On a local level - rental property in Key West remains in very high demand. Our tourism industry lends itself to transient workers. Homes are pricey to buy and maintain (taxes, insurance) so many opt for renting during their short time in Paradise. On a national level - unemployment remains is stuck high 7 to 8%. Lending standards are loosening but banks must receive credible down payments and legitimate income statements. Buying property to rent is working for individuals, small pools of investors and big corporations. Here are six tips to help you make money and sleep comfortably.
Show me the money
As a landlord you make money any of three ways (hopefully all three):
- At a minimum, renters cover your costs; mortgage, taxes, insurance (in Key West that includes Windstorm, probably Flood, Fire and Liability), scheduled and unscheduled maintenance, etc.
- Tax deductions (Don't forget to pay yourself or a family member for managing the property if you don't hire a property manager).
- Appreciation brings profit when you sell (Maybe you defer profit and taxes with a 1031 Tax Deferred Exchange)
Where to buy
I have had out-of-towners who want to buy rental property in Key West, duplexes mostly. I recommend buying and renting someplace you know. That could be away from your home town but for me distance away from rental property inserts risk and anxiety into the equation.
On the other hand, buying into a condominium association that has good governership can assuage anxiety and risk as on-site managers keep everyone and everything in line. Condo documents provide do's and don'ts but make sure you can rent your unit before buying as often there is written (and unwritten) policies about what percentage of units can be rented.
There are also "condo-hotels" where you condo is rented as a hotel when you are not around. Good friends from NYC bought such a place downtown and love having an occassional hideout of their own that brings in some cash when they are not around.
Key West also differentiates between long-term (12 month) and short-term (overnight) rentals. This is done by way of the City of Key West Rental Ordinance on "transient licenses". These licenses authorize overnight rentals and are generally confined to touristy areas and are kept out of residential neighborhoods. As you can imagine, the come and go traffic of late night tourists doesn't sit well with residents who have to be up for work at 7AM.
Self manage or hire a manager
Headaches vs. cost.
I know many people who rent their property long-term who manage the property themselves. They have a written agreement with their renters about who will fix what and at what cost limit. Additionally the landlord usually has a list of plumbers, electricians, a/c repairman, etc., for the renter to call should there be a problem that needs immediate attention.
On the other hand, I don't know anyone who rents short-term who manages the property themself. Even my Vacation Rental By Owner (VRBO) friends have maintenance people to turn to for immediate assistance. Most short-term rentals are best handled by professionals who make their living (Short-term management commissions in Key West are 15% - 20%) handling phone and web-based reservations, performing check-in/out, cleaning, repairs, paying utilities, maintaining licenses, etc.
Show me the Money Part II
Key West long-term rents, 12 month contracts, pay $850 - $1100 per bedroom. Renters pay all utilities. If you have a pool or way-nice gardens I strongly recommend you hire someone to maintain. A greeen pool is ok for St. Patrick's but not the rest of the year.
Key West short-term rents are $135 -$375, and more, per night depending on time of year and special events. Competition for rooms can be very keen. I visit guest homes on a recurring basis, my favorites are listed here, and they boast of exceptional occupancy rates. Everyone warrants a vacation and there are few places more fun for a 4-day blowout then Key West!
Before you buy you must review some sort of consolidated income statement. Management companies wil certainly have multi-year records. If you are buying from an individual who self manged and they waffle about cash flow BEWARE. At a minimum ask two property management companies to view the property and provide you an estimate of proceeds. They'll be happy to comply as they're hoping for your business.
Bottom line. What is your total expected Return on Investment? Rents + Tax Deductions + Resale.
Who am I renting to?
It's tough to look someone in the eye and know if they're a good risk or not. Everyone can clean up nicely when they have to. No matter who is renting your property you need written information and assurances the rent is who the renter says he or she is. Referred renters are great (depending on the referree).
First, last and security monies won't cover damages but a good background check will. Before occupancy I make sure the entire apartment is photographed or video taped with the renter signing off on the condition. This should be art of your checklist and the check list of the property mangement company. Explaining to the renter this safeguards them as well is easy.
Laws, liabilities and regulations
Sadly, the days of common sense and mutual consideration have been replaced by Renters Bills of Rights and Eviction Proceedings for Owners. Returning above to advantages of buying in Condo Associations will help with some of these sticking points.
Otherwise, rental agreements can be obtained on web sites (see below Additional Resources), real estate companies and professional property management companies.
When you buy your property please use the expertise or your Realtor to answer all these questions. If your Realtor is unable to perform these basic duties; produce an Excel worksheet showing costs, revenue and profit, have a working list of property management companies (other than her/his company) and offer contact information for legal guidance, then please ask for added help.