Beach Condos and Cash Flow
This recent real estate plunge has offered some unbelievable buying opportunities for beach condos like those found on Longboat and Siesta Key. Let’s face it, the prospect of owning a condo on the gulf coast in the Florida sun at today’s price levels is a compelling opportunity. Interest rates are low and buyers have been out this year in levels not seen since 2005. Inventories have been depleted to levels we haven’t seen in over five years. Unfortunately the time frame to purchase a vacation or retirement home might be a bit soon for some. The idea of buying low and renting out the property to cover costs is what any smart investor would do.
Most buyers start looking for a place that they would enjoy themselves. This works if you financially don’t need the rental income to cover the costs of owning a beach home or condominium. The challenge comes in when some of the cost of ownership will be covered from rental income. Many times, properties that have the best cash flow might not be the most desirable to live in.
The nicest kept condominium communities tend to be owner occupied, have longer minimum rental periods, and can be rented fewer times per year. These types of communities tend to be the properties people either live in or do the “snowbird” thing for a significant part of the winter. They are less transient and don’t have that hotel feel. From a cash flow perspective, this sort of restrictive rental policy might mean vacancy rates are higher which impacts cash flow. There is also the possibility of other restrictions like age which only further restrict the number of potential tenants.
The opposite is true of a condominium that has a three day rental minimum and can be rented 52 or more times per year. You have a much better opportunity to keep the unit rented throughout the year. There is usually a higher ”turn” cost due to management companies having to prepare the unit for the next tenant. You also might find that the cost of these types of units will cost more even though they do not seem to have the same eye appeal as other communities. This is because the pricing in rental focused communities tend to be based on the annual rent they produce vs. the amenities offered an owner.
There’s no right or wrong answer here. Consider focusing on a rental unit if you need the cash flow to carry a condo. When you were ready to spend more time here, sell it and move into a different property. You are still buying the property at a relatively low price, taking advantage of rental income to cover the costs, and still benefit from appreciation.
Sarasota Real Estate Group
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