Clients often ask my opinion about purchasing rental properties. I am definitely a fan of owning rental properties that make sense – ideally ones that are fairly low maintenance, very easy to rent and allow you to pay down your mortgage with someone else’s money. Even if you are just breaking even every month, you are still building your equity in what is historically a great long-term investment.
Most buyers considering a rental property look at purchasing in their home city or town, since that is what they know best. But purchasing a recreational property outside your home town can be a great opportunity and is one worth considering.
Some of you already know that I purchased a condo in Canmore last summer. I have always loved Canmore and bought with the intention of enjoying skiing and hiking getaways there. However, I wanted to offset my expenses with rental income. I have been using the website www.vrbo.com (Vacation Rentals by Owner) and wanted to share my experience.
I carefully deliberated where I wanted to purchase for months before making my decision. Destinations in the U.S. such as Arizona or Hawaii have their obvious appeal for the warmer temperatures and low pricing (especially if the Canadian dollar is high). Many B.C. towns in the Interior or on the Island have great weather and natural beauty. Even Vancouver was a consideration as it is one of my favourite places in the world and a city I visit frequently. But what drew me to Canmore was the four-season appeal, both for future buyers and for current renters, as well as the abundance of wealthy renters in very close proximity (the majority of my weekend renters are from Calgary).
After selecting Canmore, I began to watch a few condo buildings that I liked to see what listed and sold. When I felt the time was right, I purchased a top-floor, 2-bedroom unit with underground parking and spectacular views. After taking possession in July 2014, I spent the summer getting it painted, furnished, decorated and ready to rent. I hit the button on my VRBO listing on August 25 and had my first rental booked for the upcoming weekend within 24 hours! The next four weeks had 14 days booked.
Over the next five months, I only had three weekends that were not booked. December brought in premium rates before, during and after Christmas. I already have 17 days in July and 25 days in August booked and paid for this year.
Although there is more maintenance with a vacation rental compared to a long-term residential rental, once your systems are in place, it is really quite easy and the money just starts showing up in your bank account : ) Plus, you can book your property for your own vacation use any time you want it.
I am going to present some real-life numbers below to show how this investment has shaken out for me so far, but if you don’t care for the numbers, let me say this first… if you are considering a recreational purchase anywhere, please call me first. If it is out of province (or even out of Canada), I can refer you to an agent in the area of your choice. If it is in Alberta, I can represent you on your purchase. Canmore has a few great opportunities including this new listing that would be a nice purchase and is in walking distance to the best Canmore has to offer.
Obtaining mortgage financing for a recreational property can be tricky and some towns such as Canmore have different property tax rates for owners-users vs. rental units. There is a lot to learn so please contact me to discuss further.
As a bonus for your recreational purchase, I can offer two hours of consultation on how to set up a successful vacation rental – I learned a lot from my own experience getting started.
Here is the breakdown on my personal property – these are real numbers for my condo but the expenses and income will obviously vary based on where you purchase and what type/size of home. You can view the photos and details about my place here and please let me know if you ever want to book my place for a getaway as well!
Mortgage on $395,000 purchase with 25% down: $1,395
Property taxes: $271
Condo fees (includes heat/water/sewer): $543
Electricity & Internet (approx): $100
Liability insurance: $20
VRBO.com listing fee: $30
One-time expenses: furniture, appliances, sheets/towels, etc (approx. $5,000)
Ongoing expenses: toiletries, sundry items, cleaning fee (approx. $100 per rental)
$275/night for one-night bookings
$225/night for 2+-night bookings
So if I rent out the condo for all four weekends in a month at standard rates (very realistic), I earn $450/weekend x 4 = $1,800 minus about $400 in cleaning so $1,400 in net income. This leaves me with under $1,000/month in expenses for myself.
However, I have easily been booking long weekends and holidays at $300/night. Spring break and the summer months are filling up quickly with longer rentals. I already have $4,600 in revenue booked for August with only $500 in cleaning, so will make over $4,000 that month. This helps subsidize months that are less profitable.
There is a reasonable expectation that the rental revenue will exceed my expenses for 2015 and, if it continues to fill up (partly with happy repeat customers), I will likely increase my nightly rate for 2016, making it even more lucrative.
Overall, I have been thrilled with my ownership experience in Canmore. I’ve had great renters, excellent reviews and have been able to enjoy enough time out there myself to make it worthwhile. If you want to discuss a recreational purchase or a regular rental property in Calgary/area, please give me a shout at 403-852-0262 or drop me an email at firstname.lastname@example.org – thanks!