Author Topic: Help with rental deal estimate.  (Read 343 times)

dogboyslim

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Help with rental deal estimate.
« on: December 13, 2020, 01:06:41 PM »
My wife and I are contemplating purchasing a home in a popular tourist area.  Most of the homes in this area are rented on VRBO or airBNB, but I'm confused by the write-up on these sites.  It appears that for VRBO you can choose about 8% commission or an annual fee, and AirBNB looks like a 3% hosting fee.  I'm confident I can figure that out with more reading, but then I run into other questions I'm not sure how to estimate.  The area has a lodging fee.  Is that based on the per night, or the total.  I'm not eager to personally clean between each rental, so how do I find out the price of a cleaning service?  Most of the similar rentals in the area have a $225 cleaning fee on their rentals, so I'm using that for now as cost.  Occupancy estimates are also a challenge.  Most similar homes show about 75% availability through winter months with most weekends booked and almost zero availability in summer months, with gradual increase/decrease in spring/fall.  I'm unsure if this is truly occupied time, or just when the owner has marked it as off the market.

So what I'm basically doing to figure out income/expense is the following:

Income:
Im assuming occupancy at 48% annually (10% less than it appears similar rentals are booked).  I've set the rental price at the midpoint of similar rentals, and then I'm taking 80% of that, assuming 20% for service fees.  I'm further assuming the cleaning fees I see fully cover cleaning costs (homes are similar in size).

From here, I added in an assumption of the additional 10% of rental days in additional expense for ongoing repair/maint.  I took property taxes and interest income off also to get to break even (negative cash flow).

When the mortgage is paid, it would generate money but the margin is pretty small and any drop in occupancy would kill it.

This generally appears to be not a great deal, and I'm moving on, but aside from that, I'm curious if there are things I'm not considering that I should as I continue to search for the right place.  What other considerations should I have?

Model:
Rental =$350 a night, crediting 280 as i'm not sure how the fee structures work yet, so taking the avg 20% fees from this value.
Occupancy 48% gives annual income of 48664.  (Actual of other rentals appears to be 58%, so $10,220 I'm assuming is maint annually)

So estimated rental income = $58884
Maint est: 10,220
Interest expense: 30000
taxes & Insurance: 10000
Utilities: 4200
Net income = 4464, but with mortgage payments I'd be negative 6500 a year in cash flow.

I'm assuming that cleaning fees will cover cleaning.  I'd tend to the yard myself, and I'd contract snow removal, so I think the maint estimates are fair.
So aside from this not being a good deal in the way I've looked at it, am I looking at it correctly?

Any VRBO/AirBNB experts out there that can give me some tips on the ST rental market?  I'm guessing this is a better deal for someone looking to reduce the cost of a vacation home, and none of them will work as pure income generators, but I've not given up yet, since we think this would be a great potential retirement home once we sell our current home.

BTW, purchase price would be near $800k, but replacement cost on the dwelling more like 200k, if that helps with anything.  Property in this area is really expensive.
« Last Edit: December 13, 2020, 01:09:13 PM by dogboyslim »

Telecaster

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Re: Help with rental deal estimate.
« Reply #1 on: December 13, 2020, 01:40:40 PM »
You can ask the seller for their occupancy and income data.  Another thing you can and should do is simply look at a lot of units on VRBO and AirBnB and get a feel for occupancy and rents based on season.

Remember also you need to furnish the place (if it doesn't come furnished) and figure that into your costs as well.


August26th

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Re: Help with rental deal estimate.
« Reply #2 on: December 22, 2020, 10:31:12 AM »
I donít have any advice, but I am in the midst of doing this exact thing. Weíre purchasing a vacation rental condo in a HCOL resort area. Weíll have a property management company run it entirely for us, to the tune of about 30-35% of gross rents. My super conservative estimates say Iíll lose up to 7K a year, but when I factor in the tax benefits and the fact that Iíll use it some too, it makes sense for us.