Most vacation-property owners will tell you that breaking even off their seasonal tenants is a pipe dream and unattainable.
The negative cash flow of beachfront condos is tolerated because historically they’ve offered great appreciation, personal enjoyment and that bit of prestige.
It feels better to say you have a beach spot than it does to say you have a duplex.
Beach condos tend to appreciate better than the average property because demand is high and the supply of projects that can be situated on the water is extremely finite.
Over the long term, people have done quite well buying this type of property if they can afford to subsidize it over the years.
Rarely do you get to have your cake and eat it too. Where do you find a nice piece of downtown beachfront that offers the ideal vacation property for your personal use four weeks per year, and have it cash flow spectacularly?
There are two developments in Kelowna that will tick both boxes. One is Discovery Bay on Sunset Drive and the other is also on Sunset, appropriately named Sunset Waterfront Resort.
They’re a stone’s throw from one another, and by the same developer. Discovery has 236 units and they sell for $392/sq ft. Sunset Resort is a concrete high rise with fewer units (128), so it commands $470/sq ft.
Both rent for about the same, but Discovery Bay is a slightly better cash-flow property.
I have a decade's worth of experience owning units in both complexes through good markets and bad, so I know the numbers and the secret to getting enjoyment and cash flow.
They cash flow so well because the demand for them in both on- and off-season is great and the values are still comparatively low compared to other tourism destinations.
These two developments have a special kind of zoning known as resort residential. This allows the owner to do nightly and weekly rentals and charge handsomely for it. You’ll pay $275/night or $1,800/week if you plan to stay on Sunset Drive during our beautiful summer months
The units in this complex switch back and forth each year from furnished long-term rentals to vacation rentals. Because of the location, demand is extremely strong. Keeping the units booked was not a problem, even during the great recession from 2008-2012
In the off-season, there is a frenzy of people waiting to rent them for 1,800/month. I opt for an eight-month lease From Sept. 15 to May 15. This allows me to get the place summer ready in time for the May long weekend, and I get to enjoy it for at least a week in May and then again in June. I chose these dates since, historically, I only got the last two weeks of June booked by vacationers.
July and August will be booked solid and will bring in over $15,000 in revenue. So this is prime rental time.
September, I typically block off a week for myself to enjoy the late summer weather, which is almost always perfection and the resort is more peaceful and relaxing as we enter the shoulder season. I’ll still accept one week’s booking for my usual $1,800.
As a nice little bonus, I park my boat in the protected lagoon and enjoy the most affordable moorage in the city. I can utilize the resorts many amenities whether I have the units rented or not. Spend the day by the pool and then walk to best restaurants in the city
Here is an average year’s revenue for a two-bed unit.
- Jan. – $1,800
- Feb. – $1,800
- Mar. – $1,800
- April – $1,800
- May – $1,500 (Half month rent plus 3 night rental)
- June – $3,600
- July – $7,950
- Aug. – $7,950
- Sept. – $2,700 (One week plus half month)
- Oct. – $1,800
- Nov. – $1,800
- Dec. – $1,800
- Total $36,300
Expenses for the year are pretty low as the heating and cooling and water is covered in the strata fee of $360/month, the taxes are quite low at around 2,300/year. Tenants pay for the cleaning, so you have about another $1,000 in incidentals for advertising and supplies.
Neither complex requires you to be part of a rental pool so you can manage them yourself on VRBO with relative ease and save the 20-30 per cent. For many however, the $8-10K investment in a manager is worth it to be totally hands off.
The net operating income of these investments is $28,680, which makes these a perfect 7 CAP while you can still buy them for around $400,000 multi-family residential and commercial properties are selling for approximately 5.5 CAP in Kelowna so this is extremely good.
And when was the last time you spent four weeks poolside at your duplex?
For a list of properties for sale on Sunset Drive and others that perform similarly to the above examples, email me and I will send it right over.