31 Dec Real Estate Q&A: Locating Vacation Properties
Happy New Year’s Eve! Thanks for joining me today. Today, I’m going to answer a real estate question. Richard sent in this question to our blog a while back. Here’s what he asked:
Where do you start in locating vacation property?—Richard
All real estate is local. But vacation real estate is primarily national. In other words, it depends on the national economy, not just the local economy.
Let’s take ski properties in Colorado, beach properties in Florida, or golf properties in Arizona. They’re primarily going to be affected by the national economy because the money that’s purchasing those properties is not coming from the locals. It’s coming from people outside.
So look at Colorado. The top 3 states with ski properties in the mountains of Colorado are Texas, California and Colorado. Because of that, you might actually have to look at the Texas or California economy to understand those vacation properties.
Another way I do it is by looking at the stock market. If the stock market is doing really well, then your vacation properties are likely going to do well. Typically, if the stock market is doing well, real estate in general is doing well. But if the local economy is down, it doesn’t matter how good the stock market is, real estate in that local area is not going to be as strong.
One of the ways we qualify vacation properties is by finding properties where whatever they’re doing, they’re not making any more of it. An example would be waterfront homes. Typically, we aren’t making more waterfront properties. There’s only so much water to build around. But I say typically because sometimes they can actually dig a new lake. I’ve seen that happen!
With ski areas, they may be budding up against national forest land. That land is never going private again, so they won’t be building more in that particular area. So you’re looking for properties where there’s a uniqueness and a demand.
One of the things I like to do is see how well a particular area has done in the last 15-20 years. So say there’s a ski village. Look at how has village done in the last 15 years, not just the town. If you look at properties in Keystone and Breckenridge Colorado. You find that the Breckenridge properties have sold for $200 more per foot than Keystone properties, and that the rental values have always been higher. So even though they’re right in Colorado and the ski experience is pretty much the same, the Breckenridge area is in more demand than the Keystone area. That’s the kind of comparisons you want to do.
Then you want to make sure you can pay for your vacation property in 16 weeks of high income. That means your PITIM (principle, interest, taxes, insurance and management) and homeowner’s fees are covered in 16 weeks. If you can buy a property, even with your downpayment, and pay for it in that length of time, then that’s a good buy.
That’s what determines the value. It’s whether or not you can pay for all expenses of the property, with up to a 20% downpayment, in 16 weeks of rental. If you can, that’s probably a good rental.
So check the background and see if you can pay for it in 16 weeks and that will keep you on safe ground.
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Don’t forget that today, by 11:59pm, is the last day to get Christmas Pricing for the Wealthbuilders Conference! Prices jump up in the new year, so make sure you buy now to save! Go to wealthbuildersinc.org to register.
Thanks for joining me for my weekly real estate vlog. Have a happy new year everyone!