Park City Investment Property Analysis

Is Paying Cash for a Park City Property a Smart Investment?

By Derrik Carlson | Park City Realtor | 11/25/2024

Imagine owning a condo in Park City, Utah—a premier destination for vacationers and investors. With world-class skiing, a lively Main Street, and year-round recreational opportunities, it's no wonder Park City real estate is highly sought after. This article will discuss a real-life example of whether paying cash for a $950,000 Old Town property is a smart investment, factoring in rental income, expenses, and long-term appreciation potential. Contact Your Park City Realtor to explore investment opportunities.

The Numbers: An Example Scenario

This scenario reflects current market conditions as of 11/25/2024.

• Purchase Price: $950,000
• Initial Annual Rent Income: $60,000 (increasing at 3% annually)
• Expenses:
  • HOA Fees: $5,588 annually ($1,397/quarter)
  • Property Taxes: $4,958 annually
  • Property Management Fee: 25% of rents (adjusts as rents increase)

Calculating the Net Operating Income (NOI)

Gross Income: Starting at $60,000, increasing annually at 3%

Total Expenses: Adjusting for rent increases

Net Operating Income (NOI): Rising over time with rent growth

For buyers exploring similar opportunities, Old Town condos for sale offer an excellent entry point into Park City's lucrative market.

The Cap Rate: A Measure of Profitability

The cap rate evaluates a property's profitability relative to its price. Here's the calculation:

Cap Rate = (Net Operating Income / Purchase Price) × 100

For this property:

• NOI: Adjusting upward with rent growth
• Purchase Price: $950,000

Cap Rate: Initially 3.63%, improving over time as rents increase

Properties in iconic locations like Old Town tend to deliver value through appreciation and high demand. Explore Park City condos for sale and similar investment opportunities.

The Long-Term Investment: What's the Real Net Profit?

If the property appreciates at 7% annually and rents grow at 3% per year, the financial outcome after 10 years is compelling:

• Original Purchase Price: $950,000
• Future Value After 10 Years: $1,868,794
• Profit from Appreciation Alone: $918,794
• Total Rent Income Over 10 Years: Approximately $687,850 (with 3% annual increases)
• Total Cash Flow Over 10 Years: Approximately $394,750 (adjusting for expenses)
• Total Returns Before Selling Costs: $918,794 + $394,750 = $1,313,544

Percentage Return and Annualized Rate

• Total Return Over 10 Years: 138.27%
• Annualized Return: Approximately 9.06% per year

This appreciation and growing rental income combination showcases why Park City investment properties remain attractive to long-term investors.

Why Park City Real Estate Is Still a Hot Spot

Old Town properties offer more than financial returns. With year-round rental demand, unparalleled ski access, and proximity to Main Street, these homes provide a unique lifestyle investment. While initial cash flow might be modest, the appreciation potential and rent growth of Park City condos make them a solid choice for long-term growth.

If you're intrigued by the possibilities, consider exploring Old Town condos for sale or the broader Park City real estate market to find a property that matches your goals.

The Bottom Line

Investing in Old Town Park City offers stable cash flow, significant appreciation, and access to one of Utah's most desirable real estate markets. While the initial cap rate might not suit all investors, the combination of rental income growth and appreciation over time makes this a compelling opportunity.

If you're ready to explore Park City condos or other investment opportunities, let's connect. As your trusted Park City Realtor, I can help you navigate this exciting market to achieve your real estate goals.

Showing the Work: How the Numbers Were Calculated

To provide full transparency, here's a breakdown of how we calculated the Total Cash Flow Over 10 Years and the Property Appreciation:

1. Annual Rent Growth: Starting at $60,000 and increasing by 3% per year, the rents over 10 years are:

   • Year 1: $60,000
   • Year 2: $61,800
   • Year 3: $63,654
   • Year 4: $65,563.62
   • Year 5: $67,530.53
   • Year 6: $69,556.44
   • Year 7: $71,643.14
   • Year 8: $73,792.43
   • Year 9: $76,006.20
   • Year 10: $78,286.39

2. Property Management Fees (25% of Rent):

   • Year 1: $15,000
   • Year 2: $15,450
   • Year 3: $15,913.50
   • Year 4: $16,390.91
   • Year 5: $16,882.63
   • Year 6: $17,389.11
   • Year 7: $17,910.78
   • Year 8: $18,448.11
   • Year 9: $19,001.55
   • Year 10: $19,571.60

3. Net Operating Income (NOI) (after subtracting fixed expenses and management fees):

   • Year 1: $34,454
   • Year 2: $35,804
   • Year 3: $37,194.50
   • Year 4: $38,626.72
   • Year 5: $40,101.90
   • Year 6: $41,621.33
   • Year 7: $43,186.35
   • Year 8: $44,798.32
   • Year 9: $46,458.65
   • Year 10: $48,168.79

4. Total Cash Flow Over 10 Years:
   Adding up the NOI for all 10 years gives a total of $410,414.57.

Property Appreciation: Detailed 10-Year Calculations

Here are the detailed calculations for property appreciation over 10 years:

1. Property Value Each Year (with 7% annual appreciation):

   • Year 1: $1,016,500
   • Year 2: $1,087,655
   • Year 3: $1,163,790.85
   • Year 4: $1,245,256.21
   • Year 5: $1,332,424.14
   • Year 6: $1,425,693.83
   • Year 7: $1,525,492.40
   • Year 8: $1,632,276.87
   • Year 9: $1,746,536.25
   • Year 10: $1,868,793.79

2. Annual Appreciation (cumulative growth from the initial purchase price of $950,000):

   • Year 1: $66,500
   • Year 2: $137,655
   • Year 3: $213,790.85
   • Year 4: $295,256.21
   • Year 5: $382,424.14
   • Year 6: $475,693.83
   • Year 7: $575,492.40
   • Year 8: $682,276.87
   • Year 9: $796,536.25
   • Year 10: $918,793.79

3. Total Appreciation After 10 Years:

   • $918,793.79

This shows how the property value compounds annually at 7%.

Here is a chart showing the Property Value and Cumulative Appreciation over 10 years. The orange line represents the property value as it appreciates annually at 7%, while the red line shows the cumulative appreciation relative to the original purchase price.

Disclaimer

This example is for illustrative purposes only and reflects conditions as of 11/25/2024. It does not constitute financial or investment advice. Individual results may vary, and there may be external factors or unforeseen circumstances not accounted for in this model that could impact the investment outcome. We strongly recommend consulting with qualified financial and legal professionals before making real estate investment decisions.

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