Avoid comparing Apples to Oranges with Rental Estimates

By Tad Hunter

Tadhunter

RealJoy Vacations is a locally owned vacation rental and property management company. The company serves condo and homeowners with properties between Okaloosa Island and Thomas Drive in Panama City Beach. We have multiple field offices located along the coast so that our operations, cleaning, and inspection teams are nearby to the properties they manage.

I have a unique ability to see what hundreds of properties earn each year as a RealJoy Vacations partner. The database generated from inception in 1998 to today is filled with information regarding occupancy and rental rates for thousands of properties. I routinely assist real estate agents providing rental estimates for properties they are listing or perhaps their buyers are considering. It is one of the services RealJoy provides to investors and real estate agents. A buyer informed with realistic earnings expectations is more likely to close on a deal and to be a happy customer after the deal.

In the realm of rental estimates the income number that a buyer should be interested in is the rent before management expenses. This rental figure is called the “gross rent.” Lately, I’ve noticed that there’s a lot of confusion about gross rent, net rent, and gross rent including fees. Gross rent plus fees and taxes is the Total Sales. Many people mistakenly mix these terms when speaking and it can be misleading to buyers. The mistake is often heard from independent VRBO operators, though the confusion is not exclusive to them. Some inexperienced real estate agents and even a few management companies refer to the Total Sales as the gross rent. This overstates the income potential for the investor.

You should never consider housekeeping, taxes, and extra fees as income. The housekeeping and fees are not earned by the property owner. The taxes are merely collected and remitted to the County and State. They can not be counted as rental income either. In the example below you can see the distinction clearly.

Total Sales $65,043
Housekeeping 4200
Damage Waiver 2242
Trip Insurance 500
Walton County Taxes 2310
FL State Taxes 4050
Gross Rent $51,741

 

The investor should only be interested in the gross rent when beginning to calculate their costs of ownership. When reviewing investment options be sure that you are clear about what your income estimate represents. Be clear that you are comparing similar gross rents. There are several thousand real estate agents in the area and more than 7,000,000 annual visitors. If you think you just found a two bedroom beachfront condo for $475,000 earning $65,043 … you either just found a unicorn or need to investigate further.

The post Avoid comparing Apples to Oranges with Rental Estimates appeared first on South Walton Life | 30A News, Events and Community Information.

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