CNN Money recently listed 5 new tools for homebuyers, one of which was InvestorLoft.com. At first glance, it looks like a Zillow for investment properties.
I decided to run a quick search using their PropScout tool for an investment property in California for under $300,000. I sorted by cashflow, as I that would be a primary requirement were I ever to get into a rental property. One of the top results was a little ski chalet in South Lake Tahoe for $269,000. With a estimated positive cashflow of over $50,000 per year, I was starting to think InvestorLoft was in serious “Beta”, but decided to keep looking further. Besides, I’ve spent a good deal of time up there, so I was intrigued. Could I swing a nice little ski cabin for myself?
Cashflow Breakdown: InvestorLoft vs. My Numbers
You have to register (free) to see details, but here is the property link. Click on the “View Financials” tab to see the breakdown.
Expenses
InvestorLoft’s default mortgage numbers have you putting 20% down, and financing the remaining 80% with an interest-only loan. I’d probably go with a 30-year fixed fully-amortized loan, and these days investment property have much higher interest rates. At 20% down and 7% interest, I got $1,400 for an estimated mortgage payment.
This chalet is really a townhouse, so it comes with HOA fees. Property management costs look to be estimated at 10% of gross rent, although as you’ll see below I don’t agree. No maintenance costs were estimated, but as a vacation rental with high turnover, I put in $200 per month. Here are the final numbers side-by-side:
Income
Here’s where that crazy cashflow number comes from: The expected monthly rent was $6,700 a month. (This is also why the property management cost above was $670 a month.) “Rental estimates based on 26 comparable rental listings with matching number of bedrooms and size in a 1.5 mile radius. ” Hmmm. First of all, there’s no way a month-to-month tenant would pay $6,700 a month for this wood shack. It has to be a vacation rental, and I can only guess that they are assuming 100% occupancy.
For some comparisons, I looked up similar properties at VRBO.com – Vacation Rentals by Owner. This chalet does not have the nicest interior, but the location is above average and is near the main highway.
Roughly, it would seem like I could charge $100 a night (taxes not included) for this chalet during May-November, along with a $75 cleaning fee per stay. It could go up to $150 a night during peak ski season (December-April). Occupancy rates would have to be a conservative 50% during the offseason and 75% during peak season. If I assume that I break even on the cleaning fees, that would work out to an average monthly rental income of $2280.
(I wasn’t quite sure how much a property manager would charge for managing a vacation property with people coming and going, especially if bookings were made online, so I estimated it around 20% of gross rent.)
Results
Too bad, it looks like I’m not going to get rich by buying this chalet. The InvestorLoft estimated monthly cashflow was a positive $4,094 a month, while my own rough numbers have me about $200 a month in the hole. I know I am being conservative in some areas, but I think that’s how you have to do it, especially for something optional like a vacation rental. The numbers actually aren’t horrible, though, it might warrant some more investigation…
InvestorLoft looks to be another one of those internet tools that you’re happy exists because you’ll play with it, but you can’t rely on them as there is still plenty of room for improvement.
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Your analysis is mostly correct!
The Property Mgt co will usually charge about 10% of EVERY charge they setup. If they setup the rental, cleaning service, etc.
Most places in the US are down with the rental occupancy %, around 45%.
The best you can have is around 65-70% occupancy, as you need some downtime to clean and fix up, etc.
Some places have better occupancy than others for demand purposes.
I believe you would also want to take into account additional variables such as depreciation of property and impact on taxes (possible tax deductible interest).
First – thanks for stopping by InvestorLoft! Secondly, here are a few things I can point out that may assist you and your avid readership when it comes to evaluating where InvestorLoft might fit in your overall investment property scenario.
* InvestorLoft’s default numbers are a starting point. Our FinancialDynamix property analysis calculator allows real estate investors to manipulate the data based on THEIR assumptions, not those of the seller. Data often provided by the MLS is seller-generated and the InvestorLoft system allows for complete override by the investor (just as YOU did!).
*There is no analysis system that takes the place of extended due diligence. We consider InvestorLoft to be a powerful resource for the real estate investor to BEGIN their search – not the final say. There are so many additional criteria that go into a real estate investment purchase decision. By allowing our members to do exactly what YOU did (manipulate the data), we save them hours and days of number crunching and wasted time walking unsuitable investment properties. And all with the click of the mouse.
It’s professionals like yourself that help us make our platform a deeper, more relevant tool. If you or any of your readers are interested, we’d be delighted to have your feedback on how we can improve from your perspective. Instead of summarily dismissing us as a toy, perhaps you’ll see a different perspective and let us interact with you beyond Twitter and your blog!
Warmest Regards,
Erika Napoletano
Director – Communications
InvestorLoft.com
I’d rather buy a small condo rental in NYC.
Wow – I can’t believe you spent all that time assessing a vacation shack against an internet search technology! I went out and did some searches on properties listed on Investorloft.com in and around my neighborhoods in south Los Angeles and found this site to be incredibly accurate! They don’t have properties everywhere in the country, but for those areas they do have, this is an amazing tool for us true real estate investors. I’d give it two thumbs up and would highly recommend it for anyone looking to acquire real estate in this amazing real estate investment environment!
“I’d rather buy a small condo rental in NYC.”
You aren’t even getting a studio in NYC for less than 400K
Wow, it’s *really* sad that the commenter Somner above came from the exact same IP address that Erika Napoletano, Director of Communications of InvestorLoft came from.
[Update: It has been confirmed that the Somner comment was from an InvestorLoft employee, but not Erika as I had guessed. I apologize for accusing her of leaving the 2nd comment. More information in another comment by me below.]
I do not feel I “summarily” dismissed you, I think I just gave you some free publicity and exposure, while pointing out some weaknesses. I’m a bit offended by the “true” real estate investor comment.
Sad….took amazing FREE advertising and flushed it down the toliet
^^^ That’s freaking hilarious, shady and sad all at the same time…
“Wow, it’s *really* sad that the commenter Somner above came from the exact same IP address that Erika Napoletano, Director of Communications of InvestorLoft came from.”
That’s EXACTLY what I was thinking after I read the comment and then scrolled down below to see your note. Thanks for confirming.
A nice write-up, btw, that really shows how difficult it is to make money in real estate when you really add up all the variables.
Yeah, I really think having a website do the math for you ain’t gonna fly.
I ran across this website while just browsing real estate investments:
http://www.nuwireinvestor.com/topic/realestateinvestment.aspx
Do you think it they have any sort of agenda? It’s hard to tell, but this one seems pretty good.
FWIW – I owned a vacation rental in SLT from 2000-2006 and I think even your estimates are a little generous, at least based on my experience.
For a vacation rental in SLT it is not unheard of to pay 30-40% in management fees! And, that does not include bi-annual cleanings or the credit card processing fees that are passed on from the renter to the owner.
Additionally, based on a $269k purchase price, your CA property tax is going to be closer to $3300/yr or $275/mo – about double what you’ve budgeted for.
Next time you’re in SLT pick a neighborhood and walk the streets – you’ll see many, many vacation rental signs tacked on houses – there is huge amount of competition for vacation rentals. I don’t think we ever had more than 45% occupancy in any one month. Most of your rentals are going to be Fri/Sat night only.
Based on my experience the only one making money is the property management company.
Of course, your mileage may vary. 🙂
Funny… waaay too obvious.
Erika – Maybe next time you should try anonymously trashing your site so badly that someone feels compelled to defend it.
Give global warming another decade and we’ll see what “peak ski season” looks like.
Re: Fake Comments
Well, Erika has contacted me, and said that an employee of InvestorLoft left the “Somner” comment, and that they are dealing with this issue. She apologized and I accept her apology. Let’s go back to focusing on feedback for InvestorLoft, and finding investment properties in general.
@Neil – Thanks for your comment, you would definitely know more than me. I took the vacancy estimates from the VRBO website, which show available dates for the upcoming months. Most reasonably priced rentals show them being booked at least 50% of July and August, but part of that might be simply the owners using them as well.
I was guessing that cabin renters would stay longer than just Fri/Sat night, but when I rented before I only stayed 2-3 nights. The main draw of cabins is that you can cram so much more people in there. Of course, we were mostly young and broke. 😉
I just used the prop tax from InvestorLoft, I figured they would at least have that part right. Prop taxes are greater than 1% in SLT? Ouch.
Interesting. I did a search of my local zip code and the same realtor’s pic popped up on one property after the next. Then found a piece of raw undeveloped land that had a projected annual cash flow…
This is just a new way to market real estate agents.
My first thought was that a vacation property is probably not the best investment property. I’ve visited a few chalets in my area (2 hrs away – Hunter Mountain), and have had a wonderful time — but I also noticed how many choices they gave me. It seemed like there was tons of vacancy. Same goes with condos in Kissimmee and other parts of Florida. These two areas are where I might have bought a property, but it seems like it would be a hard sell trying to rent them out.
It’s less risky to buy an inexpensive residential rental, where you would have year-round tenants. Of course, a place where you could attract good tenants would tend to cost more money, so then there’s more risk. But the potential for more reward too, eventually. And you could have someone manage the property, but with one tenant, it may be possible to do it yourself.
I agree with your last paragraph. This seems to be more of a loose guide/outline of investment property numbers. As with all real estate, investors should do their own diligent research as to how much work and maintenance will be going into a property before assuming the values given are correct and accurate.
In regards to searching for investment property, MyHouseDeals.com just released a report of the top zip codes in the U.S. cities they service which show high wholesale activity.