Buying a condo or townhome in Mammoth Lakes is a great way to get your family up to the mountains more often. If you live in the 949, 310, 818, 858 or 805 and have a mountain getaway place to dream about while at your desk, chances are you will make plans to come up and use it more often than if you did not own one.
And instead of letting it sit vacant when not using it, you might put your condo on a nightly rental program.
Can the rental income produce a positive cashflow or at least cover our costs? Possibly…when you pay all cash for the property.
Here’s how. We keep track of rental income data whenever we run across it. We have 931 data points with rental income for specific properties over the last decade. Here is a simplified way to calculate cash flow:
Cash Flow = Gross Rental Income – Rental Commission – HOA Dues – Property Taxes.
We are looking at fixed costs here, leaving out utility, maintenance and mortgage costs. And since the bulk of insurance costs are included in HOA dues, let’s leave leaving out the smaller ‘contents policy’ that owners often purchase.
Example: A Grand Sierra Lodge 2-bedroom on the 4th floor
+ $49,453 rental income in 2014 (from 124 paid rental nights and zero owner use nights)
– $25,689 rental company commission (52%)
– $9,204 HOA dues
– $4,896 property taxes (1.1% of sales price of $445,000)
– – – – – – – – –
+ $9,965 positive cash flow.
ROI: To calculate a Return on Investment, we divide the cash flow and by the purchase price (this condo sold in 2015 for $445,000 all cash):
ROI = $9,965 / $445,000 = 2.2%. This example may represent one end of the spectrum, where the buyer paid all cash and did not use the condo for himself/herself.
But what if I cannot pay all cash and I want to use the condo myself?
Example of a mortgaged Snowcreek 1-bedroom condo:
A Snowcreek phase 1 one-bedroom condo sold this year for $255,000. In 2014, the condo was rented out for 141 nights and the owners used it an additional 19 nights. Gross income was $19,822 and rental commission is 47%. After HOA dues of $436/mo and property taxes, the net income was approx $2,470 for the year, which is barely breakeven. If the owners paid cash, that would be a return on a cash investment of 1%.
However, the owners got a loan for 80% of their purchase price. If their interest rate for their 30-yr fixed loan was 3.75%, their monthly payments are approx $945/mo. Including this expense into the above equation results in an ROI of -17% on their initial investment of $51,000 (20% down payment).
Their cashflow would be negative at -$8,870/year, but now they have a place of their own to come and stay and not have to rent anymore. They will also build equity, have a possible tax write-off, and hopefully gain appreciation in our currently slowly rising market. They also are going to do a bit of remodeling and take over the management of rentals themselves to see if they can increase their income and decrease costs.
Rental Income Caveat: The huge caveat is always that rental income depends largely on amount of owner use and timing of owner use. If your Chamonix condo is not available to rent during Christmas, MLK wknd, Presidents’ wknd, 4th of July, etc., then you forego the chance to make top dollar during those high demand periods. Rental income also depends on the quality of your property, amount of snowfall and tourist visitation (2012 was a bad year), and which rental company you choose (read more about this below).
How does your condo stack up?
See below for a chart of average annual cashflow for the various areas of Mammoth (using the cashflow equation above and not including mortgage costs)
Golf course townhomes produce the largest cash flow because they typically are larger than the rest. In addition, Golf, Village and Juniper Springs areas are heavily weighted with Intrawest-built properties, which are set up to be condo-hotels and are located close to amenities (skiing, golf and The Village).
A word about Rental company commission: Most of the big brick and mortar rental companies in Mammoth charge 38-45% commission (Mammoth Reservations, Mammoth Reservation Bureau, Mammoth Sierra Online, Central Reservations, Mammoth Premiere, etc.). There are some smaller online companies that charge less, like Mammoth Front Desk and Mammoth Rental By Owner. And then there is Mammoth Hospitality Management, which is operated by the ski area. They charge 50% commission for managing condos at The Village, Juniper Springs Resort, and the like, and 55% at The Westin.
The legitimate rental companies will always include transient occupancy tax (14%), cleaning fees, operating costs and marketing fees within their commission. We have links to the rental companies on one of our websites: www.MammothResources.com.
Rule of Thumb: If you pay cash and rent out your condo somewhat aggressively and do not use your condo over holidays, then your net rental income can generally cover your HOA dues and property taxes. And you might have some left over to pay for utilities as well.
A purchase in Mammoth is more of an investment in lifestyle and in your family than it is a purely financial investment. Which is why pure investors do not buy rental property in Mammoth. Every year we talk to a few investors who have never been to Mammoth and they rarely buy here because they require a higher return on investment than is currently available here. Why? Because you, the families from the above area codes, value the property more than an investor would. It is less about numbers than it is about your family getaway spot and a launching pad for adventure.