Every fall and early winter, my article on buying a ski condo gets quite a bit of internet search traffic. It’s the time of year when skiers are looking forward to the upcoming season and deciding whether or not it makes sense to buy their own condo, rent a ski condo for the season, or continue making day-trips to the mountain.
Without question, buying a ski condo has its advantages but you end up paying significantly more money for the convenience of living on or near the mountain. But what if you bought a ski condo and rented it out from time to time to offset your financial expenses? Is this a viable or option? Let’s run some numbers and you can decide for yourself.
I’ll state up front that you should never count on income from renters when deciding whether or not to buy a vacation home like a ski condo. The total of all your mortgage payments (primary home and vacation home) shouldn’t be any more than 30% of your monthly take home pay (banks will gladly lend you more but doing so will add unnecessary stress to your financial lives).
Subsidizing Your Ski Condo with Renters:
To help with our financial analysis on the practicality of renting out your ski condo, I’ll be using my rental property investment calculator for Excel (available for purchase here). We’ll need to make some slight modifications in the way we enter the data because occupancy rates for ski condo rentals are down significantly during the off-season. Additionally, you’ll be using the condo from time to time so that will drive your renter occupancy rate down even further (after all, that’s the whole reason you’re buying a ski condo to begin with).
Let’s assume you buy a $200,000 ski condo and put $40,000 down as a down payment (20%). You finance the condo with a 15 year fixed mortgage at 3.5% (second home mortgages are usually a bit higher than mortgages on your primary home). For the purposes of our example I’ll use some generic (realistic) values for appreciation, property taxes, insurance, and association fees, etc.
Similar ski condos in my area (New England) rent for about $1,500 per week or $6,000 per month. Let’s say you want to rent the property out a total of 5 weeks a year during the ski season. This works out to an occupancy rate of about 10% which I entered in the appropriate box above.
With the information entered in the spreadsheet financial analysis section automatically populates (buy this program):
As you can see in our analysis, you’ll actually profit off the condo after 15 years renting it out only 5 weeks a year. You’ll have a negative cash flow, but this will be more than offset by the property’s appreciation in value and the fact that you’re building equity with the monthly mortgage payments (that have been subsidized by your renters).
Buying a Ski Condo without Renting it Out:
Now let’s look at potential costs of buying the same condo without supplementing the mortgage payments with renters. In this case we’ll simply change the occupancy rate in our rental program to “0”. Here’s how the analysis looks now.
As you can see, the numbers turn negative very quickly when you take away the rental income. Where you actually made money if you rent the property out for 5 weeks per year, you end up paying $43,773 (in today’s dollars) if you keep your ski condo all to yourself. This isn’t necessarily a bad thing; after all you have the advantage of being able to use the ski condo anytime you want year round without having to deal with the myriad hassle of finding renters and worrying about property damage.
For some people, renting out their ski condo for a few weeks a season may not be a bad idea. To learn more about my rental property investment calculator and how you can buy it for your own ski condo analysis, CLICK HERE.