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Short term rentals are a great source of passive income in areas where two things are present: high rental demand coupled with low housing prices. Unless you already own the property, the Bay Area in San Francisco or New York City have housing costs so high it’s hard to make a profit. The middle of Kansas has low housing prices, but no one wants to travel there.

Avon is a second-wave short term rental market—popular enough where you can make good money renting out your property, but not yet crowded enough that it’s hard to buy a house. Let’s look at numbers for a sample scenario and see how it might play out.

Costs

The median house price in Avon is about $615,000. For that, you can find a reasonably modern two or three bedroom in an area that allows short term rentals. (They’re allowed in the Short Term Rental Overlay zone and sometimes out of it depending on the PUD and HOA rules). When you’re renting a property for commercial use—and you’ll need to rent out the whole thing on VRBO, so you can’t just rent out a room and make it your primary residence—you need a higher down payment. With a credit score of 720 or higher, you’re looking at at least 15% (more if you have a lower credit score).

That means your very first cost, right out of the gate, is  $92,250. If that’s overwhelming and you still want to get into real estate, consider a REIT (Real Estate Investment Trust) you can trade online. If not, you’ll also need to consider:

*Insurance

*Property Taxes

*Maintenance

*Utilities

*HOA fees if relevant

And, of course, the mortgage payment. A quick-and-dirty approximation is to add 50% to a 30 year mortgage monthly payment for your “all in” cost of ownership. In our case above, $3750 is a safe assumption for a monthly cost. VRBO’s costs are actually quite low. You’ll pay an annual fee of $500 (which in Avon is about 1 day’s rental) and you’ll have to figure out how to get the property cleaned between listings.

Income

The Average Daily Rate in Avon is $461 a night. If you rent 60% of the time, that’s $100,959 a year. You’ll also remit 8% for taxes to Avon (VRBO doesn’t send the city anything, though it will collect taxes for higher levels of government).  Subtract the city taxes, and $45,000 for total costs of ownership, and you’re at $47,882 profit after expenses. 

For more information, check out our other blog posts!