Sanibel, Captiva, and much of Southwest Florida are considered vacation markets. Condos and homes are often rented out as vacation rental properties, thus, generating rental income and holding additional “value” aside from home appreciation.
In a webinar I recently hosted, the question was asked: “Why don’t the ‘for sale’ listings of Sanibel homes ever display the value of a rental property?”
It’s a great question! The answer is that it’s hard to assign an accurate value, price tag, or “worth” to a vacation rental property, especially since each property has different factors affecting its income.
Rental Property Varying Factors
Let me try to explain some of the factors that make it difficult to assign a “value” for rental properties.
- Owner Usage – Obviously, the more time an owner stays in a property, the less opportunity for renting out that property.
Note: Sanibel doesn’t have your typical “investors.” Most people are buying a home or condo because they love the island and plan to spend some time here themselves. They rent the property out when not in use.
- Family/Friend’s Usage – Even if owners only use the property for two or three days in the off-season, the time they provide friends and family, even at a discounted rate, can greatly affect rental income.
- Rental Management – There are many factors within this one category.
- Marketing a property makes all the difference in the number of bookings.
- The reputation of a property management company can also affect bookings.
- Customer service plays a huge role in whether a vacationer will return to the property in the future.
- And obviously, the commissions charged by a rental management company will also directly affect the rental income earned on a vacation property.
- Seasonality – As you know, “peak season” here is in the winter when it’s cold up north. Prices increase in peak season due to more demand. Prices often decrease during the summer months to encourage visitors to book a stay. Sometimes in the “off-season,” a complex will undergo renovations or shut-down completely for repairs, which could affect the rental income earnings for that year.
- Economy & Travel – Travel safety restrictions (such as COVID) greatly affect potential rental income, as we’ve learned recently. Any major swing in the economy could also affect the number of visitors and your overall rental income in a year.
A condo could have made a gross income of $48k one year, but only $22k the next year due to any of the reasons listed above. Or, a new owner’s usage/management of a condo could greatly affect the amount of income they produce versus the previous owner. That’s why it’s hard to put a set worth for a particular vacation property.
What We DO Advertise
While we steer clear of guaranteeing any sort of rental income for a property for obvious legal reasons, we DO share as much rental history information available. Usually, we can obtain at least three years of rental history, which includes the net and gross income and details on expenses and commissions paid. We also try to highlight the owner usage or other variables that might have affected the overall income.
If a property doesn’t have rental history, or we believe the property could produce higher income than its history shows, we’ll have one of our vacation rental management companies provide a pro forma of the potential rental income a property could generate. Again, pro forma’s are just an estimate and subject to the same factors I listed before.
Your Realtor® Can Help
If you are looking for properties with high income generating ability, rely on your Realtor® to help you find the best options! After all, they know the local market, and already have insight into the condo complexes that allow daily and weekly rentals, thus the ability to generate higher income.
By partnering with both your Realtor® and property appraisers, you can navigate the dynamic landscape of real estate investment with confidence, securing properties poised to deliver not just income but long-term prosperity.
I hope this helped to answer the question I received during my webinar and also shed light on the topic for those interested in a vacation rental property in Southwest Florida. If you haven’t already watched the webinar about investment opportunities to consider in 2021, click here to view it on our McCallionRealty.com website!
