specifically the direct situation.

I should have added too the $60-70k per year it's brought in the past two years was with the previous owner using 1-2 weeks per month. So those numbers are very likely on the low end.

Guess it depends on how much this property costs and how much you finance.

If it's a $500k property then it cash flows, if it's a $1m property it does not unless you put $400k down, maybe more

Just make sure you are including all types of operational costs in your calculation -- lawn maintenance, pest control, security system, internet, HOA fees, frequent replacement of cookware, linens, etc.

And if your home is in a beach area, you'll have a lot of damage to outside furniture and fixtures due to sun and salt. Most outdoor items like deck umbrellas will last a year, maybe two.

Also, find out what your management company charges for responding to guest complaints and work a couple of those into your budget every month. That was one of the biggest heartburn-inducing issues we faced.

Correct in general. That formula I listed takes that into account. I also probably wasn't clear enough that I'm not meaning breaking even as in getting my down payment back in rental income. Simply meaning the monthly net in = monthly net out. If numbers do help it's $700k and about $150k will be financed. Property appraised for $900k but seller needs out for a variety of personal reasons.

EclipseAg said:

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Just make sure you are including all types of operational costs in your calculation -- lawn maintenance, pest control, security system, internet, HOA fees, frequent replacement of cookware, linens, etc.

And if your home is in a beach area, you'll have a lot of damage to outside furniture and fixtures due to sun and salt. Most outdoor items like deck umbrellas will last a year, maybe two.

Also, find out what your management company charges for responding to guest complaints and work a couple of those into your budget every month. That was one of the biggest heartburn-inducing issues we faced.

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Very helpful. I did take into account HOA, internet, all utilties/water/trash, replacement of all those damaged items, and security system. Management is covering lawn, pest, etc. as part of their fee. Thank goodness not on a beach, we'd prefer but I see too many headaches for things just like you described combined with not wanting to deal with risks of tropical weather drove us from that.

But responding to guest complaints I had not included so that's very good to know.

Housekeeper - the cleaning fees were likely included in that gross income but you're going to be paying a cleaner at every turnover.

Also as long as you document work you are doing while you're there, it doesn't count as a personal day and you can write off mileage too.

I'm going to let other RE investors take over this thread. But I do give you the most common statement made by my clients….

"You make your money on the buy not the sale."

200k profit on the day you close and 0 net is your profit. Add future increase in value plus some debt buydown depending on how long you stretch the term,I'd put a 15 year on 150k, and the deal has legs.