For the sake of story telling, let’s consider a recent project in Windcliff.
The stunning lodge-style mountain home, just steps away from Rocky Mountain National Park boasted 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 home rented for $430/night in Prime season, was a Top 5 rental in the Windcliff Vacation Rentals program, and was bringing its owners about $35,000/year after commissions and rental expenses.
The home sold to new owners for $830,000 and a complete interior remodel began immediately. The buyers ended up putting about $470,000 into the wall-to-wall complete remodel. The home is a top performer in the Windcliff Vacation Rental program, rents for $950/night in Prime Season and brings its new owners more than $60,000/year after commissions and rental expenses.
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 w/20% LTV 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.
Home Purchase $830,000 Remodel Expense $470,000 80% LTV Down Payment $260,000
Possible Costs Monthly Annual 30-year Mortgage $5,425 $65,100 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 $6,873 $82,472 Vacation Rental Income net of Net of Management Costs & Rental Expenses $5,000 $60,000 Possible Net Cost $1,873 $22,472 Possible 30 yr Outlay (incl. down pmt & up-front) $934,160
So, in this scenario, no only are you paying $0.72 on the dollar for the home, remember, you are spending 2019 dollars over 30 years in this scenario.
Update: post-COVID market factors have already driven the market value of this home close to $2.0 million! This means the owner of this incredible home will take 30 years to pay $934,160 (in 2019 dollars) for a home that is likely to be worth even more over time!
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 an actual home in Windcliff, 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 2017 and 2018 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! Browse our Estes Park real estate listings today.