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How Much Rent Should My Property Generate?

A key question many of our clients ask is, “How much rent should my property generate every year?”  The answer is simple.  It depends on how much effort and resources (time, money) you want to put into updating and marketing your property, and how effectively you retain guests for repeat business.

You can also look at statistical data to determine if your current position is above or below the baseline average for other vacation property owners on the islands.

Rent-to-Value Ratio

The rent-to-value ratio shows the inherent correlation between a property’s value and how much you can charge to rent it.  Obviously, a million-dollar property will command more in rentals than a $500k property.  Other determining factors include the “view”, the condition of the property, its square footage, and its distance from the water determine the proper value.

How to Determine the Approximate Value of Your Sanibel/Captiva Property

(Note: This is a method of approximation only. You should always consult a real estate professional for a more accurate determination of your property’s value.)

By examining historical pricing performance of your own property and neighboring properties with of similar size and quality, we can develop a chart like this:

A Little History

From 1980 through mid-2004, most properties on Sanibel & Captiva appreciated at an annual rate of 6.5%, although exceptions on both sides of this figure are numerous.  From 2004 – 2009, the market grew at an even faster rate for a short time, but then lost value.  If history is any indication, property values will re-enter a cycle of appreciation in the near future.

The key is to develop a chart for your own property. VROL provides this service for those who don’t have the time to create one of their own.

Rentals as a Percentage of Value

To determine averages, we look to the MLS (the Multiple Listing Service maintained by real estate firms). It contains the rental history of a number of properties listed for sale on Sanibel and Captiva. With the rental amounts and the sales price, we can calculate annual rentals as a percentage of the asking price. When we do that, we get a chart that looks like this:

In the world of statistics, this is known as a normal distribution curve. What’s important to us is that most properties realize 5.5% of their value in annual rentals. Because it’s a normal distribution, we can also calculate standard deviation.

Statistical rules tell us that a normal distribution curve will contain 68% of its population. From that, we can conclude that 68% of all rental properties have a rent-to-value ratio between 4.2% and 7.1%. We can also make assumptions about the extremes, which are known as standard deviations. In the case of Sanibel/Captiva, 95% of all rental properties realize between 3.4% and 9.2% of their value in annual rentals.

What’s Important Here

1) The average is annual rent-to-value is 5.5% for the islands.  Once you know the value of your property, start there for an initial baseline, and then increase or decrease depending on other features not captured in the value, such as quality of furnishings, interior décor, etc.

2) Using these numbers, we can also determine your current status.  For instance, if your annual rentals are only 4.2% of your value, you are in the bottom 16% of all rental properties studied.

3) We can use this information to set future targets. One goal VROL can work with you to achieve is to move you one standard deviation to the right every three years until we get to the second deviation to the right.  At that point, you would be at the top 2.5% of rentals on the island, and that is a prized position to hold.

If you’d like to speak with us in more detail about our complete vacation rental marketing services, call or email us.   We’ll respond to you (that’s a promise).  We are pleased to answer any questions you have.

For a complete description, you can download our free eBook here or you may prefer to purchase our step-by-step guide, with dozens of tips on how to maximize rental income for your vacation property. 

We look forward to hearing from you!

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