Expenses and Income Estimates

Here are some guidelines to the costs of ownership and rental income on Encantada, based on the figures used by the onsite management company, eManagement. They are for a 4 bedroom home with a splash pool.

Monthly management fee - $150
Monthly pool maintenance - $75
Average monthly electricity costs - $275
Water, monthly - $30
Phone service, monthly - $40
Miscellaneous, pest control, license - $50
Property taxes ($4704 per year) - $392
HOA fees ($863 per quarter) - $216
Home insurance ($800 per year) - $67

Total costs (excluding mortgage) - $1295 per month

Nightly rental rates are $109 to $229. Assume an average of $125 per night. The management company takes 20% commission from bookings that they put into the home, which will leave $100 per night for the owner. Note: the renter pays for the end of rental clean. Any bookings that are placed by the owner are not subject to commission, so they increase the net nightly rate.

On these figures, the break-even point from rental income is 13 nights per month, or 22 weeks per year. The management company currently anticipates placing 25 to 25 weeks per unit per year.

For 3 bed homes, the costs of ownership are very similar, but the average net nightly rate is probably more like $90. So the break-even point for a 3 bed home is around 24-25 weeks a year.

If you want to incorporate the cost of a mortgage into the calculations, you should include only the interest payments, as the capital repayments are not costs of ownership, they are a reduction in the debt on the property. The interest can vary widely with the mortgage taken. An 80% mortgage at 4.75% on a property costing $150,000 adds $475 to the monthly costs, and increases the number of weeks to break even on a 4 bed home from 22 weeks to 30 weeks a year, which is still within the target occupancy range.

In my opinion it is reasonable to expect to at least break even on these homes at present, especially if you can add in a few weeks of bookings yourself. I think that a 4 bed home on Encantada should be self-sustaining, covering all costs, including the interest on a typical mortgage. If you don't take a mortgage, then you have a $475 a month margin to compensate for the money you have tied up in the property. These calculations don't take into account any equity gain in the home during your period of ownership, which should be considerable. Nor do they allow for any increase in either occupancy levels or nightly rental rates as the resort becomes more widely known.