Shoreline Investment: How to Own a Beach Town Vacation Home That Pays You Back

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Ever wondered what it takes to transform a charming vacation property into a lucrative investment? Christine and Beth back the layers of real estate investment on the glorious occasion of International Women's Day, sharing the cold, hard numbers behind a successful vacation home venture. We roll up our sleeves and dissect a Cape Cod property's potential, guiding you through the labyrinth of peak and off-season rental rates, the art of savvy budgeting, and how to pinpoint your break-even point, all while weaving in the spirit of empowerment for women making their mark in the real estate world.

Our candid discussion cuts through the complexities of managing a vacation rental, from tackling current interest rates to strategizing your way to year-round income. We share insider tips on enchanting must-have amenities, the surprising allure of off-peak season renters, and why a financial safety net is your best friend in this game. This episode isn't just about celebrating women's progress; it's a treasure trove of actionable advice and success stories that ignites the flame of financial independence for anyone ready to claim their stake in the world of vacation property investment. Join us for a hearty dose of inspiration and practical wisdom that could pave your path to real estate triumph.

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Transcript

Speaker 1: 0:31

Okay, Welcome back to the Abundant Investor podcast. I'm your host, Beth. I'm so excited to be here because today, Christine and I are recording this on International Women's Day. We're so excited to drill into our topic today. We're really going to cover a couple of things, but the main premise of today's podcast is to answer the question if you've always dreamed of owning a vacation property, what does it take to make the numbers work? We're going to take you through a real life example of a property that's on the market in Cape Cod. We've done the research to see what the rates are for weekly rentals during peak season and off season rates, and we're going to walk you through a scenario to say what does it take to break even to buy a property that you could possibly use a few weeks in the summer and grow into over time? So we're going to get into all of those details and just I love it.

Speaker 2: 1:35

Yeah, yeah, you know what I love this, because this is how I got started. This is exactly was exactly my interest in getting into real estate was really about having a vacation home, and it's so important. It was so important to me. The only way I could do it at the time in my head was to make the numbers work, to be able to rent it out. To rent it out so that I could use it some of the year.

Speaker 2: 2:00

And when you run these numbers, you want to make sure that you're thinking about everything, and we also. I mean, I think mainly what we want to illustrate for you here today is how possible this is for so many of us. We talk about this a lot. We want to actually walk you through some of the details, though, and we're going to take a house that's actually in the market today and look at the numbers and talk about whether that would make a great investment or not. So, if this feels like something you've been interested in or you're interested in for the future, you dream about having this vacation home where your family gathers, you are able to invite friends and family for extended stays and then also rent it out to other people that you don't know. If you're okay with that, then this is a really interesting episode for you to dig your teeth into.

Speaker 1: 2:47

I love it. But before we do that, let's just talk about what. Today is International Women's Day. We're seeing all over the internet today, and all through Instagram, all these posts which are generally really, I think, meant to be positive about the growth of women in real estate. Some of the stats that are being shared right now, that are 20% of home buyers are single women, that's good. 56% of mortgage originators are female that's great. 67% of real estate agents are female.

Speaker 1: 3:22

All of those things are great, but, christine, I would argue that it's not quite the rosy story that we're putting out there I just want to be open and transparent, because I think we actually have a long way to go, especially as it relates to real estate. Now you and I are focusing on real estate investors and we've come to see that about 75% of real estate investors are men, 25% are women and we're meeting a lot of women that say, oh, I wish I could do that.

Speaker 1: 3:50

And we are here to say, yes, you can. Yes, you can do that. And for my real estate agent friends that are listening, you that are female in that want to get into leadership roles, go for it we are completely, completely underwhelmed by the stats around female leadership.

Speaker 1: 4:11

Covalt-Banger did a survey around what called women leadership survey and they found that men are 75% more likely than women to hold executive level positions within real estate. So, whether you are an agent who wants to grow into leadership, or you're an agent that wants to be more successful, or you're a woman that really wants to get into the game of real estate investing or simply want to have a home that you can build wealth for your family and build generational wealth, we're here to say yes, you can, and today's a perfect day to to show you how you can do that and to celebrate women and to continue making progress, because, although progress has been made, we're not nearly where we want to be.

Speaker 2: 4:59

I just want to say also that if you have any inclination, any interest in any of this, just get started. Don't wait for someone to come along and be on board with you. You don't have to wait for your partner, for your boyfriend, your husband, to get on the same page as you. You can start doing the research and you can start crunching the numbers and you can just get started. And I think sometimes we're waiting for validation or we're waiting for permission for someone, from someone or something that really doesn't, isn't required and isn't necessary or you know, frankly, helpful.

Speaker 2: 5:36

It's not helpful to be waiting around. No one's coming to save you. You get to write your own ticket. You get to create your own destiny. This is a wonderful way to start. Anyone can open a Google sheet and start crunching these numbers. By the way, we're gonna put the link in the show notes. We have a back of the envelope calculator and we have a package that you can buy that's got more details around it in a Excel calculator not Excel a Google sheet that you can go in and plug the numbers yourself. That's super valuable and it's fun. You guys, it gets to be fun to play with numbers and see what's actually possible, so that instead of just going on Zillow and saying oh what if for one day you can make that today, you can make that this year, you can make that next year.

Speaker 1: 6:18

I love it. I love it. So let's look at let's look at this particular property. There's a property on Cape Cod. It is on for $850,000. It's been on the market for about a week. So we use the assumption that we could get it for 825. There's been down the Cape. There has been a little bit of negotiation available. We're in other markets in Greater Boston. That's actually just the opposite. In most cases, or the majority of cases, properties are going for over ask.

Speaker 1: 6:50

But there's a little room for negotiation, so we just an hypothetical example that we bought this property for 825.

Speaker 2: 6:57

And let's just give I bet. I just wanna stop you for one second and give everyone a little bit of background. So we're based in the Greater Boston area. Real estate is pretty expensive where we are. The average housing price is creeping up to a million dollars in our town just outside of Boston and several suburbs it already is.

Speaker 2: 7:13

The population around Boston has if you're not from here and I know a lot of you are and some of you are not the population around Boston has a love affair with Cape Cod. It's the arm off of Boston that is full of beaches. It's beach community. There are a lot of year-round residents, but this is really where Boston goes to go to the beach and not just Boston, actually like a lot of New England and people come from all over.

Speaker 2: 7:40

I remember going as a kid and we would always play the license plate game and like just be amazed at where people would come from to come to Cape Cod. So it's got this lure and there's a lot of people around Boston that have family homes there, that have been going there for years, and so this is a big dream and no matter where you are maybe you're based in the middle of the country, in the Midwest and going to Arizona is a dream for you, or maybe you love Florida, or you're more of a mountains type of person. No matter what it is, this is a very tangible scenario that I think you can take and replicate where you are. But the housing prices on the Cape have really shot up and in the last couple of years and since the pandemic and I think that we're talking about this because it's very relevant to where we are and it's an interesting opportunity for a lot of people in this area to buy on Cape Cod.

Speaker 1: 8:31

Right, exactly, thanks for that background. And we're looking at the scenario where you buy a home that is in a market that definitely has seasonality. Obviously up here in New England we have our summers and now winters, we're not gonna have as many people visiting the Cape for sure in January.

Speaker 1: 8:53

But so we're looking at the scenario as buying a property that you would use as a short-term rental and we're saying what does it take? What would it take? How much would you have to rent this property out for, and for what price? To make you get to a point where you're basically breaking even and you get to use the property from time to time.

Speaker 2: 9:15

And like.

Speaker 1: 9:15

Christine said you can use this formula anywhere in the country. We found the property on Zillow so you can use Zillow. Right on Zillow you can use they have mortgage calculator so you can get an idea of what the carrying costs for your principal interest tax and insurance called PITI, so you can figure that out really easily and then just plug those numbers into this spreadsheet. So if A50 seems like a big number to you and you're thinking about buying a property in another part of the country where it's a lot less expensive, that's great.

Speaker 1: 9:54

So the process we went through is we looked at a property on the market, then we looked at what the going rates were in that same community for short term rentals. One thing I also want to say about Cape Cod is that there are not a lot of hotels. There's not, you're not going to find. I don't know if Marriott even has one hotel in the whole Cape, so there's not. You know, it's an area that is very beautiful, a lot of beaches, but you're not going to be able to find like a big Marriott giant hotel or any, not really anywhere of the Cape. There are some hotels, but they're mostly small, you know, small motels or inns or this you're just not going to find. So that is, you know, makes this a very great area for short term rentals and most of the people who vacation on the Cape are renting a home.

Speaker 2: 10:54

And that's been happening for years and years, way before Airbnb. This is a traditionally old, very seasonal rental market.

Speaker 1: 11:01

Yeah. So we looked at the, we looked at the cost of owning the property and then we looked at we used Airbnb to see what other properties right in that same area we're renting, at how much availability they had. And we also can you can also use AirDNA is another really great tool and there's some free portions of AirDNA that will give you more data. So we looked at this property and we said, okay, the annual cost of managing this property the biggest cost is going to be the principal interest, tax and insurance, and using the calculator that was provided on Zillow, we came up to an annual cost of $57,600. In our calculator we then ask we then have a place to gather annual expenses. So, christine, utilities, I put in a ballpark at 8,000. Now you own two of these short-term rentals. How do you feel about that number?

Speaker 2: 12:02

I know, I know I should have these numbers at the tip of my tongue. I think it's reasonable. I think you really have to think about are you providing central air? That's expensive and you have to think about. Are you renting it out year round, because heat in the winter can really be very variable depending on whether you've got renters in or not. Right, and you can account for that. In the off-season you can have off-season renters pay the utilities and things like that. So there's different ways, but I think $8,000 is a fair number.

Speaker 1: 12:32

Great. So we won't go through every line item on here, but we provide a line item for maintenance and landscape, for cleaning if you're not passing it on to renters for association fees and for property manager slash handy person if you decide to go that way. This spreadsheet that we're talking about we call it the back of the envelope spreadsheet it's giving you a high-level kind of gut check. Does this make sense for me to get in the car and go look at this property? Is this the thing that I want to consider before I drive an hour and a half and look at it? There'll be a second level of analysis that you're gonna wanna do before you put your money down. That will show really over time what happens with appreciation et cetera. But this is a great gut check. So we filled that out for our expenses. Any other thoughts around those annual expenses, christine?

Speaker 2: 13:26

I think you just want to you know when you're thinking about expenses. Obviously the PITI is the big one, right? That's going to be the one that is your mortgage and that's going to vary depending on the rate. So you want to look at what the interest rates are. I would say just a note on that Don't let the current interest rates keep you from buying a property. There's always the opportunity to refinance, and rents on the Cape generally, just like housing prices Generally, the market only goes up Occasionally. You might have a year where things stagnate a little bit, but there's the potential for the rate to go down. So just keep that in mind.

Speaker 2: 13:59

But you want to go conservative here because, listen, if you're trying to purchase a vacation home that pays for itself which I know for a lot of people, that feels doable, that feels attainable and that's really like the entree or maybe they're not even having. They don't even have the. You might not think I'm a real estate investor. I just want a vacation home. Well, technically it is an investment, but you're probably thinking of it more as a vacation home. You want to just be thinking about what are all the expenses? Are you accounting for everything here? Are you accounting for any repairs. So there might be some one time costs that you have to figure in. Just think through anything and we can help you with that. If you have questions about what are some things I should consider in this community or this type of house, and I think, account for them and make sure you feel really good about them.

Speaker 2: 14:53

And then, on the income side, like you were saying, beth, it's really looking at what are the current rates and we're not really talking here about how to make my place stand out. How do I make my vacation house stand out? But that's something you do want to also keep in mind when you're buying a vacation property. In markets that are becoming more, a bit more saturated, you want to think how can I make my place one of the more desirable places so that when not everything gets booked, my place is one of the ones that does get booked.

Speaker 2: 15:22

What is going to make my place desirable? Is it a game room in the basement? Is it the hot tub? Is it? And then there's table stakes, like at this point, central air is pretty much something everybody wants. So just thinking about all those things and what are the expenses tied to them and also making sure that, going in on this, you have a little bit of cushion. So if something comes up, you've set some money aside and you're able to take care of that and you know where you can pull money from in order to take care of some kind of unexpected expense. I always want to caveat that.

Speaker 1: 15:55

I love it. I love it and I should have added this particular home that we're looking at actually came with a beautiful hot tub outside in the backyard, that was through a shower and it had officially three bedrooms, but it looks like, looking at the pictures, there's actually a fourth. Ooh, house hacking. Yeah, I think it's because the septic system probably is for a three bedroom and then they put in a fourth. So I was conservative and compared this to other three bedroom homes that could sleep at least six. So what we did is we looked at that we in our in our spreadsheet. That again is available through. We'll be in the link in our show notes. Then we break out the annual projections on revenue. Okay, so we do this.

Speaker 1: 16:44

Because this is a seasonal rental, we break it out into two categories. One is total peak weeks rented because it's very customary in this market in the summer. To only be able to rent for the week Doesn't mean that you have to. You have to decide to run your property that way. You can certainly use Airbnb or VRBO and other sites and allow for three or four days days or two days days, but since this market is so customary to rent by the week, we break it out with total peak weeks rented and in our scenario, we said that we rented this property for eight weeks at a rate of $5,500, which means that you, as a homeowner, could possibly use it for two of those 10 summer months summer weeks if you wanted to. Again, we were being very conservative, trying to figure out how much would I have to rent this property out to break even and what would be left over in terms of time for me to be able to use it. So, as far as peak weeks, we did a scenario of eight weeks rented at $5,500.

Speaker 1: 17:55

We got that data from our own experience renting in that market and also looking at what was on the market through various websites like Airbnb, VRBO. There's another one in the cave that we looked at called we Need a Vacation. So that generates $44,000 a year in revenue. And then the second thing we do is we break out off-peak revenue.

Speaker 1: 18:20

And in this part of the calculation we actually use a per night rental fee. And again, looking at other properties, off-market, off-season what are they getting? We used a rate of $500 a night and we assume that we rented for 52 nights off-season. So, Christine, we were talking about this before we jumped on the call. Like, again, back at the envelope, that's about eight or nine three-day weekends in the fall, eight or nine three-day weekends all spring. Now that does it. So it's been two days plus the eight weeks covers your expenses using this back of the envelope calculator that we had. But what I think is so interesting to hear about is who are these people renting off-market, off-peak?

Speaker 1: 19:14

because you've done really well with that and I think it's great for people to hear the fact that, yes, there's a lot of traffic.

Speaker 2: 19:21

There is there, definitely is. So when we started, I my goal was to rent it out over the summer and I knew there'd be a little shoulder season activity and Could it cover the mortgage and the insurance and the taxes. Okay, yes, great, it did. And then we didn't put our place on Airbnb initially, and then we did, and we started to get more traffic, of course, and we really changed the game, and that's when I really started to think of myself as a real estate investor.

Speaker 2: 19:50

We have people coming in all year round for all sorts of things on Cape Cod. So when you have a seasonal market like this, I think there is a lot of opportunity and you may just not be Personally relating to the other people that are coming. So generally, you have your like, you have your client avatar, who's like you. They're coming for a summer week. That's why you bought the place. They love to spend time there with their family. That's why you bought a place that's big enough for six or eight or ten, right, and in the off season, though, there are other people that you may not even realize are coming to a place like Cape Cod. So we've had we were talking about the array of in the variety of Events and reasons why people come and it's just really interesting and I was sharing that you might have three-day weekends but you might also have the person that can't wait to come to the Cape in early May because the weather is great and it's not crowded yet. So we had a booking last week for the second week in May and I thought, oh, what a great time to come down. And I told the person that I just said what a what a nice time to bring your bikes and you may not be swimming in the ocean, but you may not be swimming there in the summer either. It's kind of cold. We're in New England but, like the restaurants start to open up and it's got a more of a peaceful, quieter vibe. So there's people that come for a Lot of wedding.

Speaker 2: 21:14

There's a lot of weddings in the off season on the Cape right on the shoulders. So May and September we just had somebody book a month in October because they're coming for their Sun's wedding, so they wanted to be there before the wedding and they wanted to be there a little bit after and just enjoy, you know, and relax after all the activities, maybe with some family we have. We've had off season renters for several months. So I would call this more of a midterm rental, where someone comes and rents Maybe three months, maybe six months in the off season for a variety of reasons. Usually they're Wanting to be with family or wanting to be closer to friends, or they have something happening at their house, like they're renovating their kitchen and they're they thought it would be nice to spend this time on the Cape. Or we get retirees who are thinking about buying on the Cape, who want to test drive it right, they want to, which I think is so smart like they want to rent.

Speaker 2: 22:07

We're always encouraging our friends who are becoming or are empty nesters to sell their house and go rent somewhere else for a while and just test drive things. It's okay to go back to renting after owning, and this is, you know, a reason why we you know why several people have rented our places on the Cape. So, yeah, there's, there's definitely those people out there, and knowing how to market to them and knowing how to reach them, it's not rocket science. Usually they'll find you through one of these rental sites, and then there's other things you can do as well. So I think it's it can be.

Speaker 2: 22:41

It can be a very viable market, and it's so great to see, beth, that we can look at a house that's priced at, you know, $850,000 and run the numbers and know that, wow, you could really break even on this. So at that point, the next step is okay. So what does the down payment look like, what are my options for down payments? And starting to talk to loan officers to understand what, what percentage, what I need to put down in order to acquire a loan unless you're paying cash and Starting to figure those numbers out and figuring out where the down payment comes from and we've talked about this quite a bit. But there's a variety of ways you can fund the down payment. It doesn't necessarily have to be something that you've spent 10 years savings for. It could be straight, especially in this market Exactly.

Speaker 2: 23:25

There's so many other ways to do it and we won't get into that in this podcast, but you know that's something we talk to clients about all the time. So, and our you know our booking links are in the show notes as well and they're open. If you want to have a call with us and understand what options are there, then we'd be more than happy to talk to you.

Speaker 1: 23:44

Absolutely, absolutely. We have some great resources for for loan officers who work with investors. There are some really great packages out there that are looking more at the Viability of the the home versus you as a homeowner. Like, if you know. So the products are very different For residential purchases versus investing, and so there's some system, really great solutions out there, and data like this will be really important when you go to meet with those loan officers and get pre approved and understand, if you can, the funding is going to work, and being able to provide that data is going to be Really key and we can certainly help you to do that.

Speaker 1: 24:30

So you know, christine, one of my very, very favorite quotes of all time is tell me, what is it that you plan to do with your one wild and precious life? And we get to meet so many great people, many and women, in this job that we're doing here, the abundant investor. It's so fun, and we know that people dream big, or sometimes they hold themselves back from dreaming big, and we want to say that if you have a dream, and you, if you know you've dreamed it up, it's possible to get to it, and we want to be your business partner in helping you to reach those goals, and we can do that a number of ways. So in our show notes, we're going to put a link to. The very easiest way to get started is our real estate investor bundle. It's forty seven dollars. It includes a, a mini course with Christine and I walking you through a lot of the fundamentals that you're going to need to know.

Speaker 1: 25:31

Includes a really great workbook where you start to reflect upon what is it that you want, what are your dreams and what are the key things that you need to do. And then we share these actual workbooks with you so you can start to plug in some numbers, depending on wherever you are looking, and again, this doesn't necessarily have to be a vacation home. This is something that you could use, as is a never you know buy and never use it, and really just start your investing journal. So, journey, there's a million ways you can do this, so we'll put that link in, and then we'll also put a link in for working with us one on one. We've had the pleasure of doing this with some folks and it's been really, really fun Again, helping them identify their goals, helping them get really the courage to do take the action to move forward.

Speaker 2: 26:22

I think for a lot of people, that's the biggest thing, is right, right, it's taking a leap into the unknown, because if this is the first time you're buying another property, or buying a vacation home or investment property, it's going to feel a little stretchy, most likely, and I just want to say that that feeling Is telling you that you're growing and that's that's really amazing, and I want you to really think about what is it you want in this lifetime? I love that quote so much, beth, and I think that you know we don't stop and think enough about what is it that we want our life to look like, and how big and beautiful would it be if we took the parameters off that we've made up for ourselves and put these fake Boundaries on in our head because someone told us when we were a kid that we couldn't have it in some way or another. What does it look like when you take those off? And I think for a lot of people, having a house Vacation house in particular is a dream and we just we want to work.

Speaker 2: 27:17

today's episode is really to break it down for you, to help you understand that it is feasible with rental income, and we love walking you through this process and that's why we created that bundle. It's only forty seven dollars, it's you know. We're making this as attainable and accessible as possible to as many people as possible, and we've been seeing people do this and it's just so Inspirational to see people making those dreams come true absolutely and again we are.

Speaker 1: 27:47

Our journey is about empowering women and today, on as we record this on international women's day, this is a great opportunity for every woman out there to to start moving towards making those dreams a reality. So thanks for tuning in, see our show notes for more, and have a great day.