Renting your property

by | Mar 2, 2023 | Life on Roatan | 0 comments

The beach is sown with a rental property just of it

What about renting out my slice of paradise?

 

Rental Properties

Renting out your property did not used to yield the returns we are currently witnessing in some locations. Over the past few years, when someone from North America, especially the USA, expressed their desire to invest in a home that generates substantial income, my response would have been straightforward and honest: “Then you are looking in the wrong place. Your government is practically providing you with free money through fixed mortgage rates, some as low as 2% or under 4%. Go back home and search for an apartment complex or a property in a high-rental market, where the rent is 2 to 3 times your mortgage cost, and hold onto it.”

There has never been a more opportune time to buy property in the USA than in recent years. Prices were also on the rise, providing capital appreciation. My final point was that Roatan is a lifestyle choice. If you aren’t purchasing to reside here for a significant part of the year or securing a retirement spot, then there are numerous NFT/bitcoin opportunities elsewhere globally.

Roatan isn’t the ideal location for purchasing solely for rental income unless you intend to own a hotel or construct a set of beachfront cabanas. In other words, you are investing capital and seeking to live here with a steady income stream. Pricing has remained relatively stable over the past decade since the “great recession,” with only those who bought after that period experiencing significant capital appreciation.

Renting out property entails genuine on-the-spot effort. Properties require constant maintenance, as do your guests, and tourism experiences slow seasons. These factors often don’t add up to reliable income, in most cases. I say “most cases” because there are exceptions, which I will address shortly.

Roatan is a place you purchase for a lifestyle choice. If you are a snowbird seeking to escape the Canadian winter months, then it serves as a wonderful alternative to the northern winter life. If you rent your property during the summer months and generate enough income to cover your ongoing expenses, then that’s excellent. Some individuals avoid staying in their own homes during the high season, from December until after Easter, making enough during that period to cover their expenses for the rest of the year when rental income would be minimal. There are many scenarios where rentals work, but unless you are running a hotel or resort business, it remains a lifestyle choice.

There are three types of rentals in Roatan: tourists, short-term, and long-term. Tourists encompass your Airbnb guests, one-week visitors for whom you can charge premium rates, especially during the high season. Short-term rentals cater to snowbirds who may require accommodations for a few weeks to six months. Long-term renters include residents, both those working legally and illegally, contributing to Roatan’s economy. Residents offer stability but yield lower incomes. Generally, rents are quoted as rent plus utilities, primarily due to the high cost of electricity, and someone using it inefficiently can end up paying more for electricity than rent itself.

What constitutes a good rental property? All you need to do is to forget that it’s your own place and consider what the majority of people desire when they go on vacation. As always, I’ll emphasize what may seem obvious but surprisingly isn’t.

 

  • Beautiful views.Somewhere overlooking the sea or a place where you can sit on the deck surrounded by beautiful flowers while enjoying the sunset.
  • PoolA pool or swimming area where you can relax without the noise of people nearby.
  • Close to entertainmentIdeally, you can walk to bars and restaurants, and the more choices, the better.
  • Close to the beachWhether you’re right on the beach or within a short walk. It’s a personal choice, as some prefer direct beach access, while others like a bit of distance from the crowds.
  • QuietBeing close to entertainment is great, as long as it doesn’t disrupt your peace at night.
  • CleanNothing deters people more than a place that isn’t well-maintained or appears dirty.
  • Useful facilitiesDepending on the location and rental type, amenities ranging from a water dispenser to a stove and fridge might be considered useful, if not essential.
  • SecurityEveryone wants peace of mind while on vacation.
  • QualityThe quality of furnishings, bedding, and artwork.
  • AmbianceBeautiful surroundings, whether it’s the sea, beach, or gardens; people seek attractive spots to relax and enjoy their vacations.

This list isn’t set in stone; for instance, many successful rentals are not located directly on the beach but are in beautiful settings. The type of renters they attract often rent cars, so location isn’t a concern for them. However, this list serves as an excellent guide to gauge the rentability of your property. In general, the fewer items you have from this list, the less likely you are to maintain consistent occupancy, and that’s the key to profitable renting – consistent occupancy.

The Financials

I have witnessed prospective property buyers pulling up an Airbnb listing in front of me, selecting what they believe is a comparable property, and observing an overnight price of $90. They often make statements like, “Assuming 80% occupancy, we have 365 days * 80% * $90, so that is over $30,000 in revenue I could be receiving.” There are numerous unfounded, or better yet, unresearched assumptions in that single sentence, making it challenging to know where to begin.

As I frequently emphasize in my articles, seeking advice from an expert is crucial. In this case, an expert is someone who already owns a unit similar to the one you desire and is not attempting to sell it or a service they provide. The true experts are the property managers, which is why it is beneficial to meet with several of them to gather feedback about the property you intend to own. The most reliable source, of course, is years of rental history. However, for various reasons, this information may not be accessible or, in my opinion, only trustworthy when obtained from one of the island’s rental management firms rather than the property owner themselves.

Now, let’s break down the sentence piece by piece. I reside in West Bay, a highly desirable rental area. I am acquainted with several rental properties close to the beach, some of which generate substantial income. To illustrate, let’s consider a hypothetical example based on an actual property I know. The owner invested approximately $200,000 USD a few years ago in a 2-bedroom unit with air conditioning, not far from the beach. It boasts kitchen facilities and comfortable furnishings but lacks a significant ambiance. However, it is conveniently located near entertainment options and offers excellent security. While it doesn’t have a pool, it is in close proximity to the beach.

This property is typically fully booked during the high season, spanning from mid-November to the end of Easter, generating approximately $20,000 in revenue over 5-6 months. During the remainder of the year, predicting income becomes unreliable, and the owner is content if they can merely cover their Homeowners Association (HOA) fees and maintenance expenses. The annual HOA fee amounts to about $2,000, and the electricity costs with renters are approximately $400 per month. It’s important to note that electricity is expensive in this area, and many rental properties require a refundable deposit for electricity bills in case renters fail to turn off the AC while they are at the beach. On average, their monthly expenses from HOA and electricity total around $600 but can rise to $800 during peak occupancy.

Their income during this period amounts to roughly $17,000. Since they are not on the island while the property is rented, they require a rental agency, resulting in a loss of 20-30% of revenue due to commissions. Therefore, their revenue is now reduced to $12,000 before factoring in other expenses. Speaking of expenses, if you’ve ever owned a home, you’re well aware of the various costs involved, ranging from paint and toilet paper to taxes and internet services. Additionally, unexpected expenses such as AC replacements and plumbing emergencies can arise.

As a result, the return on investment (ROI) for this $200,000 unit is approximately 5%. To be honest, I believe I might be providing a generous estimate. Based on my experience, the highest rental returns typically yield an ROI of about 5-6%. However, if you have different insights, please feel free to share them, as I am always open to learning.

Oh, did I forget to mention that there is a 19% tax on all rental revenues? Well, it’s worth noting that you are required to pay a 19% tax on all income earned through rent, and many management companies enforce this to ensure compliance with the law. However, many owner-operators may not adhere to this tax requirement.

Roatan is a lifestyle choice

Allow me to present the same property to you from a completely different perspective. Imagine you reside in a part of the United States where you relish the winter months but find the summer season too hot and crowded for your liking. Now, consider the option of purchasing a $200,000 unit in this location. You can rent it out when you prefer to stay in your hometown during the summer, and then when the unit is seldom occupied, you can spend the rest of the year here. Suddenly, you have a comfortable abode that not only saves you substantial rental expenses as a visiting tourist but also generates a healthy income stream during your absence. This is why I frequently advise individuals that investing in property here is more about making a lifestyle choice. You don’t come here solely to make money; you come here to enjoy the wealth you’ve accumulated!

Another aspect that often sparks debate is the role of management agencies. When people initiate a conversation with the question, “Do I need one?” a peculiar expression crosses my face. “No, of course not,” I reply, followed by a later caveat, “unless you plan to reside here and wish to actively manage the property for a living.”

What does a rental agency do?

Property management agencies play a pivotal role, and their contributions are multifaceted. To begin with, a reputable agency excels at facilitating bookings for your property. They handle everything from capturing high-quality photos to implementing effective marketing strategies and streamlined booking systems that manage reservations and handle financial transactions seamlessly. Marketing, though seemingly straightforward, often involves years of experience and mastery.

Depending on the agency you choose, their services can encompass a wide array of tasks:

  1. Client Services: They coordinate client arrivals, arrange transportation if needed, conduct check-ins, and provide essential information about the property and its surroundings. In some cases, they even provide guests with local cell phones containing emergency contact numbers, including their own.
  2. Cleaning Services: Property managers ensure that your property is cleaned thoroughly after each guest’s departure, especially in instances where the previous occupants may have caused damage or left the place in disarray.
  3. Damage Recovery: They diligently follow up with the previous guests to address any damages they may have caused during their stay, ensuring that these issues are resolved satisfactorily.
  4. Utilities and Maintenance: Property managers oversee various essential aspects of your property, such as monitoring electricity usage, tending to gardening and pool maintenance, and handling bill payments for utilities like internet, electricity, water, Homeowners Association (HOA) fees, and property taxes.
  5. Pest Control: They take proactive measures against termites and other bothersome pests by arranging for extermination services as needed.
  6. Property Inspection: Regular property inspections are conducted to assess its condition and promptly identify any potential issues or maintenance requirements.
  7. Emergency Response: In case of issues or emergencies, property managers are the point of contact and handle them efficiently. They have access to maintenance and cleaning crews to address minor issues promptly.

Managing a property that hosts a variety of guests can be complex, as each individual guest requires personalized attention, respect, and courtesy. Property managers take on the responsibility of ensuring that every guest has a positive experience.

Additionally, property managers maintain meticulous records of all expenses related to property upkeep. This includes expenditures on items ranging from toilet paper and cleaning supplies to significant repairs like air conditioning systems or emergency plumbing services. As the property owner, you remain responsible for covering all costs necessary to maintain the property’s condition and functionality.

In summary, property management agencies play a crucial role in maximizing the benefits of property ownership while handling the myriad challenges that come with renting your property to diverse guests.

So how much do they charge you?

The cost of property management services can indeed vary significantly, and I appreciate your enthusiasm for comprehensive answers. It’s crucial to emphasize that conducting thorough research and gathering as much feedback as possible from reputable agencies is essential. Consider interviewing them to assess how comfortable you are working with them and to determine if your property is suitable for renting. Some agencies may decline properties they believe won’t rent, while others may not be as selective, charging a monthly fee regardless.

To provide you with a clearer understanding, let me break down some of the potential ways you might be charged. However, please keep in mind that the actual costs can be quite complex and may vary:

  1. Separate Expenses: You should anticipate covering all house-related expenses separately. This includes costs for cleaning, plumbing, painting, electrical work, and any other services your property may require. Additionally, you will typically be responsible for all utilities, even if some services assist in collecting them on your behalf.
  2. Replacement Costs: In some cases, any items that need replacement, such as appliances or furnishings, may be charged to you, often with an additional shopping surcharge.
  3. Commission Rates: The commission rates you can expect to pay may vary depending on the type of rental. For long-term tenants (e.g., 6 months to a year), commissions might be as low as 15%. However, for short-term stays, such as overnight guests, commissions could be as high as 30%.
  4. Monthly Service Fee: Many property management companies charge a monthly service fee. This fee is designed to cover their expenses during months when your property remains unoccupied but still requires regular maintenance and inspection to remain in a rentable condition.

Determining the exact return on a property can be a complex task. It largely depends on factors such as the property type, location, rental duration, and market conditions. As you’ve correctly pointed out, renting out a property is somewhat of an art. Successful property management involves responding quickly to market price fluctuations to maximize profits and maintain high occupancy rates by occasionally adjusting rental rates.

Ultimately, the actual return on your property is best estimated with real figures from your specific property or similar ones nearby, taking into account the various costs and commission rates associated with property management services.

 

Where do I find property managers?

Here is a list of prominent property managers on the island of Roatán, provided in no particular order. Please note that there may be additional property managers available, and if they wish to be listed, they are encouraged to contact me:

  1. Caribbean Colors Rentals and Real Estate

  2. Island House Vacation Rentals

  3. Roatan Life Vacation Rentals

  4. Roatan Island Property Management

  5. One Stop Roatan Vacation rentals 

These property management agencies can assist you in various aspects of managing your property on Roatán. If you are interested in their services or require more information, feel free to reach out to them directly.

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