So long story short my family rents a house in Florida every year as a trip and does the Disney thing etc. It is in a gated community and most the houses are rentals. They just built townhouses next to them which I am thinking about buying and renting. Here are the rough numbers.

Cost- 210k
Monthly fees- $350
Rent- monthly 3800, by the week maybe a little more

I would need to add a management fee/ some type of manager seeing as I live in NJ, but that seems like a no brianer . If I put 20% down my mortgage would be about 1200 a month. The main point is my father is thinking about buy8ng one for the winter so I will have someone there half the year.

Go educate yourself on biggerpockets.com

Vacancy rate? Extra cleaning/maintenance since vacation rental?

Property taxes? Short term rental taxes? Extra insurance?

Yes there would be cleaning fees, In Nj the insurance and taxes are included in the mortgage, my 1200 included that. I am no where near actually doing this, but the 200k cost just seemed very low for the rental rates which got me thinking.

Numbers look pretty solid if you can steadily fill the property at those rates. For monthly and weekly rentals, I would expect vacancy rates to be significantly lower than yearly, though, but haven't done much research on this topic. That's going to be the make or break decision figuring out just how much vacancy you can expect.

Are you planning for your father to stay in your unit for the winter or is he buying his own unit? If he is going to stay in your unit, do you really plan to charge him 3800 / month?

The estimates I saw when I looked at places like that we're about 20% vacancy, which seems low to me
That was for a house. I'm not sure how the vacancy rates for a townhouse compare.

It will be empty in summer

i have only just begun my journey into real estate investing(podcasts and audiobooks) and the numbers you are showing, this thing is like the best investment ever, not?

standard rent rate is about 1% of a property's worth. So, renting out $3800 on a $210k property, seems, astounding.

$350 in maintenance fees monthly seems low but in a new, nice place, perhaps that could be accurate. However, a general rule of thumb is that expenses usually equal about half the rent so, if you are renting for $3800, principles say you should expect $1900 in monthly expenses, you are way below.

that's all i got, gl

Quick look at air bnb in Orlando close to Disney world shows homes in that price range listed for around 100/n with less than 1 week min stay that still have plenty of vacancies. Advertised prices are closer to 200/n peaking in December but closer to that 100/n price point otherwise.

To get even 2k/m outside of December (and a couple of weeks before/after) you’ll have to pay managers at least a few hundred a month.

Might not be a bad investment but seems impractical to buy something far-ish away.

There are entire neighborhoods full of these kinds of vacation rentals. My wife's family rents them out every year. I haven't looked, but I'm guessing you could rent them out for $1k per week. I would assume 20% vacancy. Also, the rental company you use is going to take somewhere between 30-50%. Let's assume 30%. Depending in the neighborhood, 350 per month is really low for the HOA maintenance fee. But let's stick with that. Since you it in your OP, I'm guessing you have a reason.

1000 * 52 = 52000
20% vacancy = 10000
Revenue = 40000

Rental program at 30% = 12000
Net revenue = 28000

Expenses
Mortgage, taxes, etc = 14400
HOA = 4200
Electric, water, etc = 3600
Maintenance = 2400
Total expenses = 24400

Doesn't look as good as it did initially.

You're counting mortgage payments in their entirety? The portion going towards principle isn't really a cost.

I think it's better to just look at it as if you're buying it outright, then you can weigh the returns against the interest rates you'd have to pay to borrow. ie: paying 4.5% interest a year to return 6% net.

The hard part is figuring out what constitutes a realistic expectation for home appreciation vs inflation.

What real estate investment has no issues with "tenants, toilets and termites"?

Requires almost no maintenance?

Just let it sit there and watch your equity grow over the years?

Where you don't have to visit periodically to make sure your fixtures are still there, the roof is still there, and your management company isn't pocketing the rent - or worse?

Well located, fairly priced, vacant land.

Can you find that kind of land? Yes.

Can you get it for zero down if you wanted to? Harder, but yes.

Can you find it in a city or town with utilities in the neighborhood? Yes.

How many houses and condos can a person buy on one income? Maybe one or two, your mileage may vary.

How many vacant lots can you own if they are fully paid for? Lots. <a clever turn of phrase>

When you sell a condo, are you going to "be the bank" and finance it for your buyer? Not usually.

But it's not that big a deal for land.

What states have vacant lots? All of them.

What cities and towns have vacant lots? All of them.

Are they all affordable? No. You gotta go looking for those.

Are they all fairly priced? Sometimes. You gotta know what a fair price is. Same as anything.

Something to consider.

Well located, fairly priced, vacant land.

I'm not spending a bunch of time making a detailed model for him. Just doing some quick calcs. You can do a more detailed calc if you want. The portion of his mortgage payment going toward principle is about 150 per month at the beginning of the loan.

I disagree with the second paragraph. I'm not interested in the cap rate for a property I don't have paid off. I'd much rather see a return on my equity but that takes longer to explain. Failing that, I'd look at the return on my initial investment (cash to close plus any expected initial repair cost).

I'm sorry but this is so stupid. Vacant land brings in 0 income, it's a great way to store wealth if you already are wealthy, it's not great if you want to scale up your investment. Unless you start renting that land to someone who will use it (farm, wood, etc) I wouldn't recommend it.

This is exactly why I referred biggerpocket and why I would look for RE advice there. Twoplustwo is great for informations about stocks when you are clueless but for RE there is like 2 decents threads (spex x and aces up).

Owning RE is an active duty, like a part time job. The rewards are much greater then stocks.. but you will have problems, going into a market with 0 connection and no way to connect to other RE investors in that market is stupid, because you need to network. You need to know good contractors before you buy, good managers, deleguate to good "employees" and you'll be fine. How do you even know it's a deal when you don't know the market? Maybe you average up 8% cash om cash with that house, but the average investor averages 10% in that given area... so you overpaid, good luck selling it when you overpaid, it could take a long time.

I own 3 units so I'm fairly small, but I've never changed a toilet and never will. Only people who are scared think RE is about changing toilets.

In the long-term, of course. In the short-term, cash flow.

If you want to figure out whether you can afford it that's relevant just not in establishing the profitability. ie: if you shortened the term of the loan and had 25k/y in mortgage payments it wouldn't mean it's losing 10k/y.

Evaluating it as if it were purchased outright just simplifies it. T

There is actually a big debate about which is more important, cap rate vs cash flow. Cap rate may be simpler, but I don't think it gives you a clear enough picture. If I have a property mortgaged, I'm more interested in cash flow. If a property is worth 200k but I only put down 50k, why should I care about the return on 150k that I have not invested?

For my properties, i made up my own criteria that would calculate return based on my equity in the property. I feel that is a better representation of my investment. It doesn't take that long to calculate. It does change every month, but not much so I didn't bother updating it every month. An update once per year was enough for me.

You should care about the 150k because you're paying 4.x% a year on it. If the property isn't netting at least that, you're borrowing at a loss. In practice it needs to be doing at least a percent or two better than that to justify the opportunity cost of having 50k sunk into the house.

Cash flow is important, but it's an operational consideration - it answers whether you can afford to buy it, not whether you want to buy it. Both are important.

Dude cash flow is the cash in your pocket after you paid your dept. Even more, really picky RE investots calculate their cashflow with 100% leverage... I always calculate with 100% leverage, I want to cash out my downpayment asap.

Cash flow WOULD include repayment of debt, which is why it's a bad way of looking at the profitability. Contribution to equity isn't a cost even if it represents a negative cash flow, and if you want you can withdraw it as it accrues, as you apparently choose to. You could be floating the 150k at 4.x% interest indefinitely if you wanted to.

I'm not sure how you're able to pull 100% of the equity out of the property though without your interest rates soaring. It would be insane to loan someone at standard rates with no collateral.

Well you can only to this when market value is higher than the purchase price, ex I just bought a house worth 165k for 125k. I will have 100%leverage next year because I underpaid (if I even keep it, maybe I will need my $$$ thats stuck in equity sooner).

I'm visiting a 4 units tomorrow and have a verbal contract for 237k when its worth around 300. If everything works the way I planned, I will have 100% leverage 1 week after closing. Its in bad shape so maybe it's not even worth buying but I'm going to see for myself.

I'm not from the US thought, Im from canada. What I know from your market in general is insane for wealth building, why anybody bothers with 10% crap returns with stocks on this forum is beyond me. Your tax code is amazing compared to mine for RE, you have the 1031 exchange which is just an amazing gift from god honestly.

If you're able to get a house for way under FMV it's kind of a no brainer to buy regardless of it's ability to generate revenue. Where are you finding these deals? How are you computing fair market value?

If I'm not planning to pay off the property, why would I care about the cap rate? I know you're telling me I should. I just don't see a convincing case for it.

You own the property regardless of whether you're paying down the principle. How much you're making on it relative to the interest rate tells you how much you're making on it. And you have to make more than the interest rate to justify the principle that's invested in it (and time/effort). How much more depends on what you think your opportunity cost is.

You are concerned about the opportunity cost of the debt service and your response is to ignore the debt service in you calculations? Your logic makes no sense to me.