A beachfront condo provides you and your family a welcome escape from the winter cold. It also can be a great source of income if you decide to rent it out.
Maybe you never thought of yourself as a landlord. Maybe you are concerned about insurance, taxes and other rules governing rental property.
Don't worry! Especially since the rise of platforms like Airbnb, many people have reaped the benefits of a warm weather condo by renting it out.
Whether you're considering long term rentals or short term plans, there are a few things you need to know before you embark on this adventure. Check out this handy guide to renting out a condo, and get ready to have the best of both worlds.
1. Evaluate the Market
If you are considering purchasing a condo to rent out for extra income, you must select a property that meets many criteria. You want to make sure that this is a place you will enjoy, and that others will want to visit. You want to make sure before you put down that investment that you will get a good return.
Here are a few factors you should consider.
In real estate, the mantra is "location, location, location."
Obviously, beachfront property is in high demand. Renters seeking a spot for the perfect vacation want a view and convenience.
Look into various areas where vacation properties are common. Myrtle Beach is a popular spot on the East Coast of the U.S.
Think about the kinds of people who may be looking to rent. Is the spot more suitable to families on a budget, looking for quiet, safety and sunshine? Or is it a party area, with lots of bars and restaurants?
There are many varieties of rental properties, each appealing to a different demographic. Some people are willing to spend a lot more to be secluded and far away from anyone else.
Before buying, assess the potential profitability of the location. Zillow is helpful for estimating the rental values of certain properties.
Depending on your particular target market, renters will expect certain amenities. If you are focusing on families with children, they will have different expectations than high-end luxury seekers.
Check out locations like Myrtle Beach which have a wide variety of amenities. Many condominium complexes have pools in addition to being on the beach, which is attractive to many people. They may also offer tennis courts and even golfing facilities.
Amenities like a concierge and a spa may justify higher rental fees. 24-hour security is an amenity that many will have no problem paying for, especially in locations with higher crime rates.
In addition to amenities offered by the resort or building, renters will expect each condo to include the basics and more. These will affect the overall cost of setting up your rental property.
The basic amenities you will be expected to provide include a washer and dryer, cable TV, and wifi. However, your property will have wider appeal when you include more than just the bare essentials. You have to prepare to provide everything that will make them feel like they are at home- or better!
In addition to kitchen items and cutlery, sheets and towels, prepare to supply fun for a rainy day like books, video games, and movies. A pool table might be the extra something that makes your condo more appealing than its competitors!
Renters will want a selection of activities to enjoy in a rental condo, so look at properties which offer fun things to do or are located near fun activities.
Many successful landlords/"hosts" provide pamphlets and suggestions for ways to enjoy a vacation in the area. Check out the local tour companies to see if they offer excursions at reasonable prices.
Look into whether the local pool, tennis and golf facilities allow you to extend your homeowner privileges to renters or if they offer a day pass. You don't want to disappoint potential renters expecting to have full use of the facilities when that may not be the case.
Depending on the location of your property, you can stand out from your competitors by offering unique experiences. Once you get to know the community, you may be able to partner with local entrepreneurs offering special events like casino nights, scuba diving or cooking classes.
Before you invest money in a condo which you expect to rent, check out all pertinent municipal and state zoning ordinances. Some areas will not permit rentals of a certain length of time, and others prohibit renting to large groups.
Some condo associations prohibit renting except under specific circumstances. Others may charge high fees which may negate the potential profit you hope to make. Restrictions and taxes which may apply before you invest in a condo.
2. What to Include in Your Budget
Before you make this investment, you need to figure out how much you can afford to pay. Set yourself a strict budget so that you remain within your self-imposed boundaries.
Rental properties entail costs, from taxes to maintenance to a myriad of other expenses you may not anticipate. Make sure that you lay out all potential costs in order to purchase something that will eventually turn a profit for you.
If you have to borrow to afford your condo, factor the mortgage payments into your anticipated budget. Of course, you should also factor in the benefits of holding a mortgage as well. Speak to a CPA who specializes in accounting for rental properties to see your costs, potential savings, and write-offs.
There are numerous tax benefits to owning a second home which you rent out. However, you must adhere to certain regulations.
The IRS has special rules on how many days you must rent the property out in order to write off the expenses of owning and maintaining the property.
Insurance for rental properties is a different matter than simple homeowners insurance. You need to insure yourself against potential damage done by people living in your condo. If they break or steal belongings, you need coverage.
You also need insurance to cover you in case anything happens to the renters while they're on your premises. You have the obligation to keep your property in a safe and habitable condition. But if someone slips and falls on the steps to your condo, you want to have insurance covering any claims they may bring against you.
Unless you purchase a furnished condo, expect to spend some money setting it up. As noted above, your renters will expect nice new furnishings in addition to kitchenware, linens, and amusements.
Put some effort into decorating your rental unit in a simple, attractive way. Resist efforts to put too personal a stamp on the decor. Renters want to feel like the place is theirs, and they may not share your unique aesthetic.
Spend money on high-quality mattresses and towels. These are the items which get rave reviews on online platforms like Airbnb and keep renters coming back.
You are going to need to spend some money to market your rental. Depending on who you want to attract, you may take out an ad in a local paper or invest in a social media campaign targeting that specific group.
VRBO, Airbnb and other platforms do a lot of the work for you, for a price.
You may also find working with a local realtor is helpful in getting the news out there that your condo is available. However, they will want a commission.
Marketing is a worthwhile expense for which you should budget. What good is owning a rental property if no one knows it's for rent?
Many condo associations have a monthly or quarterly maintenance fee, on top of the sales price. That will cover the expense of maintaining shared spaces like the lobby and pool area.
Unless you live close by and expect to be available to renters and in between rentals at a minutes notice, it is advisable to have someone on site or nearby to handle things for you.
If a tenant has a problem like a leaky faucet or broken dishwasher, you need to have a handyman on call who can come by and fix it. You also need a cleaning service to make sure the property is spic and span in between rentals.
3. Figuring Out the Logistics
As you think about everything you need to rent out your condo, take into account the logistics for the everyday issues that may arise. If you live close by to the condo, you may be able to handle any last minute emergencies that come up. On the other hand, if you live far away, you will need people you trust to take care of things in your absence.
a. Rental Managers
Many of the headaches that can arise from renting out properties can be alleviated if you hire a reliable property manager. This person may live near your condo or even in the same building. They should have a cell phone or email address where they can be contacted around the clock in case things go wrong.
A client may have forgotten the passcode for the door. They may have broken something. There may be a leak or a faulty appliance.
A good rental manager will handle these small issues without you having to get involved in every little thing. They will of course report to you every complaint or problem, and confer with you on how to resolve them.
A rental manager may charge you an hourly rate, or ask for a portion of your rental fee.
If you use Airbnb or other online platforms, there is an online schedule which will help you track who is in your property when. You can also set aside certain weeks when you or your family want use of the property, so that it's not available to others.
Scheduling can be a time-consuming task, and generally, a rental manager will include it as part of his or her services. You can work with them to set up a uniform way of dealing with each request, including sending out individual rental agreements and also handling cancellations.
c. Clean up
Some rental managers double as cleaners and will take responsibility for cleaning up the condo in between rentals. Others manage a cleaner or maid service to come in.
It's important to make sure the unit is professionally cleaned in between rentals. This is often the biggest complaint online about rental properties. No one wants to see someone else's hair in the bathtub.
Beachfront properties also invite lots of sand, so make sure everything is vacuumed and bleached. All linens must be laundered in between stays, and the dishes must be spotless. Some guests leave the condo in bad shape, so keep track of who isn't a good guest so you don't rent to them again.
A good rental manager will handle problems. No matter how well you plan, you need to anticipate that the unexpected will happen.
Along shorelines, sometimes there are hurricanes. You need to decide whether you will include special circumstances like weather issues to cancel rental agreements, and how to handle these issues when they come up.
You may also occasionally have nefarious renters who take your belongings or don't pay. Make sure your rental contracts contain clear language about their liability in such cases and under which state law any violations will be arbitrated.
Renting Out a Condo for Fun and Profit: You Can Do It!
Renting out a condo is a great investment. Depending on where you purchase, you can buy a beautiful piece of paradise for a reasonable cost and make money off the investment when you are not enjoying it yourself.
Many retirees use this strategy to supplement their retirement income while at the same time having a nice place to spend the winter and host family and friends. If you plan right, you can make some money and also kick back and relax.
Let your property work for you. Think about whether this investment is right for you.
For more information about purchasing and renting a condo, check out our blog.