Introduction to buying a beach condo

It’s all in the “Point of View”

By Steve Warren, RE/MAX of Gulf Shores

The purpose of a purchase should dictate what type of condo you consider for purchase. This article is oriented toward the purchase being investment, rental income and return on investment down the road. Personal preferences should yield to renter preferences and ROI.

From the renter’s point of view:

Renters want to see the water when they are standing in the living area of the condo, therefore the condo needs to be direct water front, not a side view that requires the renter to go to the balcony to see the water.

Renters want amenities like beach side pools, indoor pools, exercise rooms, lobbies, covered parking, onsite rental offices and high speed internet. The more of these amenities a building has to offer the better it rents. It is best to look at a condo through the eyes of the largest group of renters: a husband and wife with two children coming here for a vacation full of fun, sun, sand and entertainment. Does the condo under consideration fill their needs?

To get more of these amenities it dictates larger complexes. The Phoenix condos with 250 units per building are good examples of excellent rental properties. Some other large complexes include the Caribe Resort, The Lighthouse and The Beach Club. There are dozens of mid sized buildings that do well also. Smaller low density condos tend to short on amenities and appeal more to non renting owners and a few renters.

From the buyer’s point of view:

Two bed condos rent more frequently than one bed units and the three or more bed units go down in popularity from there. Obviously the higher the bed count the more the cost to rent (income) but also the higher the purchase price. There is a point of diminishing return. Divide the net rental income by the price of the condo to get the gross return on investment. This calculation does not take into consideration the cost to own like condo fees, assessments, utilities, insurance and taxes.

Condo fees and assessments need to be factored in to the cost of the condo. The purchase price might seem to be low and look like a great deal but the “cost to own” could be a major monthly expense. Buyers should look at things like the age of the building, what type of construction, the amenity package, the condition of the amenities, the condition of the building and elevators, the financial status of the condo association, the schedule of future assessments, when and what was the amount and purpose of the last assessment, how long was the building out of commission after Ivan and what are in the plans to improve the complex that will result in assessments and higher condo fees in the future. What is the re-salability of the condo based on market trends and new projects coming on line in the future? All buyers become sellers at some point in the future

With a few exceptions most of the complexes have condos rented by a number of different rental companies. Several of these companies require the next owner to be bound by the existing rental contract after the sale. This can be a plus or a minus. Not all rental companies are created equal. What is the rental history of the condo in question and what company has the highest rental return in the complex needs to be answered. It may be one of the same but if not what can the next owner do to maybe make changes? Can the owner rent the condo on their own (FRBO) and still keep the agreement with the rental company to also rent and maintain the condo? If the owner refers the renters to the rental company will that company reduce the management fees on that rental transaction? Some companies will strike a deal to cooperate with the owner, some will not.

All of these points are covered to bring attention to ROI. Return on Investment is the major reason buyers buy. If, by chance that’s not your reason, it most likely will be the reason the next buyer will buy your condo at a higher price when you decide to sell. High rental incomes bring more money. Some of the other reasons might include: pride of ownership, personal use and some tax incentives. It is important for each buyer to create their own check off list of the things they require in a condo and the complex based on the purpose of the purchase. If you are looking at your purchase as an investment consider the facts and numbers, don’t let personal preferences or emotions interfere with ROI.

The average condo ownership here is three to four years. At that time owners usually do one of three things. Sell out and go home, sell and buy a bigger better condo or buy a second condo that maybe better fits their personal likes and keep the other for investment and rental income. Keep in mind God isn’t making any more beach and the rest of the world wants to own some of it and/or spend time on it. The rule of “supply and demand” prevails and the benefits will go to those who have vision.