MONEY TALKS

Pursuing Residential Real Estate as Income-Producing Assets

WORDS BY AL BROWN A

As a real estate broker who primarily handles residential properties, it is anathema to me to present a residential transaction as an investment. In my 47-plus year career, I’ve thought of it as selling memories, not real estate. With that said, the shortterm rental property market is hot in the Golden Isles, and it’s only natural for this to be a consideration for clients seeking a second home that produces income. We are a premier destination with premier amenities. There are a few guidelines and caveats to consider if you are in the market for an income-producing property.

Know Your Objective

Are you buying the home purely as a rental? Or do you want to use it part of the year for your own family as well? Is cash flow the primary objective? Or is it simply value appreciation? Every decision you make in the purchase of an income-producing property will impact your bottom line. When comparing properties, consider the capitalization rate (cap rate) derived by dividing the net operating income by the purchase price. Leveraging the purchase with a mortgage will enhance your return on investment, but there are costs and risks involved. When rates are good and lending is easy like they are currently, borrowing could be a more viable option than when rates rise. Either way, having a clear objective for what you want from the income-producing property is a must.

Do Your Homework

Every neighborhood is distinct. Some are ripe for short-term vacation rentals and others simply don’t allow them. Research things like covenants, zoning, and restrictions when you find the property you like. It’s also a good idea to gauge the attitude of the neighbors. There may not be any restrictions on vacation rentals in the neighborhood, but if local attitudes are hesitant about them, your property may be less attractive to renters and therefore not as lucrative. Be considerate of your neighbors. hood and the logistics of owning an income-producing property. They are knowledgeable, have experience in short-term vacation rentals, and are valuable resources when conducting your research. When focusing on a specific property, don’t hesitate to ask for two to three years of rental history and inquire about any problems or complaints renters have experienced.

Consider the Market

I can’t promise my prospective income-producing buyers they will make money. There are always risks when purchasing a property, especially an income producer. I talk to buyers about trends and the market.

We are currently in a sellers’ market. Prices are high and inventory is low, which continues to push prices up. I don’t see that changing soon. For income-producing properties, knowing the rental market is just as important. Again, property management companies are an invaluable resource. Understanding the dynamics of location versus rental rates will give you a clearer picture of the money you stand to make and of how you and your family can use the property as well.

Most of all, be realistic. Keep your expectations in check and know that embarking on an income-producing property journey will have its speed bumps and unforeseen expenses. If handled properly, you and your family can enjoy the fruits of your labor for years to come.

— Al Brown is the owner of Al Brown Company Real Estate , 60 Cinema Lane, Ste. 120, St. Simons Island. For more information or to arrange an appointment, call 912.268.2671 or email albrown@ albrowncompany.com.