how to price a multi unit at the beach

Question

I have the occasion of purchasing a multi unit at the beach, it is 3 unit with 1 bedroom and 1 bath each and an "owner" apartment with 3-4 bedrooms on one level with water views.

the rentals are $ 650 x2 and 1 x $700.

on the owner unit I figured around $ 1500 per month ( September thru May ) and $ 1500/week from June 24th to August 30th.

based on the numbers given above I figured a starting bid of $395,000, does anybody agree with this starting bid?

Kristopher K. · Answer

Hi @Andre Farah,

Depending on where you are you need to also look at insurance - mainly flood, also occupancy rates may vary and the market might be much different year round vs seasonals. There are also shoulder seasons to consider.

@Devin Beverage brings up some good points, and honestly I think there needs to be more info here before you can tell if this is go/no-go. What are your goals, self managing, marketing, using?

Utilities can vary, insurance can vary, rates and occupancy will vary. I've seen PM rates from 10-15% to 40% and they provide different services. Are you furnishing? What are the taxes? Do you need linen service, cable, and wifi?

You get the picture. Search BP for vacation rentals and tighten up your numbers a bit. I know in my market I would be hard pressed to start at that number for 3 units, with that mix if I were looking for cashflow.

Hope that helps a little.

Kris

Andre Farah · Answer

Good morning,

Thank you both for your input.

Devin Beverage · Answer

Well... I'm completely new to this, so please take what I say with a grain of salt. I do need practice, though.

Without counting your three months in the summer at substantially higher rent, paying $395,000 for it wouldn't even satisfy the 1% rule, would it? $3500/month. June-August, +$4,500/month. That would average out to $4,916/month, and a total of $55,500 in rental income for the year. Then....

Prop. Mgmt. could be between 10-15%, but we could say 12.5%. Equates to -$6,937/year, so we're down to $48,563.

Maintenance I tend to see estimated at $3,000/year, but. Saying it would be 7% of rent every month would take us to $4,129/year. $44,434.

As far as utilities I have no idea, really... I actually am not sure if there is typically the expectation that the tenants pay for their own utilities or not. I'll just leave this one alone.

As far as financing, I'm not sure how you plan to accomplish it. This would be where the bulk of your money would be going every month most likely? If say, you were doing 20% down on a 30 year loan at 5%, monthly mortgage should be around $1696/month. That doesn't include property taxes, mortgage insurance, and anything extra. That would take us down -$20,352, so to $24,082 (still speaking in terms of yearly profit).

Then again, you're considering a starting bid at $395,000, so you could have financial means way beyond my imagination.

My lack of including utilities leaves a big void, but like I said, it's something I don't even know how to estimate too well right now. To just take a shot in the dark, if utilities were $1,000/month, we would end up at $12,082, or a net positive of around $1,007 per month.

If I didn't feel that I'd estimated out-the-yin-yang already I would try to do COC ROI, Total ROI, and Cap Rate ROI.

Also, if it's an auction, you're going to be headed above your starting bid anyway. How'd I do, everyone?