What Revenues are Typical for Rental Properties?
Rent:
Usually the only source of revenue from a rental property is the rent the tenants pay you. To determine how much you will receive in rents you can ask your realtor what the current tenants are paying in rent (if the prospective property has tenants). This will let you know what the property currently rents for, but the rents may be under market value. To find out what the market value of the rent is on this property you can look at websites like rentometer.com and apartments.com. However, there are a lot of nuances to determining the market rent. To get a more accurate rental estimate you can reach out to a local property manager. Any good property manager will know approximately how much the market rent is for the property. (Call us at 843-706-2030 to get a rent estimate and check out some of our pricing plans)
Miscellaneous Revenues:
These revenues can include income separate from rent. For instance, an apartment building may have coin operated laundry machines, which acts as another source of revenue.
There are a number of expenses for a rental property. Some occur every month, yearly, or at random intervals. We’ll take a look at the usual ones and also some expenses that are more common in the Lowcountry that can be included in your calculations.
Property Taxes:
Many listings will tell you what the seller is currently paying in property taxes, but due to how quickly home values have been increasing in Bluffton and Hilton Head it is likely that the taxes you will be paying will be higher than what the current owner pays.. To estimate property taxes use the Beaufort County Property Tax Calculator. Just put in the home price, select the 6% assessment ratio (if it is an investment property you are purchasing), and select the tax district for the location the property is in based on this list. The tax district portion is confusing as you’ll see towns listed multiple times with different letters at the end of the town name. For instance, Bluffton has “600 Bluffton O/S”, “601 Bluffton O/S TIF”, and more. Select the option that only has “O/S” or does not have any letters at the end of the town name, such as “Port Royal”. To make things even more confusing You’ll notice that Bluffton has “600 Bluffton O/S” and “610 Town of Bluffton”. “600 Bluffton O/S” is used for unincorporated parts of Bluffton and “610 Town of Bluffton” is for the incorporated parts of the town. The list linked above will tell you what part of town the property is located in. Your property tax liability will be the total under the “Taxes” column. This number is the annual amount.
Insurance:
With the property details in hand, a call to your home or auto insurance company should be able to provide you with a quote for the potential investment. Many insurance companies will bundle your home, car, and landlord insurance together to give you a much better rate than if you used a different company for your landlord insurance.
Flood Insurance:
This is a separate insurance policy and may not be needed for the property. Your realtor, or the listing agent will know if the property is in a flood zone. If it is then you should get a quote for flood insurance as well. Both property taxes and insurance will be combined with your mortgage so that you pay for all three items at once when you make your monthly mortgage payment. Your lender will automatically disburse the funds to the insurance company and the property taxes to your town.
HOA Fees:
Most properties in the Lowcountry have HOA fees associated with them as well as one-time HOA transfer fees (which are added to your closing costs). Your realtor, or the listing agent should know how much these fees are. Alternatively, you can look up the name of the community the prospective rental property is located in and include the term “HOA fee” in the search to see how much these fees are
Reserves:
Reserves are used for maintenance, capital expenditures, and vacancies. These expenses do not occur every month and instead a monthly average should be estimated. These expenses will vary based on the age, size, and desirability of the property. Chances are the the properties you are looking at in the Lowcountry are no older than 25 years old as the vast majority of homes in the area were built after 2000. There are also various small maintenance expenses that crop up every few months and the occasional HOA maintenance requirements such as power washing the house.
The rental market is usually strong in the Lowcountry so vacancies should not typically be too big of an issue, but it is never a bad idea to set some money aside just in case. Currently, most homes managed by RMA are being rented to new tenants before the old tenants move out. However, at least two to three weeks of vacancy every 1-2 years should be accounted for in case the rental property can not be rented immediately and since normal wear-and-tear maintenance will probably have to be performed between one tenant moving out and another moving in. Having said that, RMA has many tenants that have stayed in the same rental for over 5 years.
For a single-family home in Beaufort County the maintenance, capital expenditures, and vacancies can be estimated to average around $300-$400 per month. A multi-family will average around $200-$300 per unit per month, and a condo unit will average around $200-$300 per month as well.
Miscellaneous Expenses:
If using a property management company then the monthly fee should be factored into the expenses. This fee is typically 10-12% of the rent collected and is used to compensate the property manager for their source of reliable contractors, time for taking phone calls, performing inspections, overseeing maintenance requests, and taking care of other issues that can pop-up. There is also typically a lease renewal fee of $100-200 if the current tenant in your property renews their lease as well as a tenant placement fee to cover marketing expenses when a new tenant is needed. For more information on what a property manager does check out this article.