Purchased investment condo 1st, did due diligence 2nd, what now?

Question

Last November I made my first purchase near Killington, Vermont (MLS 4399845) with the intention of doing vacation rentals. Total newbie, didn’t know a thing except that I had a friend that owned a condo in the same building that grossed any where between $8k & $14k a year over the past 12 years. I was super lax and didn’t really think about all of the numbers that go in to purchasing a property in order to make it cashflow. In fact, I didn’t even know the term cashflow at the time. I did this real estate thing backwards in that I started feverishly reading real estate books and listening (nonstop!) to the BP podcasts AFTER I purchased the condo. I even recently got my RE license to better understand the laws, the market, the process of buying and selling, and the industry as a whole.

I’m working to get the hang of analyzing deals. I’m a bit overwhelmed by estimating numbers for landlord-paid expenses (especially CapEx!) and future assumptions so I was hoping you kind folk on the BP forums could help me look at the numbers because right now they aren’t looking so good!

I’m attaching the link to my BP rental property calculations.

Some things to note about condo:

From Dec 2015 to Apr 2016 I did vacation rentals. From May 31st to Nov 1st I have a tenant in the unit and paying utilities. I included those in my calculations. I will resume vacation rentals for Nov & Dec. Typically all the units in my building rent for the weeks of Thanksgiving ($130-180/night) & Christmas/New Years ($360-400/night). I did NOT use any estimated income that may come in in Nov & Dec. I do believe I will get vacation rentals in those months but chose not to include those numbers in the calculations since I don’t know for certain what they will be.

In my calculations I used numbers (rental income, HOA, utilities, taxes) from this year and estimated high on utilities for Nov & Dec.

I purchased the property with all new tile & carpet flooring, paint, windows, doors, kitchen appliances, granite counter tops in kitchen & bathroom, and fully furnished (some furnishing is outdated).

I’d appreciate any advice on any and all!

https://www.biggerpockets.com/calculators/shared/490347/d07ac3ee-8404-4e0f-9b4f-475652474457

Thank you for taking the time to read this.

Best,

Veronica L. Pollán

Veronica Pollán · Answer

@Patrick L. & @Jeff Graves ... Thanks for these actionable tips. Others in the building experienced an unusual slump in rentals due to the poor season. I do think that it will improve.

I'm going to plan to list it and do some more marketing for the season. At this stage I will probably only sell if I can at least break even. But, I never thought about a trade. Why don't you send me the information Jeff.

I'm chalking this all up to a good experience that made me way more aware of what I need to be looking for for when I purchase my next property!

I have one more question... How would should I factor in CapEx for my condo knowing that some big expenses such as the roof is taken care of by the HOA? Also, how would I get this percentage knowing that the unit has all new appliances, flooring, paint etc. ?

Jeff Graves · Answer

@Veronica Pollán at this point not having a mortgage has actually been a good thing...otherwise you'd really be taking a hit.  At this point I see you have a few options, they are;

• Keep the property and use the tax write-offs to reduce your income taxes WHILE you work on increasing the revenue as I mentioned in my previous post
• As Patrick mentioned, sell it.  The problem with that is most likely you'd be doing so at a loss.  That could be the best move, take your loss and buy a place on Maui ;-) just kidding....kind of.
• You could increase the revenue in hopes that it would help you sell the property for more than you paid for it...at least enough to break-even when you figure the costs to sell.
• Perhaps you could trade the property.  There's a condo here on Maui the owner doesn't want...and the only reason he has it was because it was part of a trade.

I hope that gives you a few ideas.

Aloha,

Jeff

Patrick L. · Answer

From your spreadsheet it looks like you're losing money every month.   With expenses that high it makes it pretty tough to cash flow, especially with the $500/month COA dues.    With $8k in gross income and $10k in expenses it's obviously not a great cash flow purchase, you're losing money even without a mortgage.   If you can gross closer to the $14k estimate you gave while keeping expenses the same you'll be getting almost a 5% return which is still pretty poor but at least you'd be making something at that point.

Unless this is a property you bought for your own personal use in addition to being a vacation rental I'd sell it.  It's not a great cash flow generator.

Veronica Pollán · Answer

@Jeff Graves ^

Veronica Pollán · Answer

Thank you for all these marketing tips. I like what you are saying about specials and and also using social media to get me noticed. I've read Platform by Michael Hyatt that has a lot of good info relating to your tips.

Do you have any advice about my cash on cash ROI? Not having a mortgage is great but was that the "right" move in this case?

Jeff Graves · Answer

@Veronica Pollán - I would stick with HomeAway...they are owned by Expedia now and as hosts I believe we'll be reaping the benefits of that as we'll have exposure through the Expedia website channels.

I do also use Airbnb, but am not having as much success with bookings...but I do get some from it so for now I use both and manually keep the two calendars updated.

Marketing...

• I would suggest using Facebook.  Add a page to your personal profile - upload some pics and video, and then "boost" some of your posts using specific demographics to target specific markets.
• Promote specials to get more people looking at your rental - something like 2 nights free with 5 paid nights, or 7 nights for the price of 5, or Save $110 if you make your reservation by _____ date.
• Promote to your sphere as well on your personal facebook page occasionally.
• What interest groups would be interested in staying at your place? Is there an interest group on Facebook or other social media site that would work.
• Where does your target market spend time online?  What social media platforms do they like?  twitter, google+, pinterest, instagram, etc.

Those are just a few ideas.

I hope that helps.

Aloha,

Jeff

Veronica Pollán · Answer

@Jeff Graves ... Thank you for your response. I was asking for both!

Each block of weeks rent for different amounts. Long weekends, holidays, winter break for students this passed year I was renting for $200/night mostly on weekends. I priced this slightly lower then the other renovated units in the building to give me an advantage since this is my first year doing a rental. What was lacking this past winter was snow (not typical!), so rather then renting for full weeks at a time it was mostly 2 or 3 day rentals which made the vacancy significantly higher.

Summer is a slow season in Killington. $900/month for this season is what my PM said would be appropriate for the area.

I currently use HomeAway but they are changing all of their terms and adding more fees to so I would like to look into other ways of marketing the property. Do you have any experience using other vacation rental websites? Or suggestions for other marketing?

Jeff Graves · Answer

Veronica...so you own the property free and clear, that's a plus.

I like the strategy of the long term tenant during the slow season...if that is the best you can get for the area and time of year.

If you are able to generate the $130 per night during the peak season - that would bring in $12,675 at a 65% occupancy rate ($130x98) (there are approximately 150 high season nights) but you are only bringing in just over $8600.

So it sounds to me like you need to focus on your short term rental occupancy rate and maybe make a rate adjustment.  I'm not sure if you are marketing your place now or not for the next high season, I would encourage you do.

Not sure what you're asking for...advice or someone to check your numbers?

Aloha,

Jeff