Looking at possibly buying a rental property (vacation rental) and I was hoping for thoughts on if it seems like a good idea, and any costs I've forgotten:
First the costs:
Cash in: 250k
Mortgage payment: 31k/yr
HOA: 0
Taxes: 6700/yr
Utilities (heat/sewer/electric/trash/water/internet/tv): 12k/yr
Breakdown:
Sewer+water = 150/mo
Heat: Currently 250/mo avg
Electric: Currently 250/mo avg
Internet/TV: 300/mo (guess on the high side)
Management fee: 25%
Unanticipated expenses: 15k/yr (otherwise known as extra cash flow if they don't come up, being conservative the first year)
Anticipated maintenance: 5k/yr
Snow Removal: 1k/yr
Insurance: 2k/yr
Total Costs(w/out mortgage): 41k + 25% of gross income
Places to trim: The heat+electric of ~600/month is insane at the moment. I'm betting there are some big gains to be made there by insulating and figuring out what's eating all the electricity (has gas heat).
And the plus side:
Expected rent: 1k/night
Minimum days rented for acceptable return @1k/day: ~100 days / ~14 weeks
Expected vacancy rate: 70%
Expected yearly gross income@70% vacancy: 100,000
Management fee: (25,000)
Total: 75,000
And the plus and minus together:
Total Cash: 75000
Costs: 41,000 + 25,000 = 66,000
Net income: 9,000/yr
Equity: ~10,000/yr
My thoughts:
I tried to estimate the costs to be not in my favor everywhere (rounding 250/mo up to 300/mo) and build in a healthy "I have no idea what I'm doing and screwed up majorly" buffer of 15k/year (or, just over 1000/mo). I plan to eventually(within 10-15 years) pay off the mortgage on this place and then keep it around if it does well, or sell it off if the vacancy rate or per night rate end up unfavorable. It is in an area I would like to retire to eventually, so owning a property there is a desirable thing for me, though it's far more property than retired-me would need. (It has a space that can be converted to an in-law style unit after I retire and I can leave the main house vacant for rentals)
I called around to several property management firms to ask how much they'd estimate the place is worth, so far I'm getting numbers around 800-1k/night. That said, I could be way off on those. I'm currently waiting for people to get back to me about how it's currently doing. The place comes furnished, so I avoid a huge up front cost buying furniture.
One more negative, the place needs some work. Not a total rehab, but the current owners are running it into the ground, and putting in the bare minimum. I can do a bunch of that work myself, but it would require taking vacation time from my fulltime job to be able to do it. If I hire a handyman, I'm looking at ~40/hour.
I plan to do a run through with a contractor and have them estimate how much various things would cost to fix, and a run through with a property manager to see what my "consumables" would cost to get it up and running (new beds/sheets/towels/etc).
Is there anything else I'm missing? Does this seem like a decent deal?
EDIT:
Bumped insurance from 1k/yr to 2k/yr, since I haven't yet called an insurance agent for an accurate quote.