Renting Out Your Park City Home or Condo
Are you considering buying a home or condo in Park City or Deer Valley to use as an investment property to generate income? There are many things to consider, we explain it all below:
Many of our buyer clients ask us for further information about ownership costs in Park City and Deer Valley such as property taxes and HOA dues, as compared to what can be earned in renting their property nightly, weekly, vacation and/or long term rentals. Surprisingly once you break down all the different associated costs of ownership, whether it be a home or an amenity rich condo, it usually averages out at the end to be quite even in costs. And the same goes for rental potential, as some properties can do slightly better than others in producing income, but at the end of the day they even out when comparing income to the purchase price. The higher end luxury properties and more amenity rich, and therefore more expensive in HOA, brings in about the same overall percentage of net income to the owner. In summary more expensive to own, but brings in more income too.
Below we explain this all in more detail, but first off, for the average investment property owner this should primarily be a fun thing to own, you're not going to get rich off it. If you have the extra money and have always dreamed of owning a second home in Park City or a ski-in, ski-out condo in Deer Valley then by all means come on out and lets find the right fit for you. But, if you are leveraging yourself financially hoping to produce a great income, this may not be the right place to spend your money. Owning property in a vacation resort town like Park City and Deer Valley can be a great investment, if you look at it in the right way, and have realistic expectations.
Potential Rental Income on Your Investment Property in Park City
There are a few different business models in regards to how you can go about renting out your property in Park City. Most owners use a full-service property management/rental company, but recently VRBO.com has provided owners a great alternative.
A full-service company will manage your property and will book all rentals. Basically they handle everything for you. As the owner, its very simple and "hands free" ownership. They will advertise the property on their online networks and will handle all bookings from beginning to end. They collect the security deposits, rental fees, and coordinate cleaning, check-ins, etc. These full service companies typically charge a 65/35 - 50/50 split. It sounds like a lot at first, but remember they do a lot for you too. They do their best to book your property often, but they commonly do have many properties to fill, and have to be somewhat even and fair to all owners. Often properties with more upgrades and remodeling win more bookings.
The other route you can go is by using a service like VRBO.com. VRBO stands for "Vacation Rental By Owner" and you may have visited their website. For an annual fee, you can post your rental property online and manage the rental bookings yourself. This is obviously much more "hands on" for you. You'll still need a local property manager or at least a reputable cleaning crew who can help with turning the unit between bookings and coordinate basic maintenance tasks. With VRBO.com you have total control of what you charge, and you can give discounts when needed to secure a booking, perhaps in the off season. If you work it hard you can do quite well. VRBO.com allows you to customize your property's online listing with descriptive text, photos maps, etc. The better you portray your property the better your bookings will be. And the better you follow up with leads the better you'll do. If you don't mind the extra work, you can generate more bookings, and you keep 100% of the revenue.
Today there are a few hybrid companies who handle all levels of property management, and have their business model set up to blend well with an owner looking to produce bookings themselves through VRBO.com. Club Lespri in Park City is an example of these hybrid companies.
Cost of Ownership on Your Vacation or Investment Property in Park City
When deciding to purchase a second home, vacation condo, or investment property you need to be comfortable with the costs of ownership associated with the property. These include utilities, property taxes, property insurance, HOA fees, maintenance and upkeep costs, and potential future repair costs. You may also need to hire a local property manager to assist you and watch over the property - see our Property Management page for contacts.
HOME VS CONDO? The cost of owning either a home or a condo generally works out to be about the same. Any home, townhome, or condo has the standard utilities plus normal upkeep, maintenance, and saving for future repairs and replacement (replacing the roof, staining the siding, etc). For covering costs of utilities and maintenance, whether you pay for these items yourself or pay collectively as owners into a condo HOA, its the same. And for covering costs of future property repairs, whether you save money on your own, or collectively as owners deposit funds monthly into a reserve account, its the same.
HOA stands for "Home Owners Association". An HOA is run by an "HOA Board" which is usually made up with about 5 other condo owners (your neighbors) who are elected by the owners (including you) to run the association in everyone's best interest. You can nominate yourself to be on the board, or can simply stay involved if you want to. The Board usually hires an outside Property Management company to assist the HOA in running the budget and day-to-day operations of the community. Their fee is a small portion of the overall dues. Basically when you look at the dues associated with an HOA, all the funds are budgeted and allocated to neccessary items. As a potential buyer, you will have the opportunity to review the budget before finalizing your purchase. So again, whether you buy a home or condo, the upkeep costs are generally about the same.
So, the question is what is typically covered in your HOA dues?
The dues vary from one condo community to the next, so simply comparing the dues from one community to another is not very accurate. You would need to compare what the cost is, compared to what is included for you. At the end of the day, they all factor out to be about the same. HOA dues can be payed monthly, quarterly or annually. Most HOA dues will include all common area maintenance, common area taxes, common area insurance, and setting aside a portion of dues to the long term reserve fund. Additionally the dues often cover some utilities like water, trash, sewer, and sometimes cable TV. As an individual owner you usually pay your own electric, gas and internet.
The hotel style condos more commonly include all the utilities, and therefore their HOA dues appear to be higher, because they include much more. Luxury properties typically offer more in amenities such as a pool, hot tubs, steam rooms, locker rooms, concierge, ski lockers, shuttle service, housekeeping, front lobbies, meeting rooms, fitness centers, etc. So therefore these communities also cost more in HOA dues to pay for it all. But because of all the extra amenities, these properties also generate more in rental revenue. It all pretty much balances out. And when you look at each individual budget, you can see where the money goes. Again, these dues are all set by a budget, decided by the condo owners and the board. So if you are splitting hairs over dues from one community to the next, youre not focusing on what is important.
What Can I Expect for Profit on My Investment Property in Park City?
What you can typically expect is that your rental income (when managed by a full-service rental company) will cover all HOA dues, property taxes, insurance, and utilities. Often you'll additionally have a small amount extra back to you - your profit. That is generally a conservative assumption, but not a guarantee by us. We are not licensed securities brokers, we are licensed real estate agents. We cannot promise a specific return on your investment, but we still do try to give you a conservative estimate of how this all works.
Remember that most full service rental programs work on a 65/35 - 50/50 split (65% to you) to run everything for you. The companies that charge the lower split commonly have a few additional fees that you may incur (cleaning fees). If you choose to use VRBO.com yourself and work it hard, you can increase your amount of revenue and you keep 100% of it.
So when someone buys a property with cash, and carries no mortgage, and uses a full-service property management company it all usually safely "pencils out" and often does a little better than that. If you carry a mortgage on the property, very little of the mortgage gets covered by the rental income. However, if you are handling bookings on your own using VRBO.com, working it well and working it hard, you may be able to cover much more of the mortgage, or generate more profit to yourself if you own the property outright.
In the past we have had potential buyer clients go as far as gathering all different HOA dues and utility costs and even creating excel spreadsheets to compare the actual costs of many different condominium communities. They would have us spend so much time helping gather this info, and then would spend even more time analyzing their data. Eventually they would grow tired of the process because they were not able to find the "secret formula". And subsequently they never did buy, gave up on thier dream.
If you focus on your own purchasing budget or price comfort zone, then narrow down to the locations you enjoy, and the type of property you would most enjoy yourself, that is the best way to shop. Forget the HOA's and projected rental revenues, that all pretty much evens out. Focus on what is most important to you, and to your family.
Long-term or Short-term Rentals, Which Rents better?
Annually, these typically work out to be about the same. If you rent out your property on a long-term basis, such as a 6 month or 1 year lease, it can often be less to deal with because you just have the one tenant. But renting it out long term means you will probably not get to use it yourself. If you rent out your property on a nightly/vacation basis you'll be able to set aside dates for your own use, or to offer to family and friends. But nightly and vacation rentals can be a lot of work.
Winter or Summer Season, Which Rents better?
We are primarily a ski resort destination town, so obviously winter bookings are much stronger, and are more expensive. Summers have become busier over the years and depending on where in town your property is located you could do fairly well with summer bookings too. Old Town typically is a better summer location for rentals with all the summer activities centralized in the Historic Main Stret area.
Real World Examples of Purchase Price Compared to Income:
Here are a coupe examples to illustrate all that we have explained above. Again, these examples are to be helpful to you in understanding how this all works, and is in no way a promise or guarantee of rental revenue or income projections.
Partially Remodeled Affordable 1 Bed, 1 Bath - Purchase Price: $95,000
Property Taxes: $1,050
Annual HOA Dues: $2,808
Known 2012 Rental Income: $10,800 (in a long term rental of $900 per month)
With this property, the annual ownership cost is about $3,850 not including electric, and interior condo insurance. You can see that the income easily covers the cost of ownership with a little money back to the owner each year. Some of these small affordable condos make great long term rental properties.
Example created: January 2013
Three Kings Condo
Fully Remodeled 2 Bed, 2 Bath - Purchase Price: $385,000
Property Taxes: $3,293
Annual HOA Dues: $7,308
Known 2012 Rental Income: $15,700 gross / $10,990 net
With this property, the annual ownership cost is about $10,600 not including electric, gas, and interior condo insurance. If the owner used a little less the income might be more to cover those fees as well. You can see that the income just about breaks even with the cost of ownership. There is no income to cover any portion of a mortgage.
Example created: January 2013
Black Diamond Lodge at Deer Valley
Full Service, Luxury Ski-in, Ski-out 3 Bed, 4 Bath - Purchase Price: $2,350,000
Property Taxes: $15,680
Annual HOA Dues: $20,784
Known 2012 Rental Income: $135,000 gross / $88,000 net
With this property, the annual ownership cost is about $36,500 not including electric and interior condo insurance. You can see that the income easily covers the annual cost of ownership, plus pays out about $50,000 to the owner. The full service luxury properties do cost more to purchase, and cost more in HOA dues, but they do generate more in income as well.
Example created: January 2013
Park Avenue Condos
Centrally located, remodeled, affordable 2 Bed, 3 Bath - Purchase Price: $335,000
Property Taxes: $2,600
Annual HOA Dues: $5,544
Estimated 2015 Rental Income: $27,000 gross / $17,550 net
With this property, the annual ownership cost is about $8,144 not including electric, gas and interior condo insurance. You can see that the income easily covers the annual cost of ownership, plus pays out about $9,400 to the owner.
Example created: August 2014
St. Regis at Deer Valley
Full Service, Luxury Ski-in, Ski-out 2 Bed, 3 Bath - Purchase Price: $1,689,000
Property Taxes: $18,474
Annual HOA Dues: $21,372
Known 2013 Rental Income: $212,687 gross / $103,217 net
With this property, the annual ownership cost is about $39,846 not including electric and interior condo insurance. You can see that the income easily covers the annual cost of ownership, plus pays out about $63,371 to the owner. The full service luxury properties do cost more to purchase, and cost more in HOA dues, but they do generate more in income as well.
Example created: August 2014
In summary, we can surely say that Park City real estate is a great place to park money. If you buy stocks instead, they can go up or down in value at the drop of hat. Real estate is more common to go up, over time as a long term investment. With a home or condo you get to use it, or let your family and friends use it. Even if the value of the property goes down for a few years, like what we have just been going through, the property is still the same great property and you still use it the same. The value only matters if you intend to sell it. If your purchase a property as an investment property, you may be able to write off trips to check on it (ask your accountant first).
First and foremost, buy for yourself. Don't get caught up in the minor details. It all shakes out quite evenly.
If making money is most important, you may want to keep your money in the stock market or invest into an emerging company, but at some point in life what are you working for? Owning property in Park City is a great way to rewartd yourself for allm of your life's hard work. Its also a great way to reward your family for their support of you, and allows you to spend time together and reconnect with them in a way that you simply cannot do at home.