Tahoe Income Property
(Information on this page represents the opinions of Robert Dickerson. Robert is a licensed real estate broker with more than 20 years experience, but he is not qualified as a financial advisor. You should consult your own financial advisor rather than relying on the information here)
Income property in South Lake Tahoe can consist of a home or condo used as a rental on either a vacation rental basis or a full time rental basis. If the property is used as a vacation rental, rental rates are much higher, but management fees are also higher and the owner pays utilities so the net income is about the same. Income in either case may be about 4% to 5% of the total property value per year in Nevada and 5% to 6% in California (Prices are generally a little lower in California than Nevada, raising the income as percentage of property cost). Of course, each property is unique, and the objective here is to give a general idea of Income Property Characteristics.
Generally, newly purchased single family or condominium units are not likely to yield positive cash flow after accounting for the cost of money. But, because South Lake Tahoe is a highly desirable and limited commodity, property values are expected to appreciate no matter what the state of the economy. Check out the schools tab on my homepage, and you will see that fewer children are living in Nevada Tahoe, indicating that the baby boomer retirement crowd is coming in increasing numbers, causing property values to continually increase. Increased property values should more than compensate for negative cash flow in rentals
Income property in South Lake Tahoe can also consist of Duplex, Triplex, or Apartment Complexes. Generally, rents as a percentage of property cost rise as the number of units increases. Apartment complexes can easily yield positive cash flow even before accounting for property appreciation. Gross incomes in the 8 to 11% of property value range are reasonable.
The table above summarizes typical income property incomes and expenses, again as a percentage of property total value. It assumes that the cost of money is 6%, including any downpayment you make and any underlying financing. Again, Each property is unique,and this table gives a general idea. Using this table as an example, a California Apartment Complex purchased for $1m might be expected to have expenses of $87,500 per year and offsetting income of $90,000 per year for a small net positive cash flow ( don't forget that this table assumes you are paying yourself 6% interest on your downpayment). Depreciation deductions and appreciation would be the real benefit of owning such a property. If it were purchased with 30% downpayment, a 12% annual appreciation would be equivalent to earning 6%+12/30= 46% on your downpayment, not a bad return. Of Course, no one can guarantee the future or profits on any investment. Be sure to see the disclaimer at the top of this page.
Similarly, for a $300,000 Nevada condo,one might expect, after paying yourself 6% interest on the downpayment, a negative cash flow of 7.8%-4.5% = 3.3% per year ( about $10,000 per year). But, condos generally have been appreciating at 15% to 20% per year, for a net return of say 11.7% per year considering appreciation to offset negative cash flow. If the downpayment is 20% of the property value, the return is about 11.7%/20% =58% return on your money. However, each year you end up with more money invested due to the negative cash flow, so the return will diminish. In this case, it is well to sell after about 3 to 5 years, or do a tax deferred exchange to a larger property (perhaps eventually exchanging into the single family dwelling you would like to eventually retire into). Of Course, no one can guarantee the future or profits on any investment. Again, Be sure to see the disclaimer at the top of this page.