Over the course of one year, I invested through LendingClub.com is a peer-to-peer lending platform. If Bob Jones (I don’t know a Bob Jones, by the way) wants to get a loan and he cannot or
Live the Virginia Dream; Don't Just Dream the Dream
Dated: March 24 2021
The other day I posted a listing in Woodvale, VA that blew the minds of so many of my followers, I had no choice but to write more about it and encourage others to live their dreams instead of dreaming about them till the end of their days. Ms. Cheri Woodard of Cheri Woodard Realty is offering this home for sale and has marketed the property with such proficiency and talent, I have a new bar to judge myself against as a REALTOR, and that bar is set well above my head. We all owe thanks to Ms. Woodard for allowing me to highlight this property to all of you interested, and I wanted to take this fleeting opportunity to write a bit for all of you who felt such a dream cabin was so far out of the realm of possibility for you. I hope to help you realize the opportunity resting at your fingertips, and all you have to do is reach a tiny bit further.
So, here’s the question! How can Average Jane (AJ) and Typical Joe (TJ) live here full time or own this three-bedroom dream cabin on nearly 12 acres of land as a vacation home when it costs $540,000? After all, this an amount neither likely have stuffed in their mattress, let alone piled into their savings accounts? Well, the answer is not singular, but it is simpler than you might think. AJ and TJ just have to do something most people never do, something just about anybody can do, and something that hundreds of thousands of people are doing, right now. Here are their options, as I see them.
Option A (What I call, the “Least Likely” Option): Many of you reading this article may be military veterans, and equally likely, many of you are not. Actually, those are literally the only two options, you are, or you are not. I digress…Option A is to purchase this home as a primary residence, with little to no money down, and live out in the woods just like AJ and TJ have always wanted. Most Veterans qualify to purchase their primary residence leveraging a VA home loan with 100% financing (NO DOWN PAYMENT.) For those who are not Veterans, there are a slew of other low-down payment options for you as well, such as a 3.5% down payment package backed by the Federal Housing Administration. To get the nitty-gritty of these programs, chat with Sam Atapour of Embrace Home Loans. Option A would be the least cash-intensive approach to purchasing this home. However, everyone reading this also likely has a career they must manage, and for the majority of my readers, those careers do not include commuting in, around or anywhere near Woodvale, VA. So, what are the other options?
Option B: (What I call, “The Fiscally Smooth Person Option Who Really Wants this Cabin, But Also Wants Others to Pay For It): For those who are drooling over this place, who have careers in the D.C. area, as well as dreams of an escape for their families in the Shenandoah where they can create memories for generations, this is for you. If you are even remotely interested in this cabin and you are similar to AJ and TJ, first, take a moment and reflect on the following question: Am I good with money, or am I bad with money? If you decide you are the latter, finish reading this blog for inspiration, but then go to the library and pick up a Dave Ramsey book or two, change your habits, get on solid financial ground, then read this again. For the rest of you, this option is a hybrid originating with you purchasing the cabin with a 10 to 20% down payment, using it as a home for you and your family, while also renting it to other cabin loving folk as a short-term vacation rental during the times you have no plans to be there.
With Sam Atapour’s assistance, I came up with the scenario below. This information is good as of 5 May 2020, which means on 6 May 2020, I can no longer feel confident in the data, but the analytic method is repeatable. Regardless, as smart people who are building wealth, you would be verifying this information anyway, and conducting even more in-depth analysis on your own.
To purchase this cabin as a second home/vacation rental, a buyer would need at a minimum a 10% down payment, which for this cabin’s sale’s price of $540,000, the down payment would equal $54,000. If you have $54,000, then you have a recipe for success. The remaining balance of $496,000 would be paid off in 360 monthly installment payments. For the sake of simplicity to the reader, I am omitting any calculations including closing costs, utilities, HOA payments, routine maintenance expectations, etc., which, while not negligible, they should also not be so hefty they become the deciding factor between whether or not AJ and TJ would be willing to purchase this home. If after reading the rest of this blog post you do not feel like you’re having a heart attack, and you’re actually interested in pursuing something like I describe, then you are probably safe to move further in the process knowing the additional fees I did not include are probably not going to derail your plans. I am about to share a method used by many who are in the process of building great wealth for themselves and their families, while also enjoying the fruits of their labor right now. That is a powerful sentence. Read it twice, then let’s crunch some numbers!
Based on Sam Atapour’s numbers from 5 May 2020, AJ and TJ would be able to purchase this home with a conventional mortgage with a 10% down payment ($54,000). After realizing they have the $54,000 in cash, AJ and TJ assess what their monthly payment to the bank would look like, knowing their monthly payment includes their Principle Payment, Interest, Taxes and Insurance (PITI) all in one sum. To calculate this, AJ and TJ need a bit of data. Luckily, their licensed real estate professional, a good-looking fella in his own right, was able to hook them up with the information they needed.
AJ and TJ learned the taxes on 30 Fox Ridge Lane are about $3,600 per year. Sam Atapour informed them their approved mortgage rate as of 5 May 2020 would be locked in at 3.375%. AJ and TJ’s strapping young real estate agent advised them to double their estimated insurance premium for homeowner’s insurance, given the two plan to use this property as a short-term vacation rental, not a primary residence. So, AJ and TJ factored $3,000 per year for their insurance. Then, AJ and TJ used an appropriate mortgage calculator that factors in taxes and insurance, not just principle and interest, as many mortgage calculators do. Fortunately, for those who hated mathematic word problems in high-school, and have probably recently rediscovered how much you hate them teaching your kids during this social distancing period, AJ and TJ broke it down for you. .
10% Down Option: Monthly PITI Payment: $2,700 | $2,600+$100 for monthly mortgage. insurance. (Note: you could avoid mortgage insurance with a 20% down payment, or $108,000) That equals $32,400 in PITI payments per year.
AJ and TJ already knew they were comfortable with a $54,000 (10%) down payment. They’ve been diligently saving for years, and even after $54,000, they still have plenty in the bank as an emergency fund and beyond. However, they have their primary home mortgage as well, so they are a little skeptical about taking on another $2,700 per month payment, or $32,400 per year. So, they decide the vacation rental route is the right move to generate revenue, but they need to be able to estimate their monthly proceeds to see if they sufficiently alleviate most, if not all of that extra financial burden they may take on.
Using websites such as www.VACASA.com, they discovered other rentals in the area with a similar bed, bedroom and maximum occupant count are estimated to earn roughly $33,000 per year as short-term rentals. That’s pretty spot-on with some separate analysis they conducted by looking at properties on AirBNB in the area, which were going for $275 to $400 per night, on average. So, AJ and TJ figured if they can rent their cabin at $275 per night for 120 nights per year, they could generate roughly $33,000, leaving them plenty of nights to use the home for themselves. Knowing their annual PITI payment is $32,400 and their potential revenues equaled $33,000, they not only covered their basic PITI payments for the year, they did so with a remaining $600 to purchase wine to celebrate!
Now, I would like to argue this scenario is even more lucrative and possible than described above. Obviously anyone who buys the property would need to see it first hand, as the pictures are so incredible, they’re almost unworldly! Assuming this cabin is as amazing at it seems to be, I would argue any owner can and should market the cabin as a luxury rental, providing a much higher average rate per night than $275. Spend a bit of extra cash to provide high-end amenities, a tasteful, inviting interior design and decorating that draws vacation hunters to your listing, much like Ms. Woodard has done, and I believe this cabin would fetch upward of $400 per night on average. Now it’s your turn to do the math. I
hope you see, just like Average Jane and Traditional Joe, we live in a time where the once impossible is now low-hanging fruit waiting to be plucked by those who recognize dreams are meant to be lived, and that everyone deserves to live them. It just takes a slight shift of paradigm, and then that which once seemed insane to pursue becomes common practice, leading to not just generational wealth, but a journey your family can enjoy now right along with you.
Thank you again, Ms. Woodard, for allowing me to highlight this beautiful property you have listed.
I believe those who serve the people of our country deserve to own their own piece of our country. . . My team and I make that happen, daily. I am a Military Veteran and the founder of the Veterans Re....
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