Second Home Investment
402 Cottage Club Rd. Stowe, VT
One of two predominant real estate buyer profiles for Stowe is second home owners. Vacation home owners occupy upwards of 60% of Stowe's housing stock, more than most towns in Vermont. Yes, most people would be happy with a second home anywhere in Vermont. Still, if you're are going to have a second home here, you cannot find a better town than Stowe. Access to golf, skiing, breweries, mountain biking... we know, the list seem endless. Because of the significant demand for real estate most would be buyers are priced out of the market. That is where their Stowe second home search ends.
The buyer demand in Stowe, unlike other Vermont towns, is greater because it offers more summer venues. The town actually has more people visit in the summer than the winter. We are seeing rental income over the summer months on a par with winter rental income. Some would be home buyers are catching on and are able to use that additional rental income to offset the cost of owning a home and are actually creating an investment return. Their home is putting money in their pocket - something we love to hear! Our suspicion is that if more buyers knew what they could reasonably expect for income they would actually be able to make money buying real estate in Stowe and not have to pay money monthly to cover the cost of their second home.
As one example, a client, who had gone to University of Vermont and was a long time fan of Stowe, was looking for a home that she and her husband could retire in later. In the meantime, they wanted to use the house for short terms rentals when they were not there to off-set some of the cost of ownership. After a focused property search - where the goal was finding quality constructed house with traits/amenities conducive to superior income potential - it came down to two properties. Based on the attributes of both we offered the following advice to our clients. Below is a recap of that narrative.
In the mean time, I wanted to offer my take/projections on the rental prospects of both properties. These come with the caveat that they are projections and cannot be relied on - they are the best estimate we have with the information available to us. My assumption is that both will be marketed via VRBO, etc. for short term rentals. Further, your families use of the property would take away from the revenue potential in these assumptions.
356 Week Hill: This assumes you add a hot tub and make the study into an room that sleeps guests.
$44,000 - Rental Revenue (80 rental nights at $550 per night)
$10,200 - association dues annually
$10,108 - real estate taxes annually
$ 2,000 - insurance
$ 3,000 - heating (waiting for actual usage)
$ 1,500 - electric ($125 per month)
$ 2,500- cleaning
$ 900 - rental ads
$ 3,000 - cable TV
$ 500 - hot tub service
$ 450 - firewood (2 cords)
$34,158 - Total Exp
$9,842 - Net Operating Income
This is around a 2% return on investment - i.e. you would have to be contributing financially to cover the mortgage.
This is about standard for the market - kind of a break even prospect annually. What hurt is the association fees. If those drop to $4,000 per year if the town takes over maintenance of the road then this will start to approach a 3% return on your investment.
402 Cottage Club:
$84,000 - Rental Rev (105 nights at $800)
$14,643 - Real Estate Taxes (this will come down once the property is subdivided)
$ 5,700 - heating (1,900 gallons (use last 12 months, at $3 per gallon)
$ 2,200 - electric (assumes $180 per month average)
$ 3,000 - insurance
$ 4,000 - cleaning
$ 1,500 - snow removal
$ 2,000 - lawn care
$ 900 - rental ads
$ 2,400 - cable TV
$ 500 - hot tub service
$ 900 - fire wood
$37,743 - Total Exp
$46,257 Net Operating Income - So say $45,000 per year.
That is about a 6% return on your investment (assume $750,000 purchase price), more than enough to cover a mortgage.
As you can see, this house has far better rental potential in my assessment.
The house is on VRBO to rent - click here. If you have a large group staying in Stowe, this is the place for you!
In the end the assumptions proved conservative and the investment is performing far better than the owner expected. The house has direct access to Stowe Country Club, visitors can stumble back from the new Alchemist Brewery and walk to the Stowe Farmers Market. The rental strategy is actually performing so well that the owners are again looking for another investment property in Stowe, VT. Nothing makes clients happier than exceeding investment expectations. If you are looking for clear real estate investment advice, that is what Stowevt.com prides itself on as the definitive real estate source in Stowe and the surrounding areas of Northern VT.
Please feel free to reach out anytime to discuss your property sale or purchase (firstname.lastname@example.org or 802.585.1131). Let us help you make the right choice!