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Are Property Managment Companies worth it?  

 

Docasch
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October 4, 2016 1:45 pm  

Opinion question,
Are Property Managment Companies worth it?
Do the profits justify the expense of having a company manage your short term rental property. Are there advantages/disadvantages to hiring someone reliable to manage your villa vs using a company?
Are management companies provide valuable referrals to your villa?


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Alana33
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October 4, 2016 2:14 pm  

It really depends on the company or the individual.
As with everything, some are better than others.

Be sure to get a itemized list of their fees, what services they provide for those fees, how they account for those fees and charges, whether you can also provide your own bookings for your vacation rental, how that works, how deposits and payments are handled, how repairs, maintenance and maid service, interaction with guests are handled, etc.

Do they take care of providing VI Government the required Room Tax monthly statement and necessary Gross Receipt payments, are they properly licensed and insured, are you covered under their umbrella,
do they provide end of year profit/loss statement, etc.

Ask for a list of properties they manage and references from those they manage. Talk to several.

Check their website and where they advertise.
Check reviews on their managed rentals.

If you can't manage your property yourself, it's best to hire a management company. It will cut into your profits but if they do a good job, it may be worth it. But do your homework, ask lots questions.

Only you can decide what fits best for your needs.
Good luck.


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Docasch
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October 4, 2016 3:02 pm  

Alana33,
You have been so helpful. I appreciate your real estate advice. The profit margin on buying your first dream home in the USVI can be narrow, and after viewing a few income/expense reports on places we considered, I was struck by the level of detail provided by a property management company for a price similar to an independent property caretaker.
I plan to interview both, but appreciate some of the talking points you offered.
Is it fair to assume property managment companies may offer an edge because some renters reach out to them for available properties?


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Alana33
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October 4, 2016 3:35 pm  

That I can't answer.
I'd imagine it would depend greatly on their reputation and on their website presence and ranking, how and where they advertise.

They're so many vacation rental websites like vrbo.com, flipkey.com, airbnb.com, etc.

Competition is stiff!

Happy to help.


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Docasch
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October 5, 2016 3:19 am  

This is my last follow-up.
Is it possible to break even or have a positive cash flow by buying a home in the USVI? We are looking at mortgaging a midrange villa on St. John. The few expense reports I have seen don't suggest that the income would cover a basic 20% down mortgage after taxes, managment, landscaping, ect...
Don't get me wrong, I would love to own a home in STJ, but is it more common to measure success/profit in appreciation or paying down the mortgage over time?
Do many short term rental villas create a positive cash flow?


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Alana33
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October 5, 2016 4:02 am  

Yes. There are very successful vacation villas but there are so many different scenarios that it's hard to speculate without knowing all the factors.

I think you'd have to ask yourself if you'd be happy to break even on expenses or not, if the case may be, and end up with a home in STJ that you can use for your vacations and live in at some point or if it's strictly an investment property approach.


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stjohnjulie
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October 5, 2016 7:48 am  

All very solid advice. I've worked for a couple of management companies over the years and even within the companies there are homes that rent much better than others. I would suggest when interviewing a management company you try and get in close with the people whom book the most for the company and ask what can be done to make your home more rentable. Sometimes the owners are their own worst enemy when it comes to getting their place booked. Not wanting to do repairs, updates, buy new furnishings, etc. Usually a management company has something in the contract stating you must agree to replace certain things, but there tends to be a lot of gray area. The booker is usually the person who knows best what can sway a renter. And for that matter, even the booker! They have their favorites too. Also finding a home that has what people want is a good idea. AC in at least the bedroom, a view, easy access, etc. I would say that most short term rentals are a long term investment. Most don't create a big profit, but they cover the costs of mortgage, upkeep, taxes, etc.


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Afriend
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October 5, 2016 2:56 pm  

It's possible to break even and some people manage to make a profit renting their homes BUT and it's a big BUT there's never any guarantees. You may make a profit one year and be in the red the following year. There are so many variables there is no way anyone can tell you otherwise. One thing to keep in mind is that most rentals come during "High Season" (the 3 1/2 to 4 months between Christmas and Easter) so if you plan on using your villa or condo yourself during that period you'll miss out on potential rentals.

For budget planning purposes you should figure on renting your home out say 10 to 12 weeks during High Season and perhaps another 5 to 10 weeks during the rest of the year. Anything above that is your "gravy" but shouldn't be counted upon to pay your mortgage.

I can tell you this, most of my friends who rent out their homes that have mortgages rarely break even. the majority of those that do break even or make a modest profit, own their home free & clear.

You have to plan on extra expenses (over and above management fees, utilities, insurance, etc.) for upkeep, repainting, redecorating and replacing furniture more often than a non-rented home since most renters will abuse your property - things like sitting on your furniture with wet bathing suits, not wiping up spilled food and drinks, tracking sand all over your house, etc., etc. All these types of things cost you money. The problem comes because houses in the tropics have high maintenance costs to begin with and adding in what I call "rental abuse" only accelerates those expenses.

Lastly, when doing your research you'll be given ranges for potential income and expenses. Human nature being what it is you'll "hear" or focus on the higher numbers for income related items and the lower estimates for expense items. When budget your potential net income from renting you'd be wise to do the opposite. Use the lower income estimates and the higher expense estimates. If the figures still work than proceed with your dream. That way, if you luck out and get more rentals you'll be pleasantly surprised rather than shocked by higher than expected losses.

Good luck with your planning.


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Docasch
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October 5, 2016 3:54 pm  

Afriend,
Thank you so much helping me rationalize this choice. We don't have the means to purchase a carribean home outright, but I'm starting to see the trend on the spreadsheets.
Possible 40-60 k total income, 1/3 to the rental company, 1/3+to insurance and taxes, expenses, and we may have $10 K at the end of the year to reinvest.
The value of the home is generating the income to cover taxes, insurance, and having our own geberational carribean vacation home. It's less expensive to visit and could appreciate.


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STTsailor
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October 5, 2016 5:03 pm  

By renting your second home on a part time basis while having a mortgage you can only count on reduction in the cost of ownership.
This creates the advantage of creating home equity much faster if you use the proceeds to pay down the mortgage.

The assumption that one can create positive cash flow based on 20% down and mortgage the 80% is a pipe dream while living part time in your Carrbiean vacation home.

If you are looking to become real estate investor and a landlord there are way better ROI opportunities elsewhere. Detroit would be the prime example.

A few successful investors that I know personally invest in inner city multi unit housing in depressed areas. They are essentially slum lords who are full time landlords and management companies. They buy low, rehab on small budget, rent out to collage students or working class. Once the area gentifies they raise rents or flip properties.


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AandA2VI
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October 11, 2016 1:34 am  

If a property is managed by a PMC and someone gets injured or dies - who's liable? Home owner or PMC? Conversation come up the other day at the bar and I am curious.


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Alana33
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October 11, 2016 1:54 am  

Depends on situations.
Homeowners generally have liability insurance as do management companies so it would be dependent on exactly who would be intrinsically
responsible. There is a cap.

Did the management company notify homeowners of defect, did homeowners respond, did homeowners request management company to effect certain changes or repairs, did any lack, thereof contribute to an injury, etc.

People die in rental properties all the time.
As long as owners or management company have not contributed to the demise, by any action or inaction, no harm, no foul.


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stjohnjulie
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October 11, 2016 7:52 am  

Anyone can sue anyone. Whether they win or not is a different story. What I think should be a major concern is making a practice of ALWAYS hiring licensed, bonded, insured contractors/subcontractors to perform any work on your place and making sure your management company insists upon this as well (and of course, they should be all of those things as well).


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STTsailor
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October 11, 2016 1:24 pm  

Anyone can sue anyone. Whether they win or not is a different story. What I think should be a major concern is making a practice of ALWAYS hiring licensed, bonded, insured contractors/subcontractors to perform any work on your place and making sure your management company insists upon this as well (and of course, they should be all of those things as well).

Finding contractor willing to come in and give estimate and start work within 2 weeks is nearly impossible. Forget about licensed, bonded and insured.

This must be a paradise for good contractors. Skilled trades are in high demand.


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