|Hoping to receive a little help from this group.We are heading to Myrtle Beach in a few days to look at 3 bedroom condos to purchase one for our use and to rent when we are not using the condo.We have owned several rentals near home for 20+ years so we are not new to being landlords.However, vacation rentals are a different animal.We have not decided if we will buy condotel or standard condo with a rental management company.We’ll make that decision based on finances and the condos we like.|
We also realize that these investments only return 3% to 5% in most cases.We are buying for an oceanfront view and to eventually snowbird to the condo.But we do want the condo to positively cash flow.
What scares me the most is the potential of a special building assessment.Does anyone have experience in Myrtle Beach with building repair/improvement assessment?Several realtors have advised us NOT to buy any buildings built before the 1990’s because of Dryvit exterior failures and subpar building mechanicals.We have been told that some HOAs have charged $50,000 to each condo owner (50 owners) for repairs and upgrades.Although I believe this is possible, how common is it?Do HOAs normally spend that kind of money on a regular basis?
We are open to any other advice as we seriously consider buying in the North Myrtle Beach or Myrtle Beach area.
Thanks in advance for any advice!
Once you find a building that you like, get all HOA docs and go through them closely. Also, talk to as many people as you can that know the building inside and out. People can usually tell you of any deferred maintenance or past litigation between HOA and builder. Also make sure reserves are strong to keep any special assessments to a minimum. With the hurricane that just rolled through, I'm sure you can get some good recent info about insurance/reserves for them.
The smaller the building, the smaller the costs of maintaining it. With that said, the smaller the assessments, if they are ever needed. Condo associations possess a lot of power, and that can make the ruling board members make some less than great decisions.
Don't know if this will help since we ended up buying a sfh in MB and are renting it long term but we found the most fantastic property managers down there. If you want to call Suzanne at Tidelife who handles our home they do mostly weeklys in the Southern MB / Pawley's area. They are super friendly and know the area inside and out. We had seriously looked into buying a condo in Litchfield Beach but settled on a more profitable sfh (that we will retire to) and then just rent when we are down there.
Why condo's & not multi-plex to stay on Mrytle Beach once a year.
@Preston, thanks for the advice. We plan on researching the property as much as we can. I won't buy anything until I understand what I am buying.
@Roxanna - Thanks for the referral. Once we settle on a couple of properties I will call Suzanne.
@Thomas - Our plan is to spend more time at the condo as we get older. We also want the flexibility of allowing our families to use the condo. We already own sfh's close to home. We would own this property for different reasons, not all financial reasons :)
I'd be very surprised to see a 3 bedroom condo cash flow unless you were managing it yourself, and then that turns out to be more of a job than an investment. I would highly recommend anything you buy be over 6 bedrooms and bathrooms because you will attract a far greater audience than any 3 bedroom will. We have been apart of the construction and management of hundreds of nightly rentals, and without fail, the home with the most bedrooms and bathrooms, is the most profitable. We build 6 bed/bath, 9 bed/bath, and 12 bed/bath units.
@Mark Marks Did you check and see how much cash they had in reserves. A friend of mine recently found what appeared at the time to be a really solid potential investment opportunity. However, when they dug, into the financials, they saw that this giant condo association had less than $100K in reserves, nowhere near enough to cover even the smallest of repairs or improvements. That was a huge red flag for the investment.
I would encourage you to dive into those financials.
Also, I saw that you mentioned considering purchasing a condo with a rental management company. I have some connections in the area that I might be able to make for you if you are looking to evaluate different vacation rental management opportunities. Feel free to direct message meor give me a ring.
Yes, I have reviewed the reserve schedule. Cash balance of $740K for about 30 items. Building is about 130 units. I don't have much experience with reserve balances but it looks like the reserves are under control.
Yes, I have reviewed the reserve schedule. Cash balance of $740K for about 30 items. Building is about 130 units. I don't have much experience with reserve balances but it looks like the reserves are under control. Thanks for the suggestion :)
Using the recent average rental income for this unit less expenses (real estate taxes, HOA fees, insurances, repairs, management fees and a 5% annual upgrade/replacement cost) I calculate a minimal positive cash flow. This is based on a cash purchase and would not stand on it's own if financing is involved. Nothing to write home about but unless I have missed something I should be safe. It would be great to have an oceanfront property with 6 or more bedrooms/baths but that is way out of my league :)
Is that your assessment for a long-term rental or short-term. I might have misunderstood. I thought you were planning on purchasing for short-term rental, which bear significantly higher costs.
Also, affording a 6 bedroom all depends on the build. Our 6 bedroom properties are optimized to fit on a .3 acre lot. Without the lot, we sell our 6 bed/6 bath for around 525,000.
So if you could acquire an empty lot or something easily torn down, something that this makes perfect sense.
Just food for thought.
Our assessment is for short-term rentals. I factored a higher maintenance repair cost due to the short-term rentals. Am I missing anything else that costs more with the short-term rentals?
$525K is out of my reach at the moment, working that direction but not there yet :)
It would just depend on what you are including in management fees. Is it around 35% of revenue, or is it self-managed?
48% of revenue budgeted for mgmt. fees, maintenance and upgrades.
@Mark Marks I owned condos at the Myrtle Beach resort for several years. While it was undervalued when comparing to other beach communities, I still found it very hard to make ends meet due to the ridiculous HOA dues and the special assessments. Those were built in the 80s and yes, there was a $25k special assessment. It could be paid over 5 years but with regular dues of $500-$600 per month, insurance, maintenance, the special assessment, the competition, and the fact that Myrtle Beach is much more seasonal than South Florida (June-Aug is totally full but the rest of the year is sketchy), it wasn't a good investment for me. Much better to just rent a week or two from someone.
Hope this helps.
@Mark Marks I forgot property taxes, occupancy taxes, and cleaning person fees (these are paid by the renter but make the prices higher). Due to the competition there, prices are not necessarily as high as they should be.
@Kalimah Jenkins Thanks for the input. I've looked at the figures for the older condos and agree with you. The older condos are smaller with fewer amenities. We were able to see some of the building flaws in the older designs ie: chlorine damage from poor pool placement and ventilation. I do believe the owners of the older buildings have seen significant special assessments. The newer buildings appear to have better designs with fewer inherent problems. It sounds like your HOA fees were more like $900 to $1,000 per month when factoring in the special assessment. That would make an older building very hard to cash flow. Makes me wonder how long until a 10 year old building starts having major special assessments.
Boy, am I glad I have found this forum ! I've been trying to find someone in the Myrtle Beach area that is knowledgeable about the condo vacation weekly rentals. My husband and I are moving there next spring to retire and get involved in investing in short term, long term and flipping. Our first purchase was going to be a weekly beach condo. I think I may stay clear from these. They seem to be too risky for my blood. I have had several long term rentals through out the years and seem to do well with that. With that being said : Is there profit to be made in buying a sfh close to the beach for vacationers or long term? I have seen many cute little 2 or 3 bed "cottage" type homes within walking distance to the beach. Are worth buying? There are no HOA's with these. Always a plus.
@Sharon Barry, I choose to buy back from the beach far enough to be in the Wind & Hail Zone 2 which has cheaper insurance and is less risky during a hurricane than closer to the beach. We had no trouble finding long term tenants and there was no damage during the hurricane that came through in early October.
@Sharon Barry and @Mark Marks - I have been involved with rentals in both Myrtle and N Myrtle for the last 7 years and have continuously monitored that market. You definitely have to watch out for high HOAs - it makes it hard to turn a profit. The other issue is many of the condos cannot be financed, so depending on what price range you are looking that is something to consider. Additionally, some of the condos also force you to rent through their property management & they take 40% of your profit! Lastly, it is always a good idea to ask for is the HOA notes that way you know if they might be planning a large assessment. Hope this helps and happy hunting!
Roxanna That's good to know about the Wind and Hail Zone 2. I've been talking with a realtor down there and they have told me that really isn't that much. I'm sure you are more accurate as you are actually doing it. The HOAs are the reason I've chose to stay away from the condo's and the pm fees. Being a newbie any bit of information helps. Thank you
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