Rental Property owners page
If you are the owner of a property you would like to rent there are many
factors you would want to take into consideration. If you just bought your dream
property and furnished it impeccably, perhaps with the thought of retiring there
in the future, you need to assess whether your emotional makeup allows for the
thought of strangers occupying your property and creating wear and tear, and
quite probably being careless and sloppy with your personal possessions. Weigh
this against the income you will receive, keeping in mind these guests are
helping you pay your mortgage.
My wife and I were exactly at that juncture some years ago. We decided to
furnish nicely but not extravagantly, use ceramic tile flooring extensively (it
holds up to sand much better than vinyl or wood) and carpet with a medium grade
carpeting. We mentally prepared ourselves for the property to get "beaten
up". Our thinking was that when the time came to make it our full time home
we would replace the carpeting and most of the furniture and would need to at
least touch up the paint.
We considered renting the property ourselves, but as absentee owners, we
wanted someone to look after our place to minimize damage and keep up with
maintenance needs, and to inspect the property after each rental in case there
was damage. We also wanted someone to acquire
renters and maximize income. We interviewed several rental agents / property
managers to asses their capabilities and to understand the costs involved.
were both thoroughly involved in our lives away from Hilton Head and didn't want
to be distracted by day to day situations involving the property, like calls in
the wee hours because the hot water ran out, or handling repairs remotely.
After assessing the costs versus the anticipated income, we decided the
income would pay to replace furnishings and carpeting and still leave enough to
help make the mortgage payments. We chose a rental agent that provided good
references, was located close to the property and managed properties only in our
geographic area. The idea was our property would get closer attention if the
agent was very localized.
These turned out to be good decisions. Several years later, when we did move
here permanently, we were pleasantly surprised we didn't need to immediately
replace the carpet (we have since) and most of the furniture is still in place
(not the sofas - they do take a beating). Not having high expectations was
helpful in terms of accepting the wear and tear we saw during vacations here and
upon our move.
After moving to Hilton Head we became involved in the rental management business, from
which we are now retired. Having experienced both sides of that business, I feel uniquely
qualified to offer advice to property owners.
When you are shopping for a property, do your cash flows. Don't expect
positive cash flow if you have a mortgage. Any agent who tells you otherwise is
to be viewed with great suspicion. Don't listen to talk about how many weeks
of rentals you can expect. If your agent rents your property to
"snowbirds" for the winter months, you will get twelve to fourteen
weeks of rentals, but you will get about the same for a month as you would for a
week in the summer. Talk dollars and forget the agent who says you can get
20 to 22 weeks of rentals. Ask to see the monthly statements for comparable
Scrutinize costs carefully. All agents take a percentage commission of the
rents collected. Some add an "advertising" charge. After every
occupancy, the property must be cleaned and fresh linen provided. Does the agent
bundle the cleaning cost with the rental price or charge the guest all or part
of the cost? Be sure you understand where this cost goes. Who supplies the
linens? If you do, that means they are laundered in your property using your
appliances and your electricity. Also there will be an expense as linens and
towels wear out or vanish. How is shrinkage of kitchen items and place settings
What charges are involved when you use the property yourself, or when
you send a relative or business associate? Can you participate in the rental of
your property or in referring people you know to the agent (commissions to
you)? How are travel agent referrals handled?
Another cost issue involves maintenance. Many agents have no maintenance
capabilities in-house. If a toilet stops up they call a plumber; if a light bulb
burns out they call an electrician; if a doorknob comes off they call a
locksmith. Usually the agent marks up the service call cost for
"handling". I have seen monthly statements listing a $40 expense for
replacing a light bulb. Scrutinize a number of actual monthly statements.
they want to provide copies with the owners name and address blacked out, that's
reasonable, but do see some actual statements.
Some agents limit how many weeks you can occupy your property. This is the
height of arrogance, and these agents should receive no further consideration
Some agents hold out some number of rent free weeks for
"promotion", ostensibly to entertain travel agents. Don't buy that for
a minute. Travel agents are a very small part of the majority of rentals, which
occur in the already busy summer months.
It helps to have a local agent as opposed to one who manages properties all
over the island. Agents who concentrate in limited areas are able to give those
properties more personal attention. Also, the employees are more likely to be
familiar with your particular property, which helps them sell it.
A good rental agent will send in an employee to inspect each property between
occupancies. This is to ensure the property has been cleaned properly (and to
touch up where needed) and to replace burned out light bulbs, replace dead
batteries in TV remotes and smoke detectors, spot and report any maintenance
needs, and ensure an adequate supply of kitchen items and towels. A good rental
agent will "turn over" 80% to 90% of the properties under management
on summer Saturdays. One inspector can inspect about 10 to 12 properties
in one day. Ask the agents how many inspectors they employ on "turn
day" and compare that to the number of properties
managed. Also, when you come to stay in your property yourself, if you find burned out
light bulbs or dead batteries in greater frequency than can be explained by human
error, a red flag should go up.
After all these questions have been answered and you have checked references
and narrowed the field, check with the Better Business Bureau and with the South
Carolina Real Estate Commission. See if the "broker in charge" has
ever been sanctioned by the commission or had a license suspended. The agent you
select has to be one you trust to a great extent for your peace of mind. If an
agent rents a property and doesn't tell the owner, his commission is 100%, and
the chances of being caught are minimal (the consequences are not). Trust is
The best rental agents try to relieve the owners of any of the burdens of
ownership they can. When the time comes to redecorate, replace furniture, draperies, or
flooring, your agent should direct you to the
appropriate retailers, where you can select colors, products and so on and tell
the retailer to handle installation, delivery, etc. through your agent. That
should be the end of it for you. The agent should handle coordinating work or
deliveries in such a way as to avoid loss of rentals, and should check out the
results to make sure you got what you paid for undamaged and of good quality.
your new refrigerator arrived with a dent, a good agent will know that and have
it replaced without involving you.
Once you decide on a rental agent, discuss your goals with their management.
If you want to maximize income, say so, If you want to limit wear and tear,
discuss that as well. Discuss rental rates - the higher the rate, the fewer the
rentals, the less wear and tear and the lower the income.
Last but most important, trust the agency you hire. If you loose that trust,
Practical tips for owners of rental properties
Furniture with horizontal tops should have laminate tops or, if wood, be
covered by glass. It's very humid here and cold drinking glasses sweat like
crazy, which destroys wood tops (I don't care what the furniture salesperson
said about the finish).
Dining room chairs must have rungs all around so they don't break when some
big guy tilts back. Upholstered seats and backs must be plastic. Chairs can't be
too sturdy because you usually can't replace just one.
Paint your property any color you want as long as it's white. White makes the
rooms look bigger and is a color that will not offend any taste. Bring color in
with artwork, furniture and draperies.
Avoid wallpaper like the plague. A damaged wall (suitcase dings) can be
repaired easily and cheaply if it's painted. If it's wallpapered you have a
whole different situation. The high humidity on Hilton Head causes wallpaper
edges to swell and curl, especially in bathrooms. Plumbing repairs sometimes
require cutting a hole in a wall. Not a problem with a painted wall. If
you must paper, limit it to a border at the top of the wall.
Avoid vertical blinds like the plague. These are high maintenance items, with
no standardization of parts. Most renters either don't know how to treat
vertical blinds or don't care. I have even seen owners walk through vertical
blinds rather than take the time to open them. Without exception, every
installation of vertical blinds I know of has been replaced with drapes.
Microwave ovens are a necessity. VCRs and DVD players are rapidly becoming a necessity (they
are in high-end properties). Multiple TVs are a necessity (kids TV, adults TV,
Nintendo TV). Renters now expect a high speed Internet connection (wi-fi or hard
Matching bedspreads and bedroom drapes is not a good idea. When a bedspread
needs to be replaced it gets too complicated.
A love seat is impractical. It seats only one, as a practical matter, and it
probably matches the sofa, which will wear out first. When the sofa needs to be
replaced, what happens to the love seat? Get some comfortable club chairs
Almost too obvious is that carpet color should be some combination of dirt,
Kool Aid, cola and coffee. Carpeting doesn't wear out, it stains out.
Don't have too many knick - knacks around. They add clutter and are likely to
Go with the least expensive appliances like coffee makers, toasters, clock
radios, etc. They are adequate for renters, are less likely to disappear and are
inexpensive to replace. Wal Mart is a great place to get them
Do have family photographs on display, especially 8x10 portraits of
individuals. They personalize the property, and guests will take better
care of it after seeing the likeness of the owners.
Do make your property non-smoking. You won't loose many, if any
rentals. And although your agent can't police smoking, it will reduce the
incidents of burn holes in carpets and upholstery and nicotine stains on
bathroom counters. Supply ashtrays anyway, for the cheats, or they will
use anything they can.
Flooring in bathrooms, kitchens and foyer should be ceramic tile, not vinyl.
Even expensive vinyl will not hold up to abrasive sand, and tile is only
slightly more expensive (sometimes less) but extremely long lasting. Consider
ceramic tile for the dining room also, with an area rug to soften it. Dining
room carpeting takes a terrible beating with food spills and constant cleaning.
The area rug can be easily replaced.
Understand that it takes money to make money. Your property is an investment
that needs to be taken care of by reinvesting some of the income from it.
Keeping it up to date with decent furnishings and flooring is vital to
maximizing your rental income. You can have repeat guests (who usually take good
care of the property) or you can have guests who are disappointed and perhaps
resentful enough to trash it. You are competing with neighboring properties for
renters. Often groups will rent several properties and visit amongst them. What
will they say about your property compared with the others? What is the cost to
you to loose a week's rent because guests demand to be moved to a better
property? You loose not only that rent, but that guest possibly forever.
Last, when you come to visit and you see some wear and tear, remember that
anything can be fixed. It's just wood, sheetrock and fabric.
Condo or house?
With a house you have landscaping,
pool, and exterior maintenance, plus pest control requirements. With a
condo, much of the maintenance is taken care of. A big plus for condo.
Condos are run by homeowner's associations (often inexperienced in
maintenance matters), and you will have little say in how it's run or
how much money is spent and what it's spent on. Important considerations
when considering a condo purchase is how much money is in their reserve
fund for unexpected maintenance, and what the maintenance history is.
Ideally, the management will have a life-cycle study that forecasts the
useful life of various infrastructure elements like roofs, siding,
paint, pool, etc. and budgets for the replacement of these over the
years, as part of the homeowners fees. If maintenance has been neglected
or band-aided, sooner or later there will be some major repairs or
upgrades. This can result in a huge assessment being levied on all
owners. I personally know of six-figure assessments on owners of several
condo properties. Of course, that could happen with a house, too, but
it's less likely and you have the control. With a house, you have the
decision making authority. With a condo, the majority rules and they
will make decisions you don't like.
I am neither an insurance professional nor a lawyer and
can only give general advice. You should address your insurance needs with a
Your property is either "fee simple" or it is a
"condominium". An example of a fee simple property is a free standing
house, where you are individually responsible for all parts of the structure.
Some townhouses are also fee simple. A condominium is a situation wherein
multiple owners are jointly responsible for some parts of the structure, such as
the roof, outside walls, etc. Virtually all properties in a high rise
building, for example, are condominiums since they share the roof and outside
walls as well as the grounds and pool (common elements).
Fee simple is
straightforward - you insure everything, building and contents. Don't stop
reading here, but skip the next paragraph.
Condominiums are managed by
property owners associations, often with the help of a "regime
management" company that handles day - to - day affairs. The association
typically insures some part of the property, which insurance you pay for through
your monthly or quarterly dues. Even before you purchase a condominium, it
is vitally important to get a copy of the association's insurance policy
to understand what is insured and where you need to fill the gaps. For example,
the association's policy might cover the roof, exterior walls, maybe the
interior walls and floors, liability for some incidents, and sometimes even the
furnishings in the property, always with some limitations. Usually, when the inside walls (& floors) are
insured, it's limited to restoring the property to the condition it was in
when built. This means upgraded carpeting, flooring, chandeliers, plumbing
fixtures and wallpaper are not covered. Take the condominium policy to your
insurance agent for an explanation of it's coverage and to choose supplemental
insurance to cover the gaps.
The first place to shop for insurance is with the
company or agent that has the insurance on your primary residence. Usually a supplement
to that policy is the most economical way to go.
Since Hilton Head is
vulnerable to hurricanes, you will surely want a wind and hail policy,
and a flood policy
which are separate from other insurance (if it's not adequately covered by a
condominium policy). You might also want earthquake insurance, since a nearby
fault has been responsible for a major earthquake in Charleston. Your agent can help you find
all this coverage.
also keep in mind if you rent that guests can cause damage to your property
which can be extensive when fueled by alcohol.
You will want to consider if
you want to insure:
The building itself.
The furniture, artwork, drapes, wallpaper, flooring, chandeliers, TVs and
Appliances in the kitchen, bathrooms, etc. Air conditioners.
Liability insurance for injuries to people on your property (a must-do if you
Burglary (your guests and you are probably covered to some extent by homeowner's
Also, weigh the deductibles against the cost of the policies and decide how much
risk you are willing to shoulder.
Let your insurance professional guide you. These are just some things I have
You might be interested that in ten years of managing
many properties (over a thousand condo-years), I saw losses from fire one time,
from burglary twice, from personal liability once, and from water damage more
times than I can count.