Beach Rental Property Analysis

[Lindsey Kocher]

First time poster and new to the world of REI! We are looking at purchasing our first investment property in our favorite vacation spot.

4/3 1500 Sq foot beach house for $675k.   This is somewhat competitive in this market.  Turn-key and fully furnished. 

Financing plan is hard money loan for 25% (possibly using some of our own capital), and DSCR loan for the mortgage. Average projected monthly rental income is around 8-11k (seasonal fluctuation).

Using the rental calculator tool (with estimated taxes/insurance/PM fees) I'm still only generating $1000/month, which isn't enough to cover the hard money loan.  The BIG thing I can't begin to estimate and help me best understand if this is a good buy is whether or not the tax benefits are going to keep me in the black?  

I suspect that may be a 5-10 yr property for us so we could claim some depreciation.  Monthly operating costs are estimated to be around $6700 (>50%!), but all of this should be tax deductible right?

I've been crunching these number so long and we REALLY want this place....someone help guide me in the right direction!  

[Tim Bee]

A LTR for $675k that rents for around 9K a month.  Sweet deal!  Get it.  

[Robin Simon]

Quote from @Lindsey Kocher:

First time poster and new to the world of REI! We are looking at purchasing our first investment property in our favorite vacation spot.

4/3 1500 Sq foot beach house for $675k.   This is somewhat competitive in this market.  Turn-key and fully furnished. 

Financing plan is hard money loan for 25% (possibly using some of our own capital), and DSCR loan for the mortgage. Average projected monthly rental income is around 8-11k (seasonal fluctuation).

Using the rental calculator tool (with estimated taxes/insurance/PM fees) I'm still only generating $1000/month, which isn't enough to cover the hard money loan.  The BIG thing I can't begin to estimate and help me best understand if this is a good buy is whether or not the tax benefits are going to keep me in the black?  

I suspect that may be a 5-10 yr property for us so we could claim some depreciation.  Monthly operating costs are estimated to be around $6700 (>50%!), but all of this should be tax deductible right?

I've been crunching these number so long and we REALLY want this place....someone help guide me in the right direction!  

Pretty much all DSCR Lenders will not let you have a hard money loan that secures the property for the 25% down payment just FYI (if I am reading you correctly)

[Carlos Ptriawan]

Quote from @Lindsey Kocher:

I've been crunching these number so long and we REALLY want this place....someone help guide me in the right direction!  

 If you want this property you must have $223,000 in your bank account.

[Lindsey Kocher]

Quote from @Tim Bee:

A LTR for $675k that rents for around 9K a month.  Sweet deal!  Get it.  

 Except it M2M operating costs +mortgage  are >9K a month so its not so sweet after all!  

[Lindsey Kocher]

Quote from @Robin Simon:

Quote from @Lindsey Kocher:

First time poster and new to the world of REI! We are looking at purchasing our first investment property in our favorite vacation spot.

4/3 1500 Sq foot beach house for $675k.   This is somewhat competitive in this market.  Turn-key and fully furnished. 

Financing plan is hard money loan for 25% (possibly using some of our own capital), and DSCR loan for the mortgage. Average projected monthly rental income is around 8-11k (seasonal fluctuation).

Using the rental calculator tool (with estimated taxes/insurance/PM fees) I'm still only generating $1000/month, which isn't enough to cover the hard money loan.  The BIG thing I can't begin to estimate and help me best understand if this is a good buy is whether or not the tax benefits are going to keep me in the black?  

I suspect that may be a 5-10 yr property for us so we could claim some depreciation.  Monthly operating costs are estimated to be around $6700 (>50%!), but all of this should be tax deductible right?

I've been crunching these number so long and we REALLY want this place....someone help guide me in the right direction!  

Pretty much all DSCR Lenders will not let you have a hard money loan that secures the property for the 25% down payment just FYI (if I am reading you correctly)

Can you tell me if DSCR lenders would allow for IRA to be used as DP?  I've decided against the beach house but was already looking at a LTR closer to home with a 14% ROI.  

[Robin Simon]

Quote from @Lindsey Kocher:

Quote from @Robin Simon:

Quote from @Lindsey Kocher:

First time poster and new to the world of REI! We are looking at purchasing our first investment property in our favorite vacation spot.

4/3 1500 Sq foot beach house for $675k.   This is somewhat competitive in this market.  Turn-key and fully furnished. 

Financing plan is hard money loan for 25% (possibly using some of our own capital), and DSCR loan for the mortgage. Average projected monthly rental income is around 8-11k (seasonal fluctuation).

Using the rental calculator tool (with estimated taxes/insurance/PM fees) I'm still only generating $1000/month, which isn't enough to cover the hard money loan.  The BIG thing I can't begin to estimate and help me best understand if this is a good buy is whether or not the tax benefits are going to keep me in the black?  

I suspect that may be a 5-10 yr property for us so we could claim some depreciation.  Monthly operating costs are estimated to be around $6700 (>50%!), but all of this should be tax deductible right?

I've been crunching these number so long and we REALLY want this place....someone help guide me in the right direction!  

Pretty much all DSCR Lenders will not let you have a hard money loan that secures the property for the 25% down payment just FYI (if I am reading you correctly)

Can you tell me if DSCR lenders would allow for IRA to be used as DP?  I've decided against the beach house but was already looking at a LTR closer to home with a 14% ROI.  

 Should be fine since the down payment would be paid at close to purchase the property, it doesn't really affect the DSCR Lender's underwriting (primarily concerned about the property and a few months of post-close liquid asset reserves)

[January Johnson]

Quote from @Tim Bee:

A LTR for $675k that rents for around 9K a month.  Sweet deal!  Get it.  

No way will it get that all year round.  Maybe March - August, less in Sept, Oct.  Not at all in Nov Dec Jan....

[January Johnson]

Quote from @Tim Bee:

A LTR for $675k that rents for around 9K a month.  Sweet deal!  Get it.  

 Plus, it's not a LTR...

[Tim Bee]

Quote from @January Johnson:

Quote from @Tim Bee:

A LTR for $675k that rents for around 9K a month.  Sweet deal!  Get it.  

No way will it get that all year round.  Maybe March - August, less in Sept, Oct.  Not at all in Nov Dec Jan....

 Then it seems to me that is a bad deal.  Why would anyone want to buy that.  

[January Johnson]

Quote from @Tim Bee:

Quote from @January Johnson:

Quote from @Tim Bee:

A LTR for $675k that rents for around 9K a month.  Sweet deal!  Get it.  

No way will it get that all year round.  Maybe March - August, less in Sept, Oct.  Not at all in Nov Dec Jan....

 Then it seems to me that is a bad deal.  Why would anyone want to buy that.  

@Tim Bee The OP said this is a beach rental that is "turnkey and fully furnished". I assumed it's a STR. STRs at the beach are seasonal, and OP does say it fluctuates. In my market, you make most of your money between March and September. Not sure what market OP is in, but here, you will not make high season rates between Nov. and Feb. for sure.

I was answering based on my experience selling and operating STRs in a beach market.

[Tim Bee]

Quote from @January Johnson:

Quote from @Tim Bee:

Quote from @January Johnson:

Quote from @Tim Bee:

A LTR for $675k that rents for around 9K a month.  Sweet deal!  Get it.  

No way will it get that all year round.  Maybe March - August, less in Sept, Oct.  Not at all in Nov Dec Jan....

 Then it seems to me that is a bad deal.  Why would anyone want to buy that.  

@Tim Bee The OP said this is a beach rental that is "turnkey and fully furnished". I assumed it's a STR. STRs at the beach are seasonal, and OP does say it fluctuates. In my market, you make most of your money between March and September. Not sure what market OP is in, but here, you will not make high season rates between Nov. and Feb. for sure.

I was answering based on my experience selling and operating STRs in a beach market.

 I only do LTR.  But maybe you can educate me :)  What would be the average monthly income be over a 12 month span after all the expenses.  And I mean all, like cleaning, advertising, maintenance, property tax insurance...etc etc.  But don't include the mortgage payments.  What would it come to on average per month?

Thanks in advance!

[January Johnson]

I can only tell you average costs in my market.  Your realtor should be able to get a cost to own document from the seller, but beware:  the current owner's taxes and insurance rates will NOT be the same for you.  You will need to consult the property appraiser's website in your county for taxes (at least in FL there are estimator tools on our county PA websites), and you will need to contact a local insurance BROKER for an estimate on insurance.  No agent can give you accurate quotes on that - each property has its own insurance score, much like a credit score.  Cleaning costs are also going to be a local number.  In my market, we estimate 5 turns a month, over the year, to account for busy and slow months, averaged.

[January Johnson]

(no REAL ESTATE agent can give you accurate insurance quotes, I meant)