* I am not an investment advisor. Please consult one before making any investment decisions.

Shock Hill Cottage_Breckenridge Colorado

You wouldn't be the first person to dream of investing in a mountain home. But how do you decide whether you're looking at a good investment vs a luxury purchase. 

Investments vs Luxury Purchase

The lines can be blurred and can even have significant overlap. Even without renting your mountain property many owners make money on the eventual sale of the asset. In fact, according to data from the Summit association of Realtors, the median price per square foot has risen 63% in just 5 years from July 2016 to July 2021. That's an average increase of 12% per year. Because of the gains in appreciation, about 40% of my buyers choose not to rent. So while it turned out to be a good investment, that doesn't help you cover the cost of owning the property. 

That's where I'm going to draw the line between a Mountain Investment Property and a Luxury Purchase

A true Mountain Investment will pay for itself out of the gate or at least begin to within the first few months of ownership. This is called a cash-flow positive property and there are still plenty of opportunities to find one in Summit County. 

The first step is to examine what the negative cash flows are going to be. The most common negative cash flow items will be: 

  • Mortgage Payment
  • HOA Dues (Homeowners Association)
  • Utilities that are not provided by the HOA
  • Property Taxes
  • Rental Management Fees
  • Repairs and Improvements

Next, you want to consider the positive cash flow items which will be either short-term rental revenue or long-term rental revenue. Because many buyers want to use the property for themselves we are typically looking at short-term rental revenue. I can always provide my clients with estimates of short or long term rental revenue. 

Now let's jump back to that pesky rental management fee I mentioned above. You only need a rental manager if you're going the short-term rental route but they do take a significant cut ranging from 30-50% of your total revenue. These fees are typically all inclusive of booking, cleaning, post rental inspection, lodging tax payments, bedding, emergency maintenance and more. Maybe you think you can do the booking yourself and you probably can; but do you want to answer a call at 2 AM to unclog a toilet? Me neither. 

Another point to consider is you need to navigate the local regulations regarding short-term rentals. If you don't you could face hefty fines. A good rental manager will help you get your rental license required by many towns and to make sure you are paying the applicable lodging taxes. The town of Breckenridge even requires you to have a local contact who can physically be at the property within one hour. 

The long-term rental routes also offer excellent revenue and don't require the rental management fee. For long-term rentals you're probably going to be looking at a starting revenue around $1000/month per bedroom for an older, lower priced property. Some high-end one-bedroom properties can fetch as much as $2,000/month if they are in a good area. If you're looking for personal use of your property strictly in the Summer or Winter, a 6-month lease can be a great revenue generator while you're not here.

So what's the difference between property managers?

There are more short-term property managers than I can count here in Summit County, many of whom have great reputations. The property manager I would recommend would vary based on the location of your Mountain Home. For example, at Copper Mountain they have a management company that is owned and operated by the resort. While the resorts management company may charge a higher percentage, they also have higher revenue because they get last minute bookings at the front desks around the resort. The properties they manage are also front and center on the ski area website for out of state vacationers planning their ski vacation. Vail resorts produces similar results with their in house management at Keystone or Breckenridge.

Another difference would be the services they offer. Vacasa for example has made tech a major factor in their business model. Expect an easy cell phone app to manage your personal use, view your revenue and more. 

When choosing a rental manager I would always recommend interviewing at least three companies and also comparing their revenue projections. The vast majority of properties allow you to use any manager you would like but every once in a while an HOA does require you to use one specific management company. 

Get to the point Tucker, how can I buy a property to make me money?

The simplest answer is you need a significant down payment. I have ran countless properties through my spreadsheets and I find that 20-40% of the purchase price will typically reduce your mortgage payment enough that rental revenue will cover all of your expenses and put a few dollars in your pocket each month. Each property is different so please reach out to me and I can provide the revenue estimates and run the costs through my aforementioned spreadsheet.

Take for example this recently sold listing at 364 Salt Lick Circle, listed at $309,000. View Listing

 

Monthly Mortgage Payment 3% interest
with 25% Down Payment
-$977.00
HOA Dues (monthly) -$349.66
Property Tax (monthly) -$85.86
Negative Cash Flow -$1,412.52
Rental Projection (monthly)
$30,400 Annually
$2,533.33
Less Management fee (35%) -$886.67
Positive Cash Flow (monthly) $234.15

Assuming the rental revenue estimates were accurate, this property would net you a positive of $234.15 per month. That doesn't even factor in the appreciation you'll get over time. 

What properties provide the best bang for the buck? 

Another difficult question because prices and rental revenue are constantly changing. But typically properties with a higher guest count will be your best bet. When you're visiting homes with me, I will constantly point out when there's a great wall for a murphy bed or why you should add bunk beds. Also, a one-bedroom condominium that also has a loft will probably be less expensive than a true two-bedroom unit but it can sleep the same number of people. I've even personally stayed at a property that had a single bed under the stairs!

The best performing short-term rentals I've seen are single-family homes with a high bedroom count, close to the ski areas. These homes are more expensive but I've seen some with rental history in the $180,000/year range. These large properties attract wealthier groups that all want to be under one roof. Think of a family reunion sponsored by the grandparents or an annual gathering of high-school friends. 

Take a look at 310 Whispering Pines Circle, which has a rental revenue of $218,000/year based on the projection by Mountain Management Breckenridge. Mountain Management Breckenridge is projecting net cash flow of $134,053 after management fees, cleaning, snow plowing, and utilities. 

What can go wrong? 

Investing in real estate is just like any other investment. Even blue chip stocks like Apple don't always go up or pay the dividend you expected. However, our mountain atmosphere does draw a reliable flow of vacationers and has increasingly year round visitors. Make sure that you can cover the holding costs of your property if revenues suddenly fall flat. You should always consult a CPA, investment planner and a real estate attorney before making a real estate investment. 

You also need to consider how your personal use will affect your revenue stream. If you plan on spending Christmas and New Years every year at your mountain home, that is going to take a big chunk out of your rental revenue. 

The market will also go through cycles where your resale value will not be at or above the price you paid. If it's time to make a life change and sell at a loss that's fine. If you can't swallow the loss, you should always be prepared to hold the property another several years until the market is on the upside again. 

Finally, local, state, & federal legislation can significantly impact your resale plans. Some towns have started to restrict short-term rental licenses. The state of Colorado has considered taxing short-term rentals the same as commercial businesses. The federal government is considering raising the capital gains taxes. All of these would significantly impact your investment. Make sure you're prepared if these changes take effect, stay up to date on these political topics and write letters to your representatives in opposition. 

Let's get started!

Email or call me today to discuss what you're looking for in your mountain investment. We can discuss your down payment and I can find a list of properties available today based on that. If you have more personal use in mind, let me know what areas you are interested in and what criteria you need. If you just want to browse or dream, feel free to use the search on this page for the most up to date listings. My search will prompt you to submit your contact information but when I reach out, feel free to tell me to buzz off and I promise to leave you alone until you're ready to get serious. 

I look forward to helping you find your mountain home!

Tucker Zimmerman
Broker Associate
Coldwell Banker Mountain Properties
Cell:  (303)-907-9129
TZimmerman@cbmp.com

 

I am not an investment advisor so please don't listen to anything I have to say. Please consult an investment advisor, real estate attorney, and CPA before making any investment decisions. If you need a referral to one of these professionals, please let me know.