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Breaking Even on Your Second Property Investment

Among all types of investment opportunities available to the average class citizen, real estate investment is certainly among the safest and most profitable on a long term period.
But owning a second property for the sole purpose of your personal week-end getaway is far different than renting it out all year long to break even with your mortgage and other property related fees.
But wait a minute… What if you can do both?
After the real estate price increase in recent years (year 1999 and up), paying your whole annual expenses with your rental income may be a tough thing to pull off these days. But with a good (business) plan and a solid cash flow management, you may certainly be able to get the best out of both worlds!
I will try to demonstrate the typical calculation one should go through when considering a vacation rental investment. The breakeven formula here is what will help you with your cash flow management. This study is based on a year round analysis, do not omit to create a monthly or even weekly follow up of your income and expense progress to avoid money shortage during your low season.
All expenses related to the property = All rental income
A typical vacation rental should cover all its expenses if rented for an average of 14 to 20 weeks a year. Note that an average American vacation rental has an occupancy rate close to 30%, if you stick to this rate and have a fair rental price you are on the right track.
This numbers are based on the following parameters:
Mortgage: Your annual mortgage payment (capital and interest) should be between 6 % and 8% of your property’s initial value. For instance, if your property worth 200 000$ your annual mortgage is between 12 000$ and 16 000$.
Insurance: No specific amount can be specified for second property coverage due to numerous factors involved in the pricing of insurance premium.
Furnishing: Include all furniture that you need to properly rent your vacation rental.
Cleaning Fee: This will typically depend on your property’s rental turnover (usually weekly). Besides periodic housekeeping, a major cleaning should be planned at least twice a year, ideally before and after your high season.
Maintenance: These fees include annual upkeep as well as incidental issues of your property (road maintenance, landscaping, pool cleaning etc.). If you can’t maintain your property yourself, a property management firm is most. Also, do not forget to include the depreciation of future restoration or repair you are planning or MUST do in the future in here
Municipal taxes: Depends on the region.
Note: I suggest keeping a reasonable security fund in case of emergency.…