Looking to purchase a condo for nightly rentals in PC. What is the best method to calculate the break-even point?

Asked by Lyssa07, Park City, UT Mon Sep 20, 2010

I've been looking at condos in Prospector Lodge. I'm trying to calculate all of the costs associated with purchasing, property management, and renting to make sure I break-even every month. I also need to know how many days I need to rent the unit to break-even.

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Nick Coleman, Agent, Park City, UT
Sun Jul 29, 2012
I'll need to make a few assumptions as I try to answer that question ... but, you can adjust them to match your exact situation First we'll look at the cost and revenue assumptions

Property Price: $500,000
Mortgage (assumes 30% down): $1,700/month or $20,400/year

Property Maintenance: $2,500/year
Property Utilities: $2,400/year
Property Insurance: $600/year
Property Tax: $5,000/year
Property HOA: $3,600/year

Property Management Costs: 50% of rental (they find the renter for you ... do it yourself at VRBO.com)
Number of ski days (days resorts are open): 155 days
Number of ski days rented (75%): 117 days
Avg. ski season rate: $500/night
Gross ski season: $58,500

Number of off-season/summer days rented: 90 days
Avg. off-season/summer rate: $150/night
Gross summer season: $13,500

Gross Yearly: $72,000
Net (after $36K Prop. Mgt): $36,000
Net (after $14.7K expenses): $21,300
Net (after $20.4K mortgage): $900

You could save a considerable amount by managing the rental yourself (using VRBO.com) and hiring maid service to clean up (a lot of folks charge renters a $150-$200 cleaning fee in addition to the nightly rental rate).

I also have a spreadsheet I've put together that can let you do 'what-if" scenarios. Just call and I'm happy to send that to you for free and with no obligation.

Let me know if you have questions ... and ask about help with your closing costs when you call.

Nick Coleman
Equity Real Estate Luxury Group
Mail: nick@parkcitysold.com
Website: http://www.parkcitysold.com
Web Reference:  http://www.parkcitysold.com
0 votes
Cheryl, , Park City, UT
Fri Jun 29, 2012

All of the comments so far have been good information. One thing buyers forget to calculate is wear and tear--especially in a nightly rental, and utility costs. Some of our older inventory has electric floorboard heat which can be extremely costsly during the winter months. Your best bet is to identify the building you are interested in and then ask one of the management companies involved to give a read out of the actual numbers over the last five years. Calculate the historical rental revenues against your current purchase price and see if buying to cover costs makes sense.

Let me know if I can help.
435 225-2998
0 votes
Steve Blanke…, Agent, Park City, UT
Mon Sep 20, 2010
I have a studio unit on the market for $68,900. This is a great deal for a studio in Park City. This is also a larger Sqft unit available. Please contact me if you would like to set up a time to look at the property.

Steve Blankenship
Keller Williams Park City Real Estate
Web Reference:  http://parkcityinvestor.com
0 votes
Dp2, , Virginia
Mon Sep 20, 2010
Let's consider this scenario in terms of a monthly rental first.
purchase price: $150K
gross rent: (12 months) * ($1.5K/month) = $18K
NOI: .5 * $18K = $9K
cap rate: $9K / $150K = 6%

Although you'd break even with a mortgage of $750/month (6.39% APR, 30-year fixed) in terms of the numbers, you'd actually be losing money via negative leverage (which is a topic for another discussion).

Assuming each month has 30 days (to make the calculations easier), then you'd need to generate an income of at least $50/night everyday. However, since a vacancy rate of 0% is unrealistic, then you'll need to tweak your numbers to account for that. Let's assume that the actual vacancy rate is around 10%.

effective gross rent: 12 * .9 * X = 12 * $1.5K (thus X = $1,666.67/month)
So, you'd need to charge at least $55.56/day, and you couldn't have more than 36 days of vacancies annually.
0 votes
Todd Anderson, Agent, Park City, UT
Mon Sep 20, 2010
As a "rule of thumb" you'll want to put in 50% of the gross rental revenue for management, for a Prospector studio, the HOA fees are about $150 per month (this is a conservative estimate) there may also be an assessment runnning another $100 per month. You'll need to consider insurance - in this case probably another $50 per month. Taxes will run about $700 per year. In all, with the location and age of a Prospector Square studio, you should be able to produce a decent revenue stream if you are to rent it long term, but you are unlikely to do so in a nightly rental situation. Park City has a bit too much inventory on its hands in terms of nightly rentals to make most of them viable in terms of cash flow.

Another thing to consider is the lack of financing capabilities in our current marketplace. Expect rates to be a bit higher than you read (a point to a point and a half) and you'll need 30-50% for the down payment.

Give me a call and we can further discuss your options and the viability of a rental for you in the Park City area.

Todd Anderson
Keller Williams Park City Real Estate
Web Reference:  http://YouInParkCity.com
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