To answer William's question, how can you optimize your rental income. You have to be active on-line. Make sure your properties are prominently displayed on websites like homeaway.com and vrbo.com Use GREAT looking pictures, one picture tells more than 1,000 words Make sure your condo appeals to most people, so your condo needs to have all modern conveniences people are looking for like flat screen TVs, modern kitchen and bathrooms and nice looking furniture. The 1980's pastel colored wicker couches don't work anymore in 2013! That sound logical, yet you'll be amazed how many of those I still see almost every day.... as well as bulky old TVs with VHS players (I'm not making this up). If you can't find a condo in prime condition, you might want to think about buying a condo in a great rental complex like Pointe Santo that needs remodeling. There are MANY tradesmen locally that specialize in remodeling. A full remodel of an average 2/2 condo on Sanibel will run about $80,000. With full remodel I mean everything new from the drywalls in. So new kitchen, new bathroooms, new appliances, new flooring and fresh paint. Add some crown molding, get rid of the drop-down kitchen ceiling. If you're up for this, I personally think that you will have a better chance of finding what you're looking for at a lower overall cost.
1. Owners (You) use. How much and when?
2. Owners efforts (if any) in renting (website, VRBO, field phone calls, email)
3. On-site rental agency or off-site
The answers to these questions start to get you to a gross/net number and determine cashflow.
The appreciation will vary from location to location and improvements needed. Sanibel is climbing. We are up 14.7% this season vs last season. In the first qtr or 2013, 24.1% of all home transactions were vacation properties.
To give you a real life example: Investor buys a $750,000 condo, pays cash, will use 4 weeks a year (2 in peak and 2 off peak), will put some effort into originating reservations, uses off-site rental company, works a deal where he pays 15% for reservations he originates and 25% to Rental Co for all their reservations. 2012 Gross was $74,216. This investors expects to see a 7% appreciation for the next 3 years then a 5% appreciation thereafter and selling in 5 - 7 years. Calculates 25,000 for 7 year furniture depreciation and 725,000 for 27.5 year bldg. depreciation. Apply the cap rate theory and look for something that is 7 - 10% cap rate.
All year - last summer was Sanibel's best summer on record. Hotels are above 90% booked for June. As you might go to your cabin for summer weekends/vacation ... folks from Miami, Orlando, Atlanta come here.
I count on 2/3 occupied and hope for better. I expect a 3 - 5 % appreciation and hope for 10.
Pitfalls - the same as an investment in 1000 shares or CanAgra that pays a dividend.
Hopefully, this helps you think through some things. If I can be of assistance - let me know.
We are still able to negotiate deals, but it has to have a complete due diligence file and a logical and factual arguement.
There are many condos that can be bought using a CAP rate model at 10%, there are some that with 100% financing are cashflow even and with cash pirchases ... cash flow.
It's not flat, what we have is the perfect storm - the sellers think it's a sellers market and the buyers think it's a buyers market, we used to be able to negotiate 15ish% off list now, we are fighting for 7ish.
I live on the Island and all I do is Sanibel and Captiva ... lucky if they let me over the causeway.