RENTAL MARKET OVERVIEW
Many clients and potential
clients often call or email me to ask about the "conditions of the
rental market" or the "rental market trends". This overview is
designed to give you GENERAL information about the rental market
here in Southwest Florida, specifically, Naples, North & South
Naples, Bonita Springs, and Estero. As with all generalities, there
are always exceptions.
Let me begin by addressing a
few misconceptions:
Actually rental season is
vastly different than "Season". Season is November to May for those
folks lucky enough to OWN property in SW Florida and who enjoy our
temperate climate for whatever the time frame during those "seasonal
months".
Rental "season" however is vastly different and differs
depending on how close to the Gulf your property is and in some
locations is actually slightly longer than in other locations. Go
figure! RENTAL SEASON is basically February and March. These are the
highest demand months. November through January and April are not
high demand months. The reason is due to the holidays!
Think about
it - how often have you and your family gone to Florida, (or any
where for that matter) during the holidays for 30 days or more? Not
many I would venture to guess. The same holds true for visitors
here. Not many travel here during the holiday months.
There are
always a few exceptions to that generality however. The key is "30
days or longer" as most HOA/COA have limits on the length of stay
and number of times permissible to rent out on an annual basis.
Obviously many visitors come for a week or two during the holidays,
but those folks aren't our "Return on Investment" market.
This is not usually the case. Annual rentals generate cash for
longer periods of time than seasonal rentals do. Money comes in for
12 or more months rather than 2 or more months.
Additionally, you
don't have the upfront expense of adding furniture and decorations
to the investment cost. The first question to ask yourself is "Am I
going to use this property?" If the answer is yes, then the seasonal
furnished direction is the one you want to take.
If you don't intend
to use the property for a year or longer, go the annual unfurnished
direction. By the way, Furnished Annual rentals are not high
demand properties. Unfurnished annual rentals are high
demand.
This again is usually not the case.
Unlike some northern cities and investment properties you may have
there, if your leasing manager here in SW Florida gets you to
break-even or slight negative cash flow, they're doing an acceptable
job.
Not what you want to hear, you say? Well, lets look at the
factors in this market that come into play. First: cost of the
property. Market values here in Naples and select other areas enjoy
tremendous appreciation and therefore greater sales price and market
value.
Depending on how much the buyer puts down determines how much
the carrying cost is. The lower the down payment the higher the
carrying cost. Also the cost of amenities plays into the cost
equation. The more the amenities, the higher the HOA/COA association
dues and reserves, thus the higher the carrying cost.
Second:
interest rates. When interest rates are low, folks who would
normally rent will buy. They would rather take that $1500 and make a
mortgage payment for themselves, than pay yours!
Third: wage scale.
Salaries and wages in SW Florida are notoriously low as compared to
comparable cities in other states with similar economic
demographics. This makes for a rental market price sensitivity. That
amount is around $1300 to $1500. When properties hit that threshold
at times they will take a little longer to rent than properties
priced less than that. This is where the amount you put down to
purchase an investment property comes into play. So when
contemplating whether to buy an investment property or not, realize
that the property appreciation is where you will make money, not on
the rental return. If you are cash flow sensitive, you may want to
take a longer look.
Lets talk about what folks
looking for Seasonal Furnished Rentals and Annual Unfurnished
Rentals are hoping to find.
You've perhaps
heard of this? Well this holds true in seasonal rentals as well.
Those properties in highest demand rank in this order:
-
Gulf or beach
front or within walking distance; golf included; other amenities
(outdoor heated pools and spas, fitness centers, tennis complex,
walking, biking, rollerblading pathways catch and release fishing
lakes, scheduled activities, etc); price point; furnishings; newness
or charm/quaintness.
-
Those properties that are closest to the Gulf
and those that offer either bundled golf or convey golf membership
enjoy longer rental stays than those properties without or further
from the water. Those properties are typically the 3 month or longer
stays with often repeat guests. BUT, those locations that have the
mandatory 3 month minimun limits on guest stays are challenging, as
this is not a high demand rental market. Most often the demand is 30
days and 60 days.
Now that we've established the "where" lets look
at the "what" - as in "what it looks like". Folks enjoy well
decorated, thoughtfully appointed furnishings. Tired, dated, worn,
or scantily furnished residences don't rent well. In older
residences, it is best to give those bathrooms and kitchen a new
look to maximize the rental potential. After all, when you're
competing with the thousands of new investment properties being
built and made available on an annual basis each year in this market
in SW Florida, it is necessary to keep the property looking fresh!
That's the market
demand in this segment. You can be further away from the beach and
"hot locations" as long as there are a variety of amenities.
Features such as fitness centers, heated pools and spas, putting
greens, tennis courts, business/computer rooms, social rooms,
clubhouse, golf, etc. are the demand amenities. Folks will more
likely pay a higher rental price if the amenities are included in
the residence location. Number one demand is the fitness center!
Another tricky issue is the issue of "Pets" versus "No Pets" - 83%
of all of the calls received for annual rentals are from clients
with pets! So, if your HOA/COA documents read "tenants are not
allowed to have pets", your investment property will stay unoccupied
on the rental market longer. If you do allow pets in your investment
residence, find a leasing manager with a stringent and enforced pet
policy (higher pet deposit requirements, periodic personal visits to
the residence, weight limitations and breed limitations).
As in most situations timing is of
the essence in the rental market as well. The general rule of thumb
is that May through November is annual unfurnished rental maket
season. This is when those 50 to 100 calls and emails per day are
focused on renting an annual property.
Think about it - most folks
don't willingly move during the school year, the winter or during
the holidays! So if your investment property is being built, find
one that is finished during the early part of that time frame to
maximize your annual rental potential. BUT, they do rent later than
those times as well.
Remember, there are always exceptions! Seasonal
rental season is not only during "Season", (November to May) but
also during the summer months as well. Greatest demand is during the
rental stay with many folks. If they like the residence and the
price is right - they will come back the following year(s) until
they either buy or make other plans.
During the summer months many
folks will "shop" to see what is available. If they didn't enjoy
their previous residence or if they are newly retired or just
testing the water in SWFL to see if they want to be here, they
inquire in the summer months.
Demand for seasonal rentals starts in
earnest in July and peaks around September/October for the following
season. The main reason is that most rental agencies require monies
to be paid as much as 120 days in advance of lease start date.
That's October 1 for February rentals.
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