In our last post about Hilton Head real estate, I discussed the retirement strategy of investing in the Hilton Head short-term rental market. A good short-term rental property will generate positive cash flow and tax deductions, and keep pace with local property values until you move to Hilton Head permanently. Hilton Head long-term rental properties are another, potentially profitable, way to secure your future Hilton Head residence by investing sooner rather than later.
Hilton Head Long-Term Rentals are “Hot”
According to Beth Drake, from Keller Williams Realty, there is currently a shortage of long-term rentals in the greater Hilton Head area . She says that updated, or new, properties will sometimes rent in 48 hours or less. Typically, long-term renters are looking for 3 bedroom houses, and pay rent ranging from $1,800 to $2,500 per month depending on location and condition.
I’ve heard several explanations recently as to why this market is doing well. First, the residential new construction market in the Hilton Head area is booming again. People are renting existing homes while their “dream” home is being built. Second, when the housing bubble burst around 2008, many people, with good incomes, simply ended up “under water” in their mortgages and had to walk away. Many of them still live in the area, have good jobs and incomes, and are not able to get another mortgage. They intend to stay in the area, and renting long-term is their best option. Also, long-term rentals are a good way for new residents and retirees to get to know the island and it’s different communities before committing to a certain location.
What are the Best Long-Term Rental “Buys”?
Beth Drake feels that the recovery of the new home market means that older homes sometimes have a little longer sales cycle. “Buyers are looking for ‘turnkey,'” says Beth. Because of this competition from new construction, older homes may sell at a lower price per foot than comparable “brand new” houses in comparable locations. Some of these older homes may be priced right for investing in a long-term rental property. “The key is to find one that doesn’t need major updating.”
The “Pro’s” of the Hilton Head Long-Term Rental Strategy
- Most long-term rental contracts are for a year, with renewal options. This may be easier than trying to keep your property rented by the week.
- Many long-term renters want to be in the quiet, year round residential areas of the island. When you decide to move to Hilton Head permanently, this may be the type of location you will want.
- Long term renters sometimes take better care of the properties they rent than weekly renters. Any damage to the property reflects directly on them as the sole renter.
- It’s easier to do credit and background checks on one renter than multiple renters.
The “Con’s” of the Hilton Head Long-Term Rental Strategy
- Unlike a short term property, you cannot reserve weeks for your own vacations. Your personal use of the property is limited to periods of time when it is not rented
- If you do happen to get a “bad” renter, you are stuck with them for a longer period of time- and evicting them takes time and money.
- Unlike short-term rental properties, a prospective long-term property may not have been rented out in the past so gauging rental income and vacancy rates is a little more difficult
Can You Make Money On Hilton Head Long-Term Rentals? Do Your Own Analysis
Everyone’s financial situation, and tolerance for out-of-pocket expenses, is different. The basics of investing in a long-term rental property are similar to short-term rentals with a couple exceptions. I already mentioned that your analysis may be trickier due to a lack of rental information on a specific property. As far as costs go, you should be able to get utility and tax records, and maybe a list of improvements the previous owner made.
If you do not live in the area, you will need to find a good property manager to look after your investment. There are a number of excellent long-term rental companies in Hilton Head. Their fees and services are a little different than the short-term rental managers. Typically they will handle nearly everything after you purchase the property. This includes advertising, finding and qualifying renters, contracts, collections, and inspections.
Before you start looking for the right property, develop a simple spreadsheet that includes at least the following:
- Purchase Price (including all closing costs)
- Mortgage. The size of your mortgage payment is one of the most important factors influencing cash flow. You must be prepared to make that payment should there be periods when the property is not rented
- Taxes. Remember, since the property will not be your primary residence, the taxes you will pay may be different than the previous owner’s.
- Association fees and assessments
- Management Fees, Commissions, Service Contracts
- A budget for the replacement costs of major appliances, roof, etc.
- A Budget for updating if you plan on owning the property for many years before moving into it or selling
- Accounting and Legal costs
When you narrow down your search, compare your short-list choices from a cash flow stand point using the spreadsheet. Take your time and find a property that fits your situation. Before you buy, be sure to investigate the regulations and restrictions opposite long-term leasing. Different plantations and gated communities in the Hilton Head area have different rules
It is important to develop a relationship with a good real estate agent, and a reputable property management company. Let them know your price range, desired area, and long-term goals. They can keep you up to date on new opportunities as they become available. They also have their fingers on the pulse of the market and can give you current information for your financial analysis. Revisit our eight steps for buying a short-term property for more suggestions on how to streamline the buying process.
Hilton Head Island offers the best of several worlds. There are wonderful family vacation hotspots, bustling with thousands of visitors enjoying amazing seasonal amenities of the island. And there are beautiful, quiet, areas where year-round residents live, work, retire, or spend part of the year. If your goal is to live in one of the residential areas, a long-term rental property may be a good way to get in the Hilton Head real estate market sooner than you expected