Hilton Head Island real estate prices jumped at the end of 2021. One possible reason was that investors who were becoming wary of the stock market wanted another place to put their money. These people also saw inflation coming and know that real estate can be a great harbor when currency is losing value. Low interest rates were also a contributor.
We purchased our first condo in 2017, and decided to buy a second unit in 2021. We had been visiting Hilton Head for about 30 years, so we know the area very well. Now that we have purchased two units, we have picked up some tips that potential buyers may find helpful. This article is especially for people who want to rent out their units.
1. Know the Area
Hilton Head has several major areas, so there will be something for everyone. For rentals, most investors purchase units in Palmetto Dunes, Shipyard, Sea Pines, North and South Forest Beach. Click HERE for a good map. But you need to spend some weeks on the island to learn what it is like on the ground. For instance, properties near the marsh are beautiful, but at low tide, you can often smell hydrogen sulfide gas given off by something called Pluff Mud. Locals get used to it, renters do not.
2. View Available Properties
Zillow allows you to pick an area on a map and display most of the units for sale in that region. The beach is still the major attraction, and beachfront units sell for more than those off the beach. And they can appreciate more, but they are also on the front line when any hurricane hits the island. A roof leak in a top floor unit can rain down on all the units in the ‘stack,’ and even take ground floor units off the market. When Hurricane Matthew hit the island in 2016 many units were unavailable for renters for over a year. Some simply because air conditioner units (many on the roof of the condos) were offline because of roof damage.
Older units (like Captains Walk) were built with every unit directly facing the ocean. Subsequent developers learned that if they angled the buildings they could create more units with a somewhat diminished view of the ocean but they could make more money. Being able to look out of your windows, or sit on the balcony and watch the ocean is a huge asset.
3. Talk with a Management Company
Most renters live elsewhere and have a local management company handle the property. This is by far the easiest way to be a long-distance landlord but at quite a cost. You will find that a company that says it only takes 20% will end up pocketing 30% (or more) of the total that the renter pays because of additional fees that you don’t see on your statement. On the plus side, they handle everything – finding and booking renters, handling car passes, scheduling cleaning, inspecting the unit, taking care of damages and minor repairs, and even changing batteries in remotes. A larger company will also be able to move a tenant to another property in case of a major problem, like the failure of an HVAC system.
Whether you end up using a management company or not (and I strongly recommend doing so for your first few years, at least) they are an excellent unbiased source of expert knowledge. It is so hard to find someone who you can trust to give you honest answers, but when you sit down with them and tell them you are thinking of buying a unit on Hilton Head and ask them what they would recommend, they will give you invaluable information. They know which units they can rent, and for how much, and their motivation is the same as yours – to make the most money possible. They will tell you when the three-bedroom units rent (mainly summer) and when the two bedrooms rent (‘snowbirds’). They will let you know which properties renters prefer and which ones they have trouble with.
Plus, you will probably be hiring one of these companies and you need to get to know their key employees.
4. Inspect the Unit
Although some purchase properties without ever visiting, it is certainly a good idea to have a realtor walk you through the unit. Pay some attention to their sales pitch, but also take the opportunity to look behind the curtain. Some of these units were built in the early eighties and have not been well maintained. Look at the labels on the HVAC, water heater, and all the appliances. You don’t want to have to replace any of these your first year. Look at the plumbing, if possible, and check out the cabinets. Every unit has its underside, and it is better if you find out before you buy.
Also, check the location. Is it over the pool? Nice view, but it will be noisy. Is it near an elevator? Does it have a balcony or windows facing west or south? If so, expect it to be hot in the summer and expensive to cool. When you face the ocean, the sun will rise generally on your left and set behind you.
5. Get a Rental History
The real estate agent will give you a history of the past several years of actual rental income. Sometimes you have to ask, but don’t skip this step. This will give you a true picture of how the unit will be able to perform.
6. Realize There Will be Additional Expenses
Some of these your agent can provide, but the biggest ones will be property taxes (SC taxes non-residents much higher than residents because they can’t vote – plan on $10,000 a year and up), property management fees (from $500 to $1,500 per month) and maybe fees for the community ($1,000 and up per year). Insurance is not expensive, because it will only cover the contents of the unit – the structure insurance is paid for with the management fees. Add liability and lost rental income and insurance will cost you $1,200 per year or less. Then there are fees to the town of Hilton Head (under $1,000 annually). And it would be a good idea to set aside money each month for repairs and replacements.
7. Now – Do Your Spreadsheet
Buying a rental property can be a simple math problem. You have your purchase price, your financing charges, your rental income, and your ongoing expenses. Plug them in and see if the numbers add up. A benefit of owning a place at Hilton Head is that you get to visit yourself! The times that are the most crowded and hot (June, July, August) are the easiest to rent and bring in the most revenue. April and September are fantastic, and once you visit during those months you will realize how nice it is to be able to just walk into a restaurant and not be sweating on the beach. We love being at Hilton Head during the offseason!
8. Look at Some Renter Demographics
The Hilton Head Chamber of Commerce produces an annual report on tourism on the island. It includes information that will be very useful in helping you make up your mind, such as the busiest time on the island, where renters come from, how long they stay, what they want to do when they get here, and so forth. We have downloaded the latest report and have put it at the end of this article. Also take a look at this website for some really good financial data.
9. Try to Stay in the Unit
If the unit has an available week, or even a weekend, try to spend some time in the condo before you buy. This was easier before the market got so hot, but if you are buying during the off-season it will really give you an idea of what it is like to stay there. See what is within walking distance, find the trash chute, see how loud the area is at night, etc.
10. Final Thoughts
Renters are tough on property. They break things, move things, and, unfortunately, take things. Furniture that will last 10 years in your home may only make it through five seasons. Plan on replacing items every year. No need to buy a $120 pan for the kitchen – just buy a new $15 every year.
Many owners of rental property hold it in an LLC. Forming an LLC in South Carolina is easy, and there is no annual fee. But this is not advice that you should get from a random blog post. Speak with an accountant and perhaps a lawyer. If you have an insurance agent who you trust they can also be a wealth of knowledge.
Before you even purchase your new home, keep up with all of your expenses. The right rental property on Hilton Head can bring in a good bit of money every year ($50,000 to $75,000) and you will want expenses to offset some of that revenue.2021_WhereVisitorsComeFrom