If you have ever considered owning a home or villa on Hilton Head Island, you might want to consider placing your property on the short term rental market. By generating additional income through vacation rentals, you can subsidize your mortgage and expenses and create wealth through appreciation (see Investment Strategies).

First, you will want to hire a property management company. Property management companies rent properties on a weekly basis to people who are here on vacation. Since Hilton Head Island is one of the most popular destinations on the South Atlantic Coast, the short term rental market here booms. These companies have a number of homes and villas which they advertise. In return for placing renters in your home or villa, you pay the company a fee, usually 20% to 30% of the income they generate through rentals.

Most people who choose to rent their property in this fashion are “absentee” owners. Absentee owners prefer to hire someone to maximize rental income as well as look after their property in order to minimize damage and keep up with basic maintenance needs. They are usually too involved in their lives away from Hilton Head and don’t want to be distracted by day to day problems involving vacation property. This being said, you will want to interview several property management companies on the island to asses their capabilities, fees and contractual terms. Another good way to find out more about a company is to talk to someone who currently owns a home or villa that rents with that company.

Compare the estimated annual gross income to the fees they will charge. You will want to choose a company with good references and that is located relatively close to your property. Also, your property might get closer attention if the company only manages properties in your area, as opposed to all over the island.

Before you go any further, you need to understand that property on the short term rental market will incur more than normal wear and tear. People who are on vacation tend to be careless. This is not meant to scare you, but simply to prepare you. An anecdote: A client of ours bought a nice beach home in the Forest Beach area and remodeled. The house has always rented very well and in four years, they have only had one “mishap.” It turns out that a group of ten lady golfers rented the house. One night, one of the “ladies” managed (they still don’t know how) to fall into the drywall in the closet, through the wall and into the bedroom, creating an extremely large hole (apparently they had been drinking…quite a bit). You need to assess whether your emotional makeup allows for the thought of strangers occupying your property and creating wear and tear, and quite probably being careless and sloppy with your personal possessions. Weigh this against the income you will receive, keeping in mind these guests are helping you pay your mortgage.

You should furnish nicely, but not extravagantly. Use floor and wall coverings that will stand up to the test of time, water and sand. Choose kitchen and bath items that are durable, inexpensive and can easily be replaced (Walmart, Sams). If you are mentally prepared for the property to get “beaten up,” you will have a much easier time with the whole process. When it comes time to take the property off the market, you can replace the floor and wall coverings as well as the furniture and other items.

If you are shopping for a property to place on the short term market, it is important to understand cash flow. Never expect a positive cash flow if you have a mortgage; it isn’t possible. Any rental agent who tells you otherwise is to be viewed with great suspicion. Don’t listen to talk about how many weeks of rentals you can expect. If your rental agent rents your property to “snowbirds” for the winter months, you will get twelve to fourteen weeks of rentals, but you will get about the same for a month as you would for a week in the summer. Ask for estimated gross annual income and forget the rental agent who says you can get 20 to 22 weeks of rentals. Ask to see monthly statements for comparable properties.

Scrutinize all costs carefully. All rental agents take a percentage commission of the rental fees collected. Some add an “advertising” charge. Someone will clean your property and replace all of the sheets and linens after each occupancy. Find out if the property manager bundles the cleaning cost with the rental price or charges the guest all or part of the cost. Make sure you understand where this cost goes. Who supplies the linens? If you do, then they should be laundered in your property using your appliances, water and electricity. There will probably be an expense for linens and towels that wear out or vanish.

Find out if there are any charges involved when you use the property yourself. What are the “friends and family” rates - when you send a relative or business associate? Can you participate in the rental of your property or in referring people you know to the rental agent (commissions to you)?

Understand the maintenance policy. Many rental agents do not have a maintenance staff. Therefore, if a toilet is clogged, they will call a plumber. Likewise, if a light bulb burns out, they call an electrician and if a doorknob comes off, they call a locksmith. You can also expect the company to mark all ancillary charges up (a handing charge). We have seen a monthly billing statement with a $50 charge to change a light bulb. Scrutinize a number of actual monthly statements from the property management company. If they want to provide copies with the owners name and address blacked out, that’s reasonable, but do see some actual statements.

Some rental agents limit how many weeks you can occupy your own property, and the IRS also has strict allowances for “personal use,” particularly if you have plans to perform a 1031 tax deferred exchange in the future.

Some rental agents hold out some number of rent free weeks as a promotion, ostensibly to entertain travel rental agents. Travel rental agents make a up a very small part of the majority of rentals, which occur in the already busy summer months.

As we mentioned earlier, property managers who concentrate in limited areas are able to give those properties more personal attention. Also, the employees are more likely to be familiar with your particular property, which helps to sell it. Don’t underestimate the importance of having someone “nearby.”

A good rental agent will send someone to inspect your property after each occupancy. This is to ensure the property has been cleaned properly, to touch up where needed, to replace burned out light bulbs and dead batteries in TV remotes and smoke detectors, spot and report any maintenance needs, and ensure there is an adequate supply of kitchen items and towels. A good rental agent will “turn over” 80% to 90% of the properties under management on summer Saturdays. One inspector can inspect about 10 to 12 properties in one day. Ask the rental agents how many inspectors they employ on “turn day” and compare that to the number of properties managed. Also, when you come to stay in your property yourself, if you find burned out light bulbs or dead batteries in greater frequency than can be explained by human error, a red flag should go up.

If you want to be extremely thorough, you can check with the Better Business Bureau and with the South Carolina Real Estate Commission to see if the property manager in-charge has ever been sanctioned by the commission or had a license suspended. The rental the rental agent you select has to be one you trust to a great extent for your peace of mind. If an rental agent rents a property and doesn’t tell the owner, his commission is 100%, and the chances of being caught are minimal (the consequences are not). Trust is crucial.

The best rental agents try to relieve you, the owner, of the burdens of ownership. When the time comes to redecorate, replace furniture, draperies or flooring, your rental agent should direct you to the appropriate retailers. You should be able to select the floor you want from The Home Depot in Ohio and your rental agent should be able to coordinate the installation through The Home Depot in our area. A good rental agent will coordinate deliveries to avoid loss of rentals and supervise any work done to ensure that things are done right. If your new refrigerator arrives with a dent, a good rental agent will not only know, he will have it replaced and let you know when the new one arrives.

Practical Tips

Following are some practical tips for owners of short-term rental properties. These are simply guidelines to help you when making decisions such as types of furniture to buy, types of flooring, etc.

Furniture with horizontal tops should have laminate tops or, if wood or other porous substances, be covered by glass. Hilton Head is very hot and humid; cold drinking glasses sweat like crazy and the resulting moisture destroys wood tops.

Dining room and indeed all chairs should have rungs between all legs. Make sure they are strong, durable, and well-built. Consider that your favorite uncle weighs 300 pounds and don’t forget about him when you buy anything that someone will sit on. It helps if upholstered seats and backs are plastic, or at least covered with a stain guard fabric. Chairs can’t be too sturdy; you usually can’t replace just one.

Paint your property any color you want, as long as it’s white. There are dozens off nice shades of white and off-white to choose from. White makes a room look bigger and will not offend any taste. Bring color in with artwork, furniture and window treatments.

Avoid wallpaper like the plague. A damaged wall (suitcase dings) can be repaired easily and cheaply if painted. Wallpaper creates a whole different situation. The high humidity on Hilton Head causes wallpaper edges to swell and curl, especially in bathrooms. Plumbing repairs sometimes require cutting a hole in a wall.

Not a problem with a painted wall.

Avoid vertical blinds. They are high maintenance and generally have no standardized parts. Most renters either don’t know how to treat vertical blinds or don’t care. I have even seen owners walk through vertical blinds rather than take the time to open them. Without exception, every installation of vertical blinds I know of has been replaced with drapes.

Microwave ovens are a necessity - many people don’t know how to cook without them! And VCRs are a necessity as well (DVD players are now being placed in high-end properties). Multiple Televisions are also a necessity (kids TV, adults TV, video game TV). Consider losing a weeklong rental during the summer because you only have one television!

Matching bedspreads and bedroom drapes is not a good idea. When a bedspread needs to be replaced every few years, things tend to get complicated and more expensive than necessary. .

Sofas wear out fast! Believe it or not, the sofa will be the first thing you will need to replace. Don’t spend a lot of money on sofas and buy one that can be easily replaced. Love seats are impractical. A love seat really only seats one, as a practical matter, and it probably matches the sofa, which will wear out first anyway.

When the sofa needs to be replaced, what happens to the love seat? Get some comfortable club chairs instead.

Don’t place too many knick - knacks around your home or villa. They add clutter, complicate the cleaning process and more than likely will wind up broken, missing or both.

Do have family photographs on display. They personalize the property, and guests will take better care of things having seen the likeness of the owners.

Do make your property non-smoking. You won’t loose many, if any rentals. And although your rental agent can’t police smoking, it will reduce the incidents of burn holes in carpets and upholstery and nicotine stains on bathroom counters. Non smokers hate nothing more than the smell of smoke in a home.

Although vinyl is less expensive than ceramic tile, the latter is infinitely more durable. Even expensive vinyl will not hold up to abrasive sand, and although tile is more expensive, it is extremely long lasting. Consider ceramic tile for the dining room also, with an area rug to soften it. Dining room carpeting takes a terrible beating with food spills and constant cleaning. The area rug can be easily replaced.

Last, when you come to visit and you see a little wear and tear in your home or villa, remember that anything can be fixed. After all, it’s just wood, sheetrock and fabric.