April 2018

Strong Rental Climate: What investors need to know to stay rented at or above market

Author: Kevin Quat

Four years ago, if you had asked me where I thought long term rental rates would be for the average two-bedroom villa, I would have said 15 percent higher than they are today. I would have suggested this based on how rents from 2012 were trending year over year. And I would have been wrong.

My team has tracked the market rental appreciation, and it has shocked us all, in some cases up 40 percent from 2012 levels. Given a short supply of available rental properties, coupled with active business growth (in part due to the Chamber of Commerce and the publicity of Hilton Head Island and Bluffton through various media), we have seen a tremendous increase in rental rates. But not everything is rented. Why is that? Why are some investors not able to achieve the most rent for their properties? Why do some properties sit vacant or rent poorly?

If you are invested in long-term rental real estate (yearly rentals) or if you want to invest in cash-flow-producing real estate on Hilton Head Island or in Bluffton (or Savannah), I am about to give you a quick down-and-dirty outline for success in our local real estate rental markets. Ready?

1. Know your competition. For your rental property to rent at the highest possible rate in the marketplace, you must understand where the competition is priced and how it looks (and smells). The best way to do this is to shop them. Walk the asset. Ask questions of the owner or property manager. Understand what is involved to rent that asset (deposit, application fee, etc.). Make sure your rental property looks better, smells better, and is priced similarly. Then sell the value of renting your asset. Perhaps it’s the ease of contacting you or your manager due to customer service protocol. Perhaps you have in-house maintenance services and remain on call for issues. Remember, the rental prospect will be looking at your property and the competition, so be ready to sell the value of your asset.

2. Buy positive. Buying “right” is a cliché. Everyone wants to buy low and sell high, but it is so hard to know exactly where the bottom or the top is to be able to buy or sell (respectively). For my real estate investments and my clients, I choose to focus on positive cash flow. If you can pay any applicable debt service, cover management fees (a good manager should pay for themselves by paying attention to item No. 1 above), taxes and insurance — and be left with some cash for maintenance, you bought right. You are buying positive. Having a renter pay down debt service in a positive cash-flowing asset is a great way to build wealth. Ask yourself, how many of these investments you can own if it loses $1 vs. how many you can own if it makes $1. Go with the larger number.

3. Know your client. Are you marketing an executive home that is at the top of any renter’s budget? If so, try marketing to custom builders who are working with clients who are building homes and need a place during construction; or to hospitals that are relocating doctors to the area. Focus your marketing efforts on where you may be able to attract customers that are most likely to rent your property. Vacancy loss is never returned. In other words, sitting vacant will never yield a positive return. Focus specifically on attracting a renter for your space through thoughtful and purposeful marketing. It makes all the difference.

While we do not know how high rents will go, we do know that the demand for rental properties has increased significantly on Hilton Head Island and in Bluffton over the past four years. We also know that there will always be renters. Following the steps above will assist you in staying relevant to these folks and may just help you stand out and create a strong rental investment strategy for years to come.

Kevin Quat is president of Absolute Island Management, Inc., a boutique property management firm on Hilton Head Island, specializing in long-term rental management. He is also a licensed Realtor and sales agent for ERA Evergreen working in South Carolina and Georgia markets to build rental portfolios. For sales inquiries please email kevin.quat@era.com. To learn more about property management service please email info@absoluteisland.com.

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