I have started looking into an opportunity for a 1/4 ownership in a downtown "resort" in my tourism-driven town of Victoria, BC (Canada). We would put the unit into a rental pool for 12 weeks of the year, 4 of those being in the best month of August. I have more work to do but here's what I am working with so far:
List price $99,900
Would put down $20,000 (or 20% of purchase price)
Property transfer tax and legal fees on purchase $2000
Monthly fee that covers property tax, maintainance, utilities etc $1302 for the year
Rental management company fee currently unknown. I have asked for this information.
With a 25 year mortgage of $80,000 at current rates, the unit would cost us $5838/year
Based on 2012 financial statements, in 2012 we could have expected to bring in $6781 for the year. This is based on the RevPAR numbers for the peak August time block plus an average for the remaining nights on the off-season. There is a potential for a few more rental nights in the year as there are 3 remaining weeks in the year to be split between the owners and potentially added to the rental pool.
So that leaves us with an expectation of approximately $943 profit per year, and an initial outlay of $22,000. I have not factored the rental management fee yet, which could very well wipe out any profit, and then some.
As I mentioned, tourism is a major economic factor in Victoria and general opinion is that it will increase as the economy recovers, particularly the US economy as Americans make up a large portion of visitors here.
Assuming that the unit simply holds it value (i.e. increases only with inflation), and we only break even every year for 25 years, we will realize just over 6% annualized return. This is, of course, a lot of assumption. We could try to predict interest rates, real estate markets, and spending habits of vacationers but I almost don't dare being optomistic on any of them.
Is this worth looking into further? What else would you ask in order to assess this opportunity?