If you’ve ever considered buying a home in Estes Park, here’s how revenue from vacation rentals can possibly help you turn your dream into a reality!
For the sake of story telling, let’s consider a home that recently came to the market in Windcliff. We’ll call it the “Kelley” home.
This stunning lodge-style mountain home is steps away from Rocky Mountain National Park and features stunning panoramic views. Wood and stone accents, massive living room rock fireplace, 2 upstairs decks, master suite with 2nd wood fireplace, elegant bath with soaking tub, steam shower, sauna, and elegant master bath with dual vanities.
The owners have made numerous upgrades including adding an outdoor hot tub, granite & travertine surfaces, wood floors, and custom tile baths. It was recently offered by Re/Max Mountain Brokers at $875,000.
What I personally like most about the Kelley house, besides its obvious Windcliff views and location “across the street” from the RMNP, is the how the open floor plan places the entry, kitchen, living room, master bedroom and two large decks with panoramic views all on the main level with no steps or stairs to transition from one space to the next. The lower level offers four additional bedrooms, two full baths and a massive 500+ sf second living room for your guests. This floor plan is one of the best in Windcliff and is the reason the Kelley home has been a Top 5 performer in the Windcliff Vacation Rental program!
And here’s where the numbers start making sense. Please consult your tax advisor before making any assumptions, but you may want to consider some of the following numbers to start your thinking process.
Depending on down payment, financing terms, financing costs, and a multitude of other variables specific to every individual buyer, we can only estimate using typical current rates etc. that a 30-year mortgage on a home like this might run in the neighborhood of $3,000-$3,500/mo. HOA dues, taxes, utilities and maintenance costs for a similar home in Windcliff typically run in the neighborhood of an additional $1,250-$1,450/mo. Over the last 12 months, homes like the Kelley home have performed well in Windcliff’s vacation rental program grossing in the neighborhood of $60,000-$65,000/year. After commissions and management costs, homes like this net their owners somewhere in the neighborhood of $35,000-$38,000/year.
So one reasonable assumptive scenario of using an 80% LTV 30-year mortgage plus $175,000 down plus $35,000 in closing, make-yours and move-in costs might produce a scenario that could look something like this:
Possible Costs Monthly Annual 30-Yr Note Pmt $3,342 $40,103 Avg Premium $1,886 $22,626 Avg Interest $1,456 $17,477 Taxes $359 $4,304 Insurance $150 $1,800 HOA Dues $300 $3,600 Utilities $250 $3,000 i/HD $189 $2,268 Maint/Repair $200 $2,400 Total Expenses w/Mortgage $4,790 $57,475 Gross Vacation Rental Income $5,000 $60,000 Net of Management Costs & Rental Expenses $2,800 $33,600 Possible Net Cost $1,173 $14,075 Possible 30 yr Outlay (incl. down pmt & up-front) $632,247
So, in this scenario, no only are you paying $0.72 on the dollar for the home, remember, you are spending 2016 dollars over 30 years in this scenario. In this assumptive scenario, vacation rental income has more than fully offset the mortgage interest costs and we’ve completely neglected any potentially favorable tax opportunities a second home might possibly provide. You’ll have to talk to your tax advisor, but most of you probably already know of a few fair, legal and significant tax advantages to owning a second home using today’s tax laws.
Now, let me give you a “fair warning” from first hand experience: Unless you are particularly young, the likelihood of you not making this home your primary residence before the 30 year note expires are EXTREMELY unlikely. So go ahead and plug in here that at some point (which for some of us, came much sooner than later) you will forgo the offsetting rental income for fulfilling the dream of living in Windcliff full time. But you’re likely also selling a primary home when you do so, so you’ll be bringing equity from its sale to the mountains along with you. Could it perhaps be enough to pay off your Windcliff home mortgage early!?
Obviously, it’s terribly difficult to generalize projects like this so the standard common sense disclaimers apply. While these numbers are based on properties like the Kelley home, actual results will vary depending on innumerable decisions and variables. But nonetheless, you can see how vacation rental income can perhaps offset a significant amount of the annual cost of ownership of an investment like this by as much as 65% or 70% in good rental years like we’ve had in 2015 and 2016 without even considering any potential tax benefits that might exist for your particular situation.
So if you’ve ever considered buying a Windcliff home, “when the timing is right,” I strongly suggest you consider perhaps adjusting your timing to be right now!