Rental properties earn income from renters wanting to use them for a period of time. Long term rentals are usually rentals for periods of several months or more. Short term rentals can be from 1 day to 2-3 weeks.

Resort property rentals are short term rentals, usually where the property is a second home for the owners who want to use the property themselves for parts of the year. It is rare for a resort rental property to be strictly an investment property bought solely for its ability to generate rental revenue with no owner usage.

As in all real estate, location is a primary ingredient in a property’s ability to generate rental revenue. This is particularly true in a ski resort (or beach, or lake). Two identical properties, one ski-in/ski-out, the other a distance away from the slopes will generate totally different revenues. Of course, the closer to the slopes, the more rental revenue.

Uniqueness is another characteristic which can influence rental revenue. Obeying the principles of supply and demand, a 5 or 6 bedroom property will generate more revenue per bedroom, than a 3 or 4 bedroom property where the smaller properties are in more abundance.

Amenities can also impact rental revenue. In a ski area, a property with a private hot tub or a den with a pool table, or spectacular views or a gourmet kitchen, will perform better than properties without these amenities.

Do you need a management company? As an absentee owner, at a minimum, you will probably need someone to look after the property. Periodic checks that thermostats are properly set, mechanical systems are functioning, windows are shut, there has been no theft or vandalism and snow removal in winter and landscaping in summer are performed. If your property is a condominium or townhome, these functions are usually performed by the association management company. In the case of a single family home, you will need to hire a management company to perform them.

If your goal is to maximize rental revenue when you’re not using the property, then you may want to engage a rental management company to perform all aspects of management related to the generation of rental revenue. This includes obtaining the renter through its marketing efforts which can include print media advertising, maintaining and promoting a web site and encouraging repeat customers to return through mailouts, etc.

The reputation of a management company, both locally and through its prior clients or guests is key to its performance. Some companies simply do a better job than others in terms of guest services, attitude toward homeowners, responsiveness and catering to guests. When selecting a management company, check with local realtors and local business establishments to learn of a company’s reputation.

How long a company has been is business is usually a good sign of the quality of job they do. There are always some ‘startup’ companies, hoping to make a quick buck and often without much prior experience.

Some property management companies are operated from the private homes of their owners. In these cases, the company will not have a front desk, where guests are greeted, checked-in and through which guests can avail themselves of other management services. Also, the presence of a front desk allows for ‘walk-in’ traffic; that is potential guests who simply happen to walk in off the street to the office to inquire about rental property.

Management companies not only have to manage their own accounting, but that of their homeowners as well. Rental revenue typically is received in a series of deposits from the guests. These deposits should be kept in escrow accounts until the funds are ready to be disbursed to the homeowner after the guest’s departure. If a management company is a licensed real estate company, it is a real estate law that these deposits be kept in escrow and not co-mingled with the company’s own operating funds. Homeowners should get a monthly accounting of this rental funds activity.

In addition to acquiring renters for a property, a management company performs many other services, not the least of which is housekeeping during and/or after a guest stay. In most cases, other services such as minor maintenance, oversight of sub-contractors or purchasing items or services an owner might request (e.g. new linens or home accessories).

In return for their services, management companies charge fees for their services. The management fee is for the acquisition of the renter, handling rental revenues, paying proper taxes on that revenue and providing the homeowner an accounting of that revenue. Additionally, this fee usually includes the provision of housekeeping services related to the guest stay. In a ski resort, this fee typically runs between 30 and 50 percent of rental revenue. The variance between 30 and 50 percent is usually in certain items like credit card fees or travel agent fees which may or may not be included in the basic fee. Full service management companies usually provide other services for which they charge additional fees. Such services might include maintenance costs, hot tub service, snow removal costs and housekeeping services after owner or owner’s guests stays.

The revenue from rental income will vary considerably from property to property depending on the property’s location, uniqueness and amenities. A seven bedroom ski-in/ski-out home can generate easily generate $150,000 or more per year. A three bedroom home away from the slopes might only generate $20,000 per year.

Among the expenses of owning a resort rental property are not only the management fee and maintenance costs, but also other costs paid directly by the homeowner. These include utilities, insurance, licenses and mortgage costs (if there is one).

At the end of the year, a typical income summary might look like this for a home valued at $700,000, or a condo valued at $200,000, each with a 60% mortgage:

                                                                                    HOME                 CONDO

Rental Revenue                                                       $50,000               $15,000

Expenses

        Management fee                                             $17,500               $ 6,000

        Maintenance, etc                                                 2,000                      500

        Utilities                                                                 4,000                       850

        Taxes                                                                   3,000                       800

        Owner housekeeping                                            800                       250

        Licenses                                                                 200                         75

        Mortgage                                                           30,200                   8,633

        Misc                                                                      1,000

        Assn Dues                                                                                         2,866

    Total Expenses                                                    $58,700              $19,174

Net cash flow                                                            ($ 8,700)            ($ 4,174)

This net loss is essentially the cost of owning a property in a ski resort which will likely appreciate and potentially become the retirement home of its owner. Obviously, the smaller the mortgage (=larger down payment), the closer the property comes to breaking even.