How have rising prices affected how much income you receive on your Folly Beach rental investment? Demand is showing that buyers are willing to accept lower rates of returns than in previous years. The ability to work from anywhere, making family memories on the beach, and the desire to be “socially distant” are factors driving this demand. I am often asked how much you can expect in rental income so here is a breakdown of the current situation. Please remember that this is not investment advice or a guarantee of future income.
Generally, how much income can I expect?
While in the recent past I regularly saw 10% gross rental income (a $1 million home would generate $100,000 in income) those figures have dwindled. Rental rates, while higher, have not increased at the same pace as home prices. Now I am seeing 8% or even lower GRI. When deducting expenses such as rental management, taxes, insurance, and maintenance, you can expect to net about half of that amount. So if you can realize 8% gross you will see 4% net. Properties such as well-finished oceanfront homes can demand even more of a premium and drive that rate even lower. Cash buyers have the ability to accept even lower rates of return if they really want the property.
How much down payment will I need?
Lower returns mean a larger down payment is needed in order to break even. in the past, 25-30% down payment would be the break-even point, but even more is required now. There are many cash buyers out there and financing a property makes it tougher to compete. interest rates play a major factor in this process so as they rise even more will be required to carry the interest expense. This s the greatest threat in waiting to purchase your dream beach house.
I enjoy helping clients analyze these figures to educate them on how to purchase a rental investment. I am happy to discuss the specifics of income and expenses and bring you up to speed on the market. Having an expert on your side is more important than ever when making this huge financial decision. Let’s get you on the path to owning on Folly Beach.
