Vacation Property Rental Analysis

[Ed O.]

I'm helping a friend that's looking into buying a vacation rental in a ski resort area. I have read a bit, but still have a bunch of questions.

1. Is there a general average for the management fees, and what does that typically include? Does it include the cost of turning a unit?
2. Occupancy - during the down season, does anyone rent units? If trying to determine a rough pro forma, what occupancy assumptions should be made? Is 50% too conservative or not enough for the skiiing season? Is 25% too high for the off season?
3. Maintenance - on a newer building, would it be reasonable to expect limited maintenance expenses?

Are there certain financial measures that should be considered - specific performance #'s, etc?

I will probably add some more questions to this as I find out more info. Any general pro or con information or experiences would also be greatly appreciated.

Thanks in advance!

[Kama Ward]

I have been looking into this (for the beach) off and on for several years. So far I have come to the conclusion that it is not worth it to buy as an investment- or even (for us) as a vacation place with some offset of expenses through rent. My current plan is to wait until/if the price of a condo/house is like a disposable toy to us, so the return will not matter.

That being said here are a few tips I've gleaned from different sources over the years.
If you are looking at it from a homeowner perspective looking to offset costs: The standard seems to be if you can rent it out for 17 weeks at what your monthly PITI+ HOA (if you have it), you can "break even". This does not appear to include larger maintenance (clogged toilet yes, new kitchen flooring no). This is also, if I remember correctly, the owner self managing.

Example: PITI $750+ HOA $250 (roughly 25% down on a 175K condo)- so total monthly payment $1000.
Rent it out for 17 weeks at $1000= $17,000
$17,000- $12,000= $5,000- that leaves $416.67 a month for utilities and misc. This also does not include tax or a cleaning fee (these are most often quoted outside your rental rate anyway).

Most vacation places seem to have 3 months high season, 2-4 months shoulder season, and 5-7 months off season. So let's figure 26 empty weeks for off season. Rarely is every week taken up even in high season. Let's say 80% occupancy for 12 weeks- 10 weeks occupied 2 wks empty. Now the shoulder season- this seems much more dependent the specific location- 3hrs driving or less from a large population center? Specific festivals? Weather change mild? These will help. So let's go with 50% for two months (or 25% for four months- same thing)- 4 more weeks rented 12 wks empty.
10+4= 14wks This figuring isn't even weeks- so I'll give you the two extra weeks occupied === 16wks. That's you not getting any of the good weeks.

I often see a low off season rates for 3-4 months. Say $1500 per month furnished with utilities. That comes with somewhat more risk of damage, wear, and (nightmares-- eviction).

Do not buy anywhere but the best locations. Who wants to get in the car when they could walk to the beach? I mean a short walk too! Ignore the standard amenities at your peril.

Management fees- The most common management are 25%, but I've seen cheaper.

Make sure you can rent by the week/day, some places ban it.
Sometimes you must use the rental management team of the association/resort.