Meet Julie, a native from North Charleston, South Carolina. After traveling the world with her family she decided home was the place for her. She has a number of years before retirement, and has accrued quite a bit of vacation after being at her job for more than 20 years. One of her favorite places to visit when she can is just 30 minutes away—the Atlantic Ocean. Now that her children are grown and living on their own she has found more time for herself and her husband. The idea of a weekend getaway place was so appealing to her because they could escape their daily work life easily and be back for work Monday morning. When she was young her parents rented a house every summer for a week at the beach. Although it was only 30 minutes away from their home she remembered feeling like she was in a faraway land. Julie looked at her personal situation, finances and purchasing options and decided that a townhome close to the beach was a good fit for her lifestyle.

She found a 1,060 square feet, two bedroom, two bathroom townhome one-half mile from the beach for $225,000. It was in a gated community with parking, pool and various other amenities. After researching what the average nightly rates would be, she decided she could rent her townhome for $150-$250 per night, depending on the season. She had $60,000 saved in cash and was willing to use it all on purchasing her home by the beach. She figured the weeks she wasn’t using it she could rent it out. Her children helped her to set up a profile online to be able to rent it out herself.

After talking to leasing companies and other vacation rental owners in the area she makes a conservative estimate that it will rent for 10 days a month at an average fee of $200 per night to create $2,000 a month in rent. Her mortgage principle, interest, tax and insurance (PITI) is $1,056. She hires a vacation rental company who charges 18 percent of leasing fees to collect rent and manage the property, and they charge a cleaning fee to each tenant so she doesn’t have to worry about that. The place is in decent shape but knows things get broken so builds in a repair budget and feels good with her expense budget.

Julie knows that her cash flow will be very lumpy based on the seasons and plans on keeping all the money in a separate account for the first year to cover any vacant spells. Her main goal is to operate the place at break even and provide her access to a vacation home, and hopefully pay down the loan early with the cash flow created. Her break-even point is to lease her townhome for at least 7 days per month on average to cover all expenses.