Hi. We are considering making our first out-of-state rental property in the Charleston/Beaufort area. Wanted to connect with folks more seasoned than us to get your thoughts on the above property. We are very familiar with that area generally and are down a few times a year. But this would be our first jump into the deep end of rental property. Thank you in advance.
Probably the two most significant shocks for out of state investors who buy in the lowcountry are property taxes and insurance. Property taxes for non-owner occuppied properties in SC are about 3x the rate of owner-occuppied (called Legal Residences). If youre underwriting for the most recent year's tax bill and the tax is less than 1% of the property FMV, then that's the Legal Residence rate. Tax rates vary heavily by county and municipality, but a general starting point is that property taxes will be around 2.15% of the property FMV for investments. If the property is currently taxed as an investment property, you'll likely qualify for the ATI Exemption, which will help a little.
Hazard insurance is another big ticket item on the coast because of storm/hurricane risk. On St Helena Island/Beaufort area, I would guestimate annual insurance premiums at 1% of the property FMV for initial scrubs. The age of the roof will have a huge impact on the premium. Also, when you get quotes, make sure that the coverage includes wind and hail and named storm coverage, as well as RCE rather ACV. A lot of insurance professionals will quote policies that are not RCE or dont include certain coverages because they are significantly cheaper, but these coverages will not fly if youre getting a loan.
Last thing is that I saw this property looks like it's on a slab on St Helena. Watch for flooding issues and anticipate needing flood insurance.
Congrats on getting ready for your first out-of-state deal, that’s a big step. Being familiar with the area definitely helps, but one thing I’d encourage you to think about as you compare options is how pricing, cash flow, and risk balance out. A lot of first-time out-of-state investors end up looking toward Midwest markets because entry prices are lower, rent-to-price ratios are stronger, and the margin for error is much bigger on a first deal. That doesn’t mean coastal markets can’t work, but they tend to require more appreciation-based assumptions. It can be helpful to underwrite both side by side so you clearly see what you’re trading in terms of cash flow, leverage, and downside protection before jumping in.