Updated 11-03-07 This information is to be used as merely an example. Figures must be adjusted to reflect current market conditions.
Use other people's money$$$ Let's say you purchase a home in the North Georgia mountains for $300,000 with a 10% down payment of $30,000. Homes in Fannin county are appreciating between 10 to 15% per year (even in this market change). Appreciation rates have been as high as 18% to 37% even though the market is adjusting and prices are leveling off, appreciation rates are still incrasing. Using a conservative middle range of 13% annual appreciation, your home will go up in value $39,000 in one year. Take this $39,000 and deduct the down payment that you made of $30,000 and this means that you have gained $9000 in worth that year! Gained!!! This is referred to as a cash on cash return.
What about the interest on the loan? Well, that's where rental income can pay off. Let other people pay the mortgage! A typical example of the cost to maintain a 2nd home based on a home purchase of $300,000 with a 10% down payment using 6.5% APR (APR is the true interest rate). An approximate average of expenses incurred are: mortgage payment $1710 / month (rounded); taxes and insurance $250 / month and utilities $250 / month equals $2210 / month.
So, how can it pay for itself? The average cabin in this price range rents for approximately $135.00 to $175.00 per night. Let's be conservative and use $155 / night. Most property management companies in the area charge 30% or $46.50 / night. Leaving a net income of $108.50 / night. If you rent your cabin 21 nights per month, you will make $2278.50 for the month covering your expenses in the example above. You are left with 7 to 10 days depending on the month, to enjoy your own cabin.
Donna Yates, Realtor proudly serves the North Georgia Blue Ridge Mountains specializing in second homes, investment opportunities, vacation homes. Visit her real estate site for fantastic mountain properties for sale.
The information in this post is deemed reliable and accurate but is not guaranteed. This is a typical example that will certainly vary based on current market conditions.
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