Running Numbers: Pawleys Island short sale golf condo could pay for itself

        In those halcyon days of yesteryear -– the early 2000s -- when the value of golf community homes seemed to jump 15% annually, it made some sense to buy a condo, use it two weeks a year for the family vacation, and rent it out the rest of the year. The net rental income rarely paid for all

the carrying costs, especially if you took on a mortgage, but those who purchased in the most popular resort locations with the most short-term renters came close. Of course, the strongest lure during a roaring real estate market was the condo’s price appreciation potential.  The roaring ended with a thud in 2008, but now we are at a nexus of low interest mortgages, low condo prices and the strong possibility that values are poised to rise once again. And buy-to-rent scenarios may, for the coming year, make sense in those resorts best positioned to start re-attracting vacationers.

        Pawleys Plantation, a top golf community in Pawleys Island, SC, is one such possibility. Although my wife and I already own a couple of properties in the community and surely do not need another, I am sorely tempted by a two-bedroom, two-bath end-unit “golf villa” that has come on the market for just $110,000. A bit of simple math shows how good a deal this could be.

        First, the price: Comparable units along the 10^th fairway of the Jack Nicklaus Signature golf course at Pawleys Plantation are listed at $125,000 and above. Just before the recession, these units sold for around $200,000. This latest offering is a “short sale,” which means that the owner owes more on the unit than its market value, and the bank holding the note will have the last say on the sale. A buyer able to pay all cash will have a leg up.

        Second: It is possible to cover the carrying costs by renting out this unit to vacationing golfers and families. We estimate the total of taxes, homeowner association fees and other incidental costs will range up to about $600 per month, or $7,200 per year. Condo units of this type rent for an average $800 per week, more during the peak spring and fall seasons, slightly lower during the summer seasons, and lowest during the winter

(even though the golf course is open and playable year round). There is a catch, however, for those absentee landlords who will need to hire a local agency to manage the renting of the unit; these companies will charge anywhere from 15% to 50% of the rental income, depending on the level of services they offer. Assuming 15 weeks of rentals during the year, or $12,000 in gross income, and a management fee of 35%, or $4,200, the net rental income before taxes would be $7,800. That essentially covers the carrying costs, with a little to spare (about the equivalent of a short-term CD at your local bank). Please note that we have not calculated savings from mortgage interest deductions because who knows what the politicians in Washington will do during their "fiscal cliff" negotiations. Suffice to say that if the deductions remain for both interest and property taxes, the calculation is advantageous.

Most of the back nine at Pawleys Plantation plays beside and over the marsh that separates the golf community from the homes on the Atlantic Ocean, seen in the distance here beyond the 16th green.

 

        For those wondering if 15 weeks of rental income is a realistic number, we point to a VRBO (Vacation Rental by Owner) listing in Pawleys Plantation in the same group of units as the one for sale. Already, through June, the owner has rented the unit for more than 10 weeks, with the fairly busy summer and very busy fall seasons not yet booked. (The rate for the unit is $700 weekly, with an additional $90 cleaning fee at the end.)

        Third: The golf course at Pawleys Plantation is one of the best on the Grand Strand of Myrtle Beach, challenging and beautiful all in one, especially the back nine, which plays along and, at one point over, marshland. As you face the par 3 13^th hole, “the shortest par 5” in South Carolina, you look out across the marsh to Pawleys Island and the Atlantic Ocean about a half mile away, only a five-minute drive to its wonderful public beach. You may not be able to put a monetary value on it, but a couple of weeks a year, you can play hero to your golfing buddies or your family. That’s certainly worth something.

        Fourth: The ultimate payoff, assuming the overall economy continues to improve and the leisure residential market along with it, is that your condo will appreciate in price. Precise price forecasts are impossible, but we know what condos like this one sold for before the economy went squishy. If your condo recovers only half its former peak value, and you were to sell it in five years for, say, $150,000, don’t pull a muscle patting yourself on the back.

        Cathy Bergeron of The Litchfield Company in Pawleys Island has listed this property and others in Pawleys Plantation at our GolfHomesListed web site. Feel free to browse and register or sign in there for more details on the golf villa or any other golf homes for sale in the community.