Hi, I'm considering purchasing a vacation rental property and looking for some advice on the matter. I have 2 long term rental properties that do OK, but I'm not really interested in purchasing another long term rental. If this vacation rental doesn't make sense I'll just stick the 35k I was planning on putting down (proceeds from a vacant lot I just sold) into an index fund.
The property I'm considering is near a popular national park that has a busy season of 6 months, the remaining 6 months aren't nearly as busy but the property has good access to snowmobiling, skiing, and other winter recreation so it won't be completely vacant. The property is part of a group of properties that are managed by an agency that handles reservations, snow removal (in the winter), and cleaning for 20% of the gross rents. I'd reserve 10% of rents for maintenance.
The list price for the cabin is $175k and after my down payment of 35k an estimated mortgage would be about 800 per month, or 9600 for the entire year. The nightly rent would be between 200-250 per night depending on the season. Based on the availability of comparable properties I'd conservatively estimate 80 nights of occupation with average price per night at 225. That would give me annual gross rents of 18k, less the 800 mortgage payment and property management and maintenance of 30% that would give me a net of 3k. Based on my 35k investment that would put me at roughly 9% annual return.
With a return of 9% I'm not sure if it is worth the trouble, but my numbers are very conservative and I'd expect to have closer to 100 nights occupied which would make the return roughly 18% making it worth the extra time and effort compared to putting the extra money into an index fund. My analysis does not include tax benefits through depreciation that would further increase my return. I live about 4 hours from the property and would use it personally 4-5 times per year. Assuming all your other financial ducks are in a row (maxed out 401k, no consumer debt, etc.) would you consider a property like this?