By Virginia Dean
For those investing in winter rental properties, it may not come as a surprise that a recent study indicates that Killington and Ludlow have topped the charts in profitable revenue for the last two years, according to property management company Vacasa of Portland, Oregon.
The company had calculated data on nearly a half million U.S. rental properties to determine the 10 best cities in which to buy such rentals.
Eastern winter destinations tend to have lower median sale prices, making it easier to get started as a landlord, according to Vacasa as reported by The New York Times.
Locations were ranked by capitalization rate, comparing a home’s sales price to what is left of the annual rental revenue after expenses are met. The higher the cap rate, the greater the profit.
The cap-rate equation does not include mortgage costs, however, so it is more beneficial to buy a home outright. Even if a mortgage is computed into the calculations, though, most places on the list are still profitable, Vacasa discovered.
With a cap rate of 8.3% and a median home price of just over $211,000, Killington came in first this year, and Ludlow, with a cap rate of 4.8 and a median home price of $304,273 placed fifth, dropping four places in 12 months, according to the study.
Jarrod J. Jowdy, broker at Mary W. Davis Realtor & Associates in Ludlow, said there are myriad factors that would technically explain the change in position of Ludlow from first to fifth.
“The real estate market can be very dynamic at times,” said Jowdy. “On the surface, it would appear that the acquisition of Okemo Ski Resort by Vail Resorts had the most impact on the Ludlow area market by opening the door to a more geographically diverse crowd through the ability to utilize the Vail Resort’s Epic ski pass at many more ski mountains around the country. Once this had occurred, it was inevitable that more skiers from western states would find their way to the area and appreciate the surroundings enough to purchase a second or vacation home.”
Jowdy also noted that, within the past year, local inventory has decreased while the demand has increased, leaving those who wish to invest looking at numbers that place Ludlow at a lower cap rate for vacation home purchases for the purpose of renting short-term.
“Basically, the market ‘caught up with itself’ over the past year, yet still remains fairly viable for the time being,” said Jowdy. “As is well known, real estate markets are localized, and here in Ludlow very few buyers make purchases for the purpose of offering short-term or seasonal rentals. For the most part, the trend is and has been for a long time to acquire a secondary residence for the purpose of enjoyment and later realize that escalating costs from inflation and such can be offset through utilizing down times by offering short-term or seasonal rentals.”
The best equation was in destinations that are both popular for tourists and profitable for homeowners. The more tourism, the greater the demand for accommodations. When the demand is already there, buyers don’t have to be concerned about whether they’ll get bookings, and areas where vacation rentals already exist will likely have existing short-term rental protections and regulations in place.
In top spot Killington, brokers have been experiencing an increase in buyers looking strictly for rental properties as they are finding that the numbers fit with their business models, said Kaitlyn Hummel, broker at Prestige Real Estate in Killington.
“We hear time and time again that, in comparison to a lot of other ski towns, Killington is still considered by most folks to be affordable,” said Hummel. “We are also experiencing an increase in buyers who are coming to Killington to look for a property they can enjoy a few times a year but also rent out when they’re not using the property to defray some of the costs of ownership. It seems the allure of owning in Killington has caught on as our inventory levels have diminished substantially over the last year.”
New York state resident Brandy Duggan and her husband purchased a condominium at Mountain Green in Killington last summer for the sole purpose of generating income, and the results have been staggering, Duggan related.
“We haven’t had a weekend that hasn’t been booked since last November,” she said.
Bret Williamson, a broker at Killington Valley Real Estate said 2019 was a record year for sales.
“The market is the busiest I’ve seen it in the 17 years that I’ve been selling real estate in Killington,” said Williamson. “The cap rate is a moving target with a lot of variables depending on the property, rental and management company. It doesn’t surprise me that Killington would be the front runner as we have the longest ski season in the east with a rapidly growing summer season which is a catalyst for a lot of the interest.”
Indeed, Sue Walker and her husband, Brett, of the South Shore of Massachusetts purchased a home five years ago in Killington and rents during the off-season from May to November. The result has been extremely rewarding.
“Killington is a four-season resort,” said Walker. “It has so much to offer from weddings to hiking. But, if you plan to rent, you must have your ducks in a row. It’s not for the faint of heart. You have to think about maintenance, taxes, overseeing staff, and managing from a distance. Overall, though, it’s a win-win for the homeowner, the town, and the resort. You just have to have the right property.”
One drawback that buyers can face, however, is stiffer competition if the area is saturated with vacation rental properties.
The other Vermont town on the Vacasa list included 7th-ranked Warren (near Sugarbush and Mad River ski areas) with a cap rate of 4.57 percent and a median home cost of $263,752.
What about neighboring towns to Killington and/or Ludlow such as Woodstock?
“Woodstock is not a great place to buy a vacation rental to make money,” said Gretchjen Smith of Williamson Group Sotheby’s International Realty. “There are just too many restrictions on renting short-term in the village/town if you’re not in a five-acre zoning, in order to preserve the community-feel of Woodstock. It’s a great place to own a second home if your purpose is not to produce a lot of rental income but rather to enjoy our community.”
Vacation rental properties can be a solid investment, depending on the location or if one buys in the right place, The New York Times reported last month.
For more information or to read the full study, visit vacasa.com/top-markets/2019-best-places-to-buy-winter-vacation-home.
