All Forum Posts by: Tim Schroeder

@Julia Fair @Joshua Feit Yeah, what @Avery Carl said. My wife also complained about the orange-ish colored pine everywhere, bear-printed comforters, bear-themed bedside lamps and more. Hated Every Single Cabin I showed her. So I stopped showing her pictures and started showing ROI spreadsheets and she's much happier now.

I am surprised that you are surprised that vacation rentals cash flow  :)

@Chase Cline Well after more information has come out I can see it's not as bad as I thought at first, mostly because of the low purchase price you got. But most of what I said still stands. Always figure your ROI and don't be fooled into a non-mortgaged situation just to get yourself in the black. If you have to do that you're probably not far enough into profitability. I'm going to hit 50% ROI this year, which is just fantastic and certainly not something I'll always be able to duplicate.

@Jeff Moore I have that dilemma as well. Showing less income is great to reduce taxes but then you can't get financing!  My plan is to show the income and pay the taxes for another year or two, buy a couple more properties, THEN circle the wagons, reduce taxes where possible, quit my soul-killing cubicle job, and do this part time.

@John Underwood He only netted 8k from a tax perspective. From a cash-flow perspective he netted 5k (1k plus the 4k he paid in extra mortgage payments). That's just not a sustainable level if cash flow is the goal. Not knowing what the purchase price was (or better yet, the total cash investment in down pmt & costs) it's impossible to say.

@Chase Cline I think the last line in your post is key -- Is all the work worth $1000 a year?  Do the numbers and share. maybe I'm wrong :)

Personally, I disagree with your definition of a "successful vacation rental". A successful vacation rental is NOT something that "pays for itself", it's something that makes a ton of money.

A property that makes you 1,000 per year before taxes is, at best, a free second home. But it's not really that even. What are you going to do when it needs a $2,000 refrigerator, a $5,000 furnace, or a $15,000 roof?  If what you want is a 2nd home for yourself -- a place to go sit in the sun and relax -- great. Good for you. You MIGHT just break even, until that furnace goes out anyway.

I have two properties mortgaged to the hilt, and they net me a disgusting amount of money. The mortgage isn't your problem, your property is. Do the ROI math on a mortgaged property vs a non-mortgaged property. Often, when you look at the profit numbers on a non-mortgaged property, you'll see much higher profit and you'll get excited. But divide that number by the capital you invested to buy the property outright and you'll see your ROI is terrible, because in order to get that profit up to an exciting level, you had to invest too much capital. And for most people, capital is the limiting factor for further investing. Personally, I would not be interested in an CoC ROI under 20%. Hell, historically I can get 8% in stock market index funds with less risk (over time) and zero effort.

Do the numbers for what you have now, then re-run them pretending you paid off the mortgage. Compare the ROI. Choose the scenario that yields a higher ROI. Consider sharing the results if you like. People here love talking about this stuff.

Then call your agent and put that thing up for sale and invest the proceeds in a better money-maker.  :)

Google may be able to help:   https://www.google.com/search?q=difference+between...

Basically, ROI is "how much you profit every year" divided by "how much you spent for the investment out of pocket". So things like mortgages don't matter. Only the down payment matters, because that came out of your pocket. Also closing costs, monthly expenses, taxes, etc. It's most appropriate for cash-flow investments. Cap Rate assumes you paid cash for the property and is more commonly used when comparing one property versus another, irrespective of what your financing plans are.

IMHO Cap Rate is not what you look at in a STR Vacation Rental. Cash on cash ROI is a better metric. And mine is running so high I am embarrassed to say it in public :)

@Joshua Feit You need to get on VRBO. In this area VRBO is king and provides twice the revenue that AirBNB does. And my stats show that VRBO guests tend to stay longer, book further in advance, cause less damage, and complain less. Use OwnerRez to sync the two and consolidate messaging.

Is that one $5 charge per stay, or every time they enter?

Why do you have to enter their information into the system? Is that a hard requirement to enter? What if I don't? The LAST thing I need is extra manual hassle for every guest!