Why Condo’s can be a great Investment Opportunity

If you haven’t been living in a Covid induced shell, then you may have noticed that today’s interest rates are continuing to hit record lows.  This can be a great opportunity for both, the home buyer and the investor. Today, I want to talk to the investor.

If you have a large amount of equity in your current home, you may want to consider a refinance to free up capital for the purchase of a condominium for both vacation and investment.  In fact, there probably hasn’t been a better time for this type of move. The past year was hard for everyone, but what it showed was people do not want to stay at home any longer. They want to get out and they want to their lives to be normal again.

Why use a condo or a house on the beach as an investment vehicle? Because it makes sense! A person, much smarter than I, once told me, “you will never go wrong investing in land, they aren’t making any more of it!”

That is why so so many others utilize an investment on the beach or bay to compliment their investment portfolio?  In fact, almost seventy percent (70%) of condos and homes in or around the beach are used as investment income.  Why? Because five million or more visitors per year make their pilgrimage to the Gulf of Mexico and they have to stay somewhere. Spread this out over 365 days and you have a yearlong opportunity to capitalize on your investment.

When considering what to buy, it doesn’t really matter, there are renters in all shapes and sizes. A knowledgeable realtor can direct you on what is popular in the area you are considering and help you find the right price. In Gulf Shores and Orange Beach, for example, one bedroom, one baths tend to rent more often than 2 or 3 bedrooms due to the demand, but all condos rent.

Before you get too excited and drive into the condo owners parking deck, there are some things to consider.  Of course, there is “location, location, location”, but there is also: getting in at the right price; setting up the right management plan; advertising your unit, etc. Again, the right real estate partner should help with these issues, so choosing the right realtor at the beginning of your search is imperative.

Understand that with any investment, you have expenses….So, getting in at the right price, in the most desired location with the best management plan is important.

To help it make sense, I have laid out some things to consider.  So, you have “gross rental income”, which is the money you make before expenses and “net rental income” which is gross rental income minus expenses…. Let’s say your gross rental income is $50,000. And, by the way, these numbers are for informational purposes only and not guaranteed investment numbers or income. Cost of the property and individual results may vary… (my little disclaimer notice).

Let’s say your property is a 1 bedroom 1 bath unit and it rents 30 times a year at an average of $1,700 per week.

Gross Revenue…………………..…….. $51,000 per year

Local Lodging Tax (13%)…………… -$6500

Credit Card booking Fee (3%)……. -$1500

Advertising………………………………. -$500

Yearly Maintenance………………….. -$500

Estimated service calls………………. -$250

This leaves you (Equals)…………….. $40,750

Management fee (20%)………………. -$10,000

Net Rental Revenue…………………… $30,750

Of course, there are other expenses such as insurance, cable, utilities, internet that are often tied up in a Home Owners Association fee…..But, you get it….it takes money to make money. If your property rents more often your income increases.

Aside from the obvious rental income scenario, you are letting other people pay for your personal vacation property.  In fact, most people that purchase one property as an investment, will buy a second one in a few years. It’s easy to see where owning rentals over time really makes a good investment strategy ……

If you have questions about property investment or any other real estate related issue, call me…Russ Duggar at 205-522-8515. I would be glad to help!