July 9, 2015
Can I Cash Flow My Crested Butte Condo?
One of the most commonly asked questions that I have as a REALTOR® in the Crested Butte area is whether or not a buyer can “cash flow” a condo. In other words, will the net short term rental income equal or exceed the cash outflow for the mortgage, HOA dues, taxes, and other expenses? The answer to this question is, “it depends.”
The reason I say it depends is because there are many factors to consider. Let’s take a look at some of those factors.
There are a number of different costs associated with owning and renting a mountain condo which must be considered when doing cash flow calculations.
- The cost of the condo itself. A less expensive condo will have a lower mortgage payment, but will also produce less income due to lower rental prices.
- The down payment. A higher down payment will lower the monthly mortgage payment and make it easier to cover monthly costs.
- The interest rate. Likewise, a lower interest rate will result in a lower monthly cost.
- Homeowner Association (HOA) dues. HOA dues vary considerably in the Crested Butte area. Not only that, what those HOA fees cover is another big factor to consider. Will an amenity like a pool, hot tub, or tennis courts outweigh the higher HOA fees typically charged by condo associations with lots of amenities? Some HOA dues will cover expenses you would probably be paying otherwise, such as cable TV or even heat.
- Management fees. Once you’ve chosen a condo, you will also need to decide who will take care of your property. Property managers may offer different levels of service, not to mention what they charge- both by the month and for cleaning services. Homeowners may only receive 50% of the gross rental receipts in some case, or closer to 90% in others. Some condo complexes may not offer any choice in this matter, forcing homeowners to go with the same management company.
- Unexpected Costs. This might include damage caused by tenants, or a special assessment for condo repairs made by the HOA.
The vacancy rate of your vacation rental will also be affected by a number of factors.
- Unit Condition. Condos in great condition with great furniture will not only be able to charge more, they may also be requested by discriminating vacationers. Condos may be classified as gold, silver, bronze, and so on.
- Views. Think about your own vacations- have you ever asked for a room with a view? Condos facing a parking lot are often rented less frequently and at a lower price than ones with jaw-dropping views.
- Ski in/ Ski out. Like the two previous factors, vacationers both want and are willing to pay more for this feature. Wondering which condos are ski in ski out? The map on this link can take you there.
- Seasonality. The Crested Butte area does not have a strong year-round market for rentals. April, May, October, and November (outside Thanksgiving) are called the “off-season” for a reason. Consider any rentals during this time period an unexpected bonus.
- Owner usage. Many buyers purchase a Crested Butte vacation rental hoping to use their property themselves, in addition to making an investment. But if you block off Christmas, spring break, and the 4th of July for yourself, you will be taking away some of the best times to get a return on your money.
As discussed previously, the management company that your hire for your Crested Butte income property will affect how well your property is marketed. A more bare-bones management company may not have any marketing at all- which means you’ll need to do it yourself. That may mean using VRBO, creating a website, or even a facebook page to draw your own rentals in. If you don’t want to put time into those activities, look for a management company that does the marketing for you.
If you’re carrying a mortgage on a property that you’re renting out, chances are slim that rentals will exceed all your costs over the course of the year. There is a good chance, however, that the HOA dues and property tax will be covered with a strong rental- and maybe even part of the mortgage.
Hopefully, however, you also get to enjoy the property for family vacations- apart from the financial considerations of short term rentals. In many cases, the payoff comes not from the cash flow but when you sell the property after the value has appreciated after many years of enjoyment.
Still wondering if a Crested Butte property is right for you? Contact Frank today– my goal is to provide as much info as I can, so you can make the best decision possible.