Last year was the first full year of renting out one of my vacation homes in upstate New York, and it was lucrative, to say the least. Let's break down the numbers to calculate our cash on cash return and our net operating income.
The home was originally listed for $210,000 but we negotiated the final purchase price down to $175,000 after an inspection discovered issues with the porch. The front porch cost about $10,000 to fix up. There was another $15,000 in rehab, meaning the total rehab was $25,000.
We purchased using a 20% down-payment on a 30-year fixed mortgage with a 3.5% interest rate. We rolled the various fees into the mortgage and the total purchase price was around $180,000.
While the house generated $38,000 of revenue, $6,000 of that was in cleaning costs which get paid out to a local who worked part-time. I set my cleaning costs to be slightly above the actual amount I pay my cleaner, with the excess being used for cleaning supplies. It feels great to be a job creator and to give somebody else a means to support herself. In any case, the revenue minus cleaning fees was at $32,000 for 2019.
When looking at the monthly revenue, we see that there's definitely a peak season in the summer months and strong demand in winter as well, before dropping off in March and April for the "mud season"
What's great about the location is that the home isn't just a one-season destination, as one might expect given that the main attractions are that it's near 4 different ski resorts, with 2 of the ski resorts being 15 minutes away and the other 2 being 45 minutes away.
Instead, we see the summer months being the most popular. I can attribute this to 3 separate wedding venues all nearby. With limited housing, wedding guests have typically booked out my house months in advance. We knew about the wedding industry but didn't realize just how popular it was beforehand. With this information in hand, we'll look to increase rates in the summer months to generate even more income.
While the occupancy rate looks low at 39%, that doesn't tell the whole story. Simply put, the location is a destination for weekenders. We see near 95% occupancy for the weekends, but with very little demand for weekdays. There are a few retired guests who rent on weekdays for lower rates, hence the wide disparity in nightly pricing. There are also a few families that will book 1 to 2 weeks at a time, and that's always great for profitability. One of the main reasons to own a vacation home is that families will make up a significant portion of your guests. I love to host families, especially when they only have 1-2 children, as the wear and tear on the house is much less than party goers.
The only other expenses we had were property taxes of about $3,500 or 2.0% as the house is in the northeast where property taxes are higher. There were also costs associated with utilities, heating, internet and cable, snowplowing, and insurance, all necessities for a vacation rental, which totaled approximately $7,000.
Plugging in all the numbers to the short term rental calculator, we find that the house had a Net Operating income of $27,000, which means it achieved a 15% cap rate and a 25% cash on cash return in year 1!
I think we under-priced the busier months, and I anticipate us being able to increase our nightly price even higher. There were also a few vacation days that got picked off due to my laziness in not setting higher prices ahead of time.
Here's a pro tip: you can set different minimum nights for holidays within the Airbnb platform, so you can ensure that you are maximizing revenue on holidays and 3-day weekends.
The best part is that the house has now qualified as a superhost, since we have an average rating of above 4.8 stars.
Our anticipated January and February bookings are already well ahead of last year's revenue, with still another 2 weekends available. It would have been even higher but we decided to block out one of the weekends for a family trip. It can't all be hustle, you have to enjoy life too!
If we make some simple tweaks to pricing, I foresee this property increasing revenue to $50,000 annually. When that happens, I expect to generate a Cap rate of 20% and Cash on Cash return of 65% for Year 2!