Host, Christine Karpinski: Today's question comes from Sue. She is looking to purchase a property in Tahoe. She asks:

Q: "We cannot get your break even cash flow formula to work because the property mortgage payment will be too high. The properties that we're looking at are ranging in the mid $400,000s. The best we can expect from rent is $1, 500 to $1, 800 a week.

Any suggestions? Is it better to lower your mortgage or try to increase your rental income?”

A: Sue, you've got a couple of options here. You could try to look for a property that it's going to be a little bit less expensive, but you're right, in the Tahoe area it's very expensive, probably $400,000 is your middle to lower middle price range. So trying to find a lesser property is going to be more difficult.

So what you need to look at when you're purchasing a property where you know right off the bat is that it's not going to fit into the breakeven cash flow formula. Let me just reiterate. The breakeven cash flow formula is if your mortgage payment is less than or equal to one peak week that you can rent your property for, and you rent it for 17 weeks, then that property likely will break even.

Now, since this property mortgage payment is probably going to be around $2,800 a month and the rental rate would only be about $1,800 a month, the thing that you need to know is that property at minimum is going to cost you $2,800 a month. That's if you don't rent it out at all.

But if you're successful and renting at least 17 weeks, then likely that property will cost you $1,000 a month or $12, 000 a year to own it.

Now the question you have to ask is, in that area, do you think that you can rent more weeks? Can you rent more than 17 weeks? In a place like Tahoe where it's a year round destination, I think you might have a pretty good chance of renting some more weeks.

Whether or not I would clearly depend on it and say, "Absolutely, I'm going to be able to break even on this property," I never like to bank on speculation. You definitely want to check to see what the rental histories are for that property and what the rental histories are for properties in your area.

So as far as purchasing this property, I think I would definitely look into it. I wouldn't turn it away but I also would just make sure to know what I'm getting into before I purchase.