Susan and I recently helped Robert who was investing on Sanibel Island. Robert wanted a property with solid history of vacation rental income. He has vacationed on Sanibel Island since he was a kid, and knew how special the island was to visitors, especially repeat vacationers like himself.
After talking more about his goals and why he wanted to invest in property here, we helped Robert answer a few key questions before investing on Sanibel Island that we thought were worth sharing with all of you as well! So, here they are…
Decisions Before Investing on Sanibel Island
#1 Single Family Home or Condo?
This may be the most critical and fundamental question to get answered first. This decision will narrow down your search and thus help you find the best opportunity. Homes and condos have different rules that affect the cash flow these properties can produce.
You have to decide on your priorities. Is cash flow the main consideration? Then a condo that allows weekly (or shorter) rentals will be your first choice. If you are looking for a property that you may want to move into at some point, then a single family home or a condo with rental restrictions may be the best choice.
Short Term Vacation Rental Condos
Many condo complexes on Sanibel allow weekly rentals, which is now the shortest Sanibel allows. However, some condo complexes are grandfathered to allow daily rentals. These short term rental complexes almost always produce the best cash flow for the purchase price. Plus, since the rental periods are short, it can be easier for you to enjoy your property for a week here and there – even during season – while still earning good rental income.
But some folks find the complexes too busy, with guests checking in and out frequently. You can also expect greater wear and tear on your furnishings and finishes. Not to mention, managing weekly rentals is a BIG JOB, which almost all our clients hire a vacation rental company to manage.
Single Family Homes
The City of Sanibel limits the rental of single family homes to be no shorter than 28 days. This has a great impact on your ability to find renters off season, and usually causes homes to be vacant for greater periods of time, thus producing a lower cash flow than equivalently priced short term rental condos. Also, as an owner you will be less likely to enjoy your property during season if you want to maximize your rental income.
We have several clients that have purchased rental homes and have enjoyed both good income and appreciation in the value of the property. Some even manage the rentals themselves using VRBO.com as they have less guests to worry about. This saves them from paying a rental management company.
However, many of our clients buy homes that they plan to use for themselves. They purchase at today’s prices and mortgage rates, use the property some, and also rent out the property to help off-set costs.
Long Term Vacation Rental Condos
Condo communities may choose the further limit the minimum length and frequency of rentals within their complex. Many have limited the rentals to monthly or only a handful of rentals per year. These work out to be similar to owning a single family home. Some of our clients prefer these condos, because they can be on the beach and enjoy the association taking care of the exterior grounds and pool.
In case you’re wondering… our client, Robert, is looking to use his property as a Winter home in five years when he retires, so he felt a single family home was the best choice for his needs.[thrive_lead_lock id=’9879′]
#2 Do You Want to Manage Renovations?
Many folks tell us they are willing to buy a fixer-upper. But most end up with buying a home needing only minor updating. Others know they have no interest in renovations.
As you likely know, properties that are in need of repair or have a major eye-sore often sell (and rent) at a discount. These can be an opportunity to get a better return on your investment, but is more effort and stress for you. Can you see beyond the current condition of the property and focus on the potential the home has with a few renovations or a slight remodel? This can be difficult for many people. I admit that I enjoy helping situations like these, where I can brainstorm creative solutions with our customers to make the home meet their needs.
- Lower purchase price
- Likelihood of owner equity after updates
- Rents can often be increased after updates
- Sanibel has a larger inventory of homes that require some updating
- More work for you
- Can be stressful
- Property does not generate any income during renovations
- Requires “Vision” (and some bravery!)
- Less work for you
- Lower stress and worry
- Often a better rental history
- Can keep earning without pausing for renovations
- Higher purchase price
- Lower supply of renovated homes
- May take more time to build owner equity
Also, rental properties that are outdated often don’t earn as much income as similar properties that are updated. This needs to be considered when comparing rental histories. If you update a unit, you should be able to make more on rental income. In fact, sensible updates can provide a great return.
Remember, any home you purchase, we strongly recommend hiring qualified inspectors to help determine the condition of the home to reduce the risk of expensive surprises.
Robert expressed upfront he had no desire to handle a lot of home renovations. So, for him, we looked at properties at a higher price point that only needed a few updates.
I’m not saying either type of investment is better than the other, it all depends what’s right for you. I will point out though that there are many homes on the island that have not been renovated in the past decade or two… and most will need some TLC. Just a heads up.
#3 Think Water
I’ll state the obvious here, homes and condos that are within walking distance to the white sandy shoreline receive a greater rental income than those that are less conveniently located to the beach, but they also cost more.
Let me pause to point out that Sanibel and Captiva are small islands, so no matter where you buy on island, you’re only a short drive or bike ride to the beach! With that said, the properties that are walking distance to the beach will generate more interest throughout the year, renting more frequently and at a higher rate than those properties that are not as close to the beach.
Remember you can change a home’s appearance, but you can’t change its location!
Continuing on the water topic… another often overlooked quality of an investment property is whether or not it has a pool. On Sanibel especially, adding a pool is not as easy as digging a hole and filling it with water. There is a permitting process that homeowners must go through with the City of Sanibel before any work can be done.
Therefore, finding a home that already has a pool, even one that needs some work might be a “better investment buy” than a property that doesn’t already have a pool and hasn’t yet been permitted to add one in. That’s something to keep in mind when searching online and selecting the homes you’d like to see in person.
I hope outlining these critical decisions before investing on Sanibel helps you with your home buying process. Susan and I enjoy working with investors and seeing what we can find that best fits their needs. While finding the right property it fun, honestly, the best part is seeing the improvements they make to the home, and hearing their success stories after its all said and done!