Economics of Owning a Desert Vacation Seasonal Rental  

If you have been to the Desert on vacation more than once, the thought of buying your own property has probably crossed your mind.

There are many reasons for buying your own unit in the Desert: come down when you want, investment potential or future retirement.

Any, and all, of these reasons have been used and are valid. The question is does it make sense financially? That is what we are going to tell you about. Personal reasons provide the impetus to buy in the first place. Finance determine whether you can afford the dream or not. The bottom line for owners is what will the property net.
 

Net income is affected by three variables:
Rental price, Time Rented, and Management Fees. Rental price is a function of the marketplace, thus, there is little or no control over it. The price can be set high with a corresponding decrease in the amount of time rented, and vice-versa.

Rental Price:
Rental price is determined by size, location and condition of the property.

Time Rented:
The amount of time a property is rented is a function of the price, the amount of time the owners wish to use the property and the expertise of the management team in renting the property. Most property managers can rent the units for about four months during high season: mid-December through April. Good property managers can tack another month onto that. Great property managers can even rent units for part of the summer.

Management Fees:
Management fees range from 20% to 40% of the property’s rental price. In the Desert, most rental managers charge between 20% to 30%.

Below is a worksheet showing the expenses and revenue from owning an average two bedroom, two bathroom unit in a country club. We have also provided this worksheet in Excel formats for download so you can run your own assumptions.

One thing we haven’t added into the worksheet is the effect on your taxes from owning a rental property. As real estate agents, we are not qualified to discuss the tax ramifications of rental property. Please talk to your attorney or accountant. Financial issues to consider when thinking about renting out your second home.

Taxes:
Mortgage interest and property taxes are deductible, says John W. Roth at tax information publisher CCH. If a place is rented fewer than 15 days a year, rental income is not reported to the IRS. After the 15-day limit, tax treatment depends on the mix of rental and personal use. The rules can be complicated, please consult IRS Publication #527, available at www.irs.gov  or ask your tax advisor.

Rental Income:
Julie Mealo of Wells Fargo Home Mortgage says you should not expect to recoup the full cost of a vacation home by renting it out. A home on the New Jersey shore generally returns about 7% of the property value each year. Example: A $1 million dollar house can generate $70,000 in annual rent.