So the question is, how do you go about purchasing a vacation home as an investment property? We're here to help, take a look at the example below. Here's an example of a vacation home purchased as an investment property.
Location: Park City, UT
Address: 2001 Park Ave, #103
Rooms: 1 Bedrooms and 1 Bathrooms
718 sq. ft.
On Golf Course
Outdoor Spa/Hot Tub
Interests and Activities: Golf , Mountain biking, skiiing, snowboarding
Property Type: Condo
Home Style: Contemporary
Other aspects of the condo: First floor location, easy access to pool, terrific views of P.C.Resort. Top quality finishes and hotel amenities. Largest studio, more room and more comfortable feel than standard studio. One of the best income to purchase price properties in the area.
Running through the numbers:
Downpayment: $654,900 x 20% = $130,980
Loan Amount: $654,900 - $130,980 = $523,920
This exceeds the confirming loan limit of $417,000, so you'll need to get either a jumbo loan or perhaps bring in another partner, one you agree to pay off in a certain period of time or one that you cut in on the cash flow from the rental property itself. Let's say you have a partner who agrees to loan you $150,000, that drops the loan you'll need from a bank to under $417,000.
New Loan amount: $523,920 - $150,000 (partner contribution) = $373,920
Loan amount: $373,920
Interest rate: 6.50%
Loan term: 30
Annual Tax: $1000
Annual Insurance: $300
Monthly Principal + Interest: $2,363.42
Monthly tax: $83.33
Monthly insurance: $25
Total monthly payment: $2,471.76
So, inorder to be cash flow positive you'll have to receive a rental income above $2,500.00, rounding up. You'll then also have to factor in any repairs that might need to be down and the management of the rental property.
Then, what are your terms for payoff to your partner, the $150,00, that you also borrowed.
Property tax rate:
Expenses: % of gross earnings
Monthly Principal + Interest:
Total monthly payment:
Interest payment per year:
Mortgage payments for the year:
Principal payments for the year:
Per year appreciation growth:
Operating expenses (managing property, landscaping, insurance, property taxes, painting - there are fixed and variable expenses):
Cash flow =
Remember: IRS counts a vacation home as an investment property if you rent it for more than two weeks.