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Grand Strand Real Estate News
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July 2021
Volume 2021 Issue 7
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If you would like to receive this monthly newsletter CLICK HERE
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Dear Gene Carter Team,
Summary
I’ve got some big news regarding condotel amenities and services. If you currently own a condo in a condotel development or if you are thinking of buying in one, please take a few minutes to read the article below entitled “Big Changes Coming for Condotels”.
But first let’s cover a recent accolade the area has received and the overall market performance. Myrtle Beach (metro area) was recently ranked #1 on the list of the fastest-growing places in the United States for 2021-2022 according to The US World and News Report. See full article below.
The real estate market remains red-hot and inventory continues to drop. There are only 300 active condo listings in oceanfront buildings on the entire Grand Strand. This is down from 368 when I wrote June’s newsletter. As for the condos off the beach, there are currently 286 listings, down from 302 this past month. See graph below in newsletter.
It’s a super time to sell and there are still some good buys out there for you buyers.
Now is the time to take a few minutes to decide if you are going to sell in the next 12 months. Don’t wait until the spring to think about this after you’ve paid carrying costs all through the offseason. Please contact me to discuss your individual situation.
Big Changes Coming for Condotels
In all but a few condotel resorts in our area, all owners and guests have been entitled to use all of the services and amenities of their development. That’s about to change. In the past couple of weeks, one of our largest local condotel rental management companies announced a major policy shift which will affect multiple resorts - and other developments are likely to follow suit. Over 2000 homeowners in 8 different resorts will be impacted by this.
Under the new rules, many amenities and services will now only be available to the owners and guests participating in the onsite rental programs. Nonparticipants will not be able to purchase from most onsite food and beverage providers and will not enjoy many services provided by the rental management (issuing building keys and pool armbands for example). Amenities owned by the Homeowner’s Association (generally including most or all of the pools) will still be available to everyone but amenities owned and operated by the rental management will be off limits to non-participating owners and guests. In some cases, this will include water parks, laundry facilities, fitness centers and more. This could have a huge impact on owners who are handling their own rentals or using offsite companies to manage their properties.
The newsletter contains a balanced (I tried) and very detailed discussion of this matter - impossible to summarize. If you own in a condotel development or are considering buying in one, please read this article in its entirety. There are many pros and cons to these new changes. If you manage your own rentals or plan to, you can still do it successfully. Or maybe the best decision would be to sell (if you own) or buy and participate in an onsite rental program. We will be glad to help you make these important decisions.
Check out all our usual Grand Strand Market Reports, Sales and Listing Updates, my Best Buys, and new Beach Pro Team reviews.
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Greetings from The Grand Strand,
I’ve got some big news regarding condotel amenities and services. If you currently own a condo in a condotel development or if you are thinking of buying in one, please take a few minutes to read the article below entitled “Big Changes Coming for Condotels”. I apologize in advance for it’s length but this is a big important topic. But first let’s cover a recent accolade the area has received and the overall market performance.
Myrtle Beach (metro area) was recently ranked #1 on the list of the fastest-growing places in the United States for 2021-2022. The US News and World Report determined the list by the net migration of each metro area, which is measured by the growth or decline of the population over the past five years. Our area was also ranked number 35 for the best places to live, number 11 for the best places to retire and number 2 for the best places to live in South Carolina. The article stated that “Young professionals, growing families and empty nesters who are drawn to the area's mild weather and beaches set down roots here and enjoy the area's relatively low cost of living.”
Here’s a link to the full article on Myrtle Beach.
The real estate market remains red-hot and inventory continues to drop. As I’m writing this, there are only 300 active condo listings in oceanfront buildings on the entire Grand Strand. This is down from 368 when I wrote June’s newsletter and just over 1000 this past October (and at any time during the 10 to 15 previous years).
As for the condos off the beach, there are currently 286 listings, down from 302 this past month. Here’s the updated chart I’ve been including each month.
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It’s a super time to sell and there are still some good buys out there for you buyers.
Now is the time to take a few minutes to decide if you are going to sell in the next 12 months. Don’t wait until the spring to think about this after you’ve paid carrying costs all through the offseason. It’s far better to list now (which will get you almost all of the peak season income anyway since it is taking 30 to 45 days to close a sale). Please contact me if you want to go over your particular situation and market conditions in your development.
Big Changes Coming for Condotels
The primary factors that differentiate condotels from other condos are rental check-in desks and commercial hotel-like services (restaurants, arcades, poolside bars, etc.) Condotels also often have more extensive amenities than most non-condotel developments (multiple pools, lazy rivers, hot tubs, fitness rooms, business centers). These features are attractive to many buyers and renters.
In all but a few resorts in our area, all owners and guests have been entitled to use all of these services and amenities. That’s about to change. In the past couple of weeks, one of our largest local condotel rental management companies announced a major policy shift which will affect multiple developments - and other resorts are likely to follow suit. Over 2000 homeowners in 8 different developments will be affected by this. Under the new rules, many amenities and services will now only be available to the owners and guests participating in the onsite rental programs. Nonparticipants will not be able to purchase from most food and beverage providers and will not enjoy many services provided by the rental management (issuing building keys and pool armbands for example). Amenities that are owned and operated by the rental management will be off limits to non-participating owners and guests. If you own a condo in one of these resorts, you probably received a letter in the past week or so regarding this.
Note that the features impacted by this vary from resort to resort. It largely depends on what is owned and controlled by the rental management company and what is owned by the homeowners. For instance, at almost all resorts, the pool areas are owned and maintained by the homeowners association (HOA), so all owners and their guests will always have access to these. Fitness rooms can be set up either way - just depends on the resort. On the other hand, Tiki bars and the onsite restaurants are usually run by the rental management or some other business entities and they may choose to provide service only to customers with on-site management-issued card keys.
In some cases, amenities have been added by the rental management companies (in addition to the HOA-owned amenities) and access to these may also be restricted. In one resort, an indoor pool facility with water slides was added by the rental management company (at their expense) and now only owners and guests participating in the program will be allowed to use it. In some resorts, laundry facilities, business centers, arcades, game rooms, and shops may be off-limits to customers not on the rental program. As previously mentioned, the front desks will now only give pool armbands and building access card keys to participants in the rental program. Otherwise, owners will have to get them directly from the HOA (and then dispense them to their guests).
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This is a huge change. Let’s take a look at how it came to this, why this is happening now and how it will impact current owners and future buyers. By the way, if you want the revised Rules and Regulations for your resort or one you are interested in, let me know.
Condotel History
All of the condotels in our area were built at least 14 years ago (and some were built as far back as the 80s).The builders of condotels were almost exclusively rental management companies. They were not building condos to sell and make a profit and then move on. They were building “hotels” in which the individual units were being sold to the public. The resulting ongoing rental management business was the “profit” resulting from each development. The condotel developers added all sorts of expensive architectural features to make the buildings attractive. They loaded them with amenities. In many cases they added food and beverage services. They did everything possible to make them inviting to vacationers - and it worked. With 24-hour check-in desks and aggressive marketing, they ratcheted up the incomes to numbers far higher than our area had ever seen. It was impossible for off-site companies or individuals to compete with the incomes they were putting into owners’ pockets, despite their high management fees, so few owners left the programs. I know this from first-hand experience because I owned and operated a vacation rental management company during this time and we couldn’t compete with them. But the world is now a different place than it was 14 years ago.
The bottom line is that an owner with a modest amount of expertise and sufficient motivation can now match or even exceed the gross income generated by an on-site rental management company but without the 35% to 45% management fees (although there are still significant expenses). Online services such as VRBO and Airbnb have made it relatively easy for owners to manage their own vacation rentals by handling marketing, credit cards, tax collection, deposits and online bookings. The public has become accustomed to purchasing big ticket items, including vacations, online. Keypads on doors, which can be changed from a cell phone anywhere in the world, have made the physical distribution of keys to renters unnecessary. There are plenty of local cleaning and linen services who are glad to work for out-of-town owners. There are also rental management companies (both local and online) charging relatively minimal fees (10% to 15%) to oversee all aspects of guest reservations (including cleaning and maintenance) and a few of them are occasionally putting more money in the owner’s pockets than the on-site management companies.
By the way, another factor contributing to the increase in self-management is that people have realized there are lots of ways to make money with small side businesses (Uber, Lyft, eBay, VRBO, Airbnb,...)
The combined effect of all these technological and societal changes is that the trickle of owners choosing to leave the onsite rental programs has become a tidal wave. In the past 2 years, I would estimate that 70% of the condotel buyers we’ve dealt with (both our buyer clients and buyers of my listings) have planned to leave the onsite rental programs from the moment they began searching for a condotel to buy. I recently spoke with a realtor who is very active in the condotel market in Florida and he said he’s seeing an even higher percentage, even though their management fees are far lower (25% to 30% vs. 35% to 45% here). We’ve also seen an increase in true second home purchasers and buyers who plan to use their condotels as primary residences.
With all this in mind, I think it’s obvious why the large onsite management company has made this move now (and why others may follow). The changes are being made primarily to protect their livelihood from a huge “disruption” that was not anticipated when these buildings were conceived. They have made a business decision to make it less attractive for an owner to choose not to join the program. But there are two sides to everything.
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Condotel Management’s Perspective
Although these changes are not going to be popular with the owners who are not on the program, let’s take a look at this from the perspective of the rental management companies.
Please keep in mind that I work with condotel management companies all the time. Most of them do a fine job. The company making the changes which inspired this article is one of the best. They generally do an excellent job of maintaining their properties. In fact, one of the things I have noticed frequently when showing properties is that the units on the on-site programs are often cleaner and better maintained than properties with off-site programs. They are also known for pumping a lot of their own money into the buildings they manage to improve them.
The features being taken away from nonparticipating owners and guests would never have been available to begin without the on-site management companies. In other words, a buyer can choose to purchase in a non-condotel building but the extent of services and amenities will be just as limited - not because they can’t be used but because they don’t exist.
Also, many of the amenities and services were being provided for free at the rental management company’s expense. For instance, the management company built and assumed all the operating expenses and liability for the waterpark I mentioned earlier. Is it really unfair for them to discontinue offering it to owners whom they are now competing with for the same rental guests? The same rationale could be used regarding the decision not to assume the responsibility and liability of deciding whom to give building access keys and pool armbands. Should it be their job to dispense these to non-paying (to them) guests? Owners of condos and rental houses in non-condotel developments don’t have onsite front desks to give out building keys and armbands and it doesn’t stop them from renting.
As for the food and beverage facilities, only allowing rental program participants to purchase seems to be purely a business decision. Apparently the onsite companies have done the math and concluded that the benefit of keeping more units on the rental program is of greater value than the extra revenue from the sales of drinks and hamburgers to nonparticipants. As I understand it, purchases can only be made using a room charge card (no cash or credit cards). By the way, the pool bars are seasonal anyway and some restaurants are still open to the public (onsite Starbucks for instance).
What Effect Will These Changes Have?
Initially at least, this could potentially have a negative impact on non-participating owner’s rental incomes. If guests feel they will not have the same amenities and services that other guests renting onsite enjoy, they may not want to stay at a resort or they may choose to rent through the onsite management. However, they may be enticed to stick with a non-participating rental through lower rates or other inducements. Also, upgrades made to the condos could be used as incentives. I suspect it will all balance out eventually.
Guests will need to be educated as to what to expect. Even before these changes, guests had to be instructed not to trade out towels and linens with the onsite cleaning staff and to call the owner or rental service directly with problems instead of going to the front desk. The instructions will need to be more extensive now.
One way these changes could affect even owners who are already participating in the rental program is that they could influence market values. Prices are determined by supply and demand. If a big portion of those 70% of the rental nonparticipant buyers decide they now don’t want to purchase in a particular building, that will definitely depress the demand side of the equation. In addition to that, some current owners will decide to sell, adding to the supply side of the equation.
The Future?
My crystal ball is still broken but this may very well become standard operating procedure for most condotels. I alluded to the fact that a few resorts have had rules like this in place for a while, some for 10 years or more, and they haven’t seen any reason to change. It’s extremely unlikely that the current rental management companies will back off of these changes and it’s also likely that others will make similar changes. With this recent announcement, this new model will now be in effect for over half of all the condotels in the city of Myrtle Beach.
All potential buyers and current owners should take a hard look at what services and amenities are controlled by the HOAs (and therefore “safe”) and which ones may be limited in the coming months or years. You will need a good realtor!
I think that, eventually, owners and guests will become accustomed to this “new normal.”
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So What Should Owners and Potential Buyers Do?
No resorts in our area require owners to participate in the onsite rental management so it is the owner’s choice.
If you currently own in a condotel development in which these limitations have just been announced and if you are already participating in the onsite rental program and you’re happy with it, there’s no reason to do anything unless you want to sell for other reasons. If so, please contact me!
If you are currently managing or plan to manage your own rentals or use an offsite company, it may be time to evaluate if you want to continue on this path, sell, or choose to participate in the onsite program.
If you are considering using a management company other than the onsite, carefully compare the onsite rental incomes and expenses (all expenses!) to those for the offsite rental management companies. Many people hear “ 40% management fee” and completely rule it out without ever actually running the numbers. Don’t assume you will make more money by paying lower management fees - even far lower management fees. I’m a numbers person and I’ve studied hundreds of cash flows and rarely (very rarely) have I seen a situation in which an offsite company has actually produced a higher net income than a good onsite rental management company - even if the offsite fee is 10% and the onsite fee is 40%. The differences in gross incomes (onsite incomes are typically much higher) and the way expenses are calculated are surprising.
Owners who completely manage their own rentals often are indeed able to generate higher returns than onsite companies if they have the expertise and are willing to dedicate the time and effort (although their return is sometimes not really as high as they think once all expenses are factored in).
If you are managing your own property or plan to do so, you need to ask yourself the following question. If you are only doing marginally better than you would with the onsite, is it really worth the trouble for the difference, particularly if it will now be more difficult? One of the biggest reasons to use onsite management is that it’s easy.
If you manage your own rentals or use an offsite company and you’ve been doing well, don’t assume your guests will not rent through you anymore just because there are some limitations. They may not care if they can’t use the business center, order a drink from the seasonal Tiki bar, or eat at the onsite restaurant. With laptops and cell phones, most people don’t need business centers anymore and Myrtle Beach is loaded with great places to eat and drink. Few vacationers actually use laundry rooms and fitness centers. If they stay at a non-condotel, they won’t have these services anyway. Maybe you can make your condo nicer than the onsite units or maybe you can rent for a little less. There are ways you should be able to make it work but it may take a little extra effort.
Buyers
Early in your process, decide what your goal is. Do you want to own an oceanfront condo with sufficient rental income to cover most of its ownership costs or is this a true investment for which you want to generate a specific return? How much time and effort are you willing to dedicate? Frankly, many potential buyers start with unrealistic expectations. Also, if investment is a secondary goal, a small difference in return may not justify alternative rental management. As previously mentioned, onsite rental management net income may be sufficient - and easier. Discuss your goals with an agent who is truly knowledgeable (Like me!).
As I’ve mentioned, the level of onsite control varies from resort to resort. If you want to handle rentals yourself or use an offsite company, it’s easier at some developments than at others. Contact us to find out which resorts will allow what.
Make sure you deal with a real estate agent who understands all of this and has up-to-date info. Condotels have always been quirky (financing, HOA issues, etc.) and this just adds another layer of knowledge your agent must have to be able to properly assist you in making the best choice. The Beach Pro Team is in the process of analyzing the new rules and investigating other resorts which could have similar situations in the future. We will also be changing our remarks and other info in our listings to reflect this new reality. Hopefully other agents will do the same.
Although we work closely with the on-site rental management companies (as well as offsite rental management companies) my team’s loyalty begins and ends with our clients, not the management companies. If an owner lists his property with me, it’s my job to sell it at the highest price the market will bear regardless of whether the buyer wants to use it as a primary residence, second home, or rent it in any fashion he sees fit. When Teressa is working with a buyer, she finds him the property that best fits his needs, regardless of his purpose for buying.
That’s all for now. Thanks for staying with me through this lengthy but important discussion.
Check out all our usual Grand Strand Market Reports, Sales and Listing Updates, my Best Buys, and new Beach Pro Team reviews.
See you at the beach!
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Here are some new reviews published in Zillow.
- Gene Carter is the Best Realtor I have ever been associated with and I have sold several homes 2 Condos [Thanks to Gene] and an office building. He was always there when I needed him day or late at night and was never to busy to answer any questions. He went the extra mile and you could tell my problems was his problems. He also had a great assistant Bea who had the same attitude. With a man like this you can't go wrong. I highly recommend him and his staff. Dan. Camelot By The Sea. Myrtle Beach.
- We were out of town condo sellers & Gene his team took care of everything for us! It was a seamless experience & I would recommend using his services for your buying and/or selling real estate needs. Bob & Betsy. Maisons Sur Mer. North Myrtle Beach
We have chosen to utilize Zillow's review platform. This is not an endorsement of Zillow (Please ignore the ridiculous "Zestimates") but we think an online third-party review service provides more credibility than simply printing reviews ourselves. At this time, we have over 100 reviews with more coming in each month. To see all of the reviews at any time, you can visit Zillow Beach Pro Team reviews.
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Grand Strand Market Report
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Below is a link to a detailed report on the current state of our local real estate market complete with statistics for just about anything imaginable. Please keep in mind that these statistics cover a broad range of properties and that particular areas or developments may behave quite differently.
As always please contact me if I can be of service in any way.
See link below to interpret terms used in this report.
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The following current listings are exceptionally well-priced and represent great values. The spreadsheets are sorted by price. These are live links to listing details and they will change according to changes in the MLS (Pending, Sold, etc.). The listing details are in the same order as the spreadsheets. Please call me directly if you find something of interest to you.
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If you are considering buying or listing any property on the Grand Strand, or if I can be of assistance in any other way, please contact me. Also, please feel free to forward this newsletter to friends or acquaintances and of course I will be happy to add them to my email list.
Finally, please let me know if you are going to be in the area and would like to get together.
See you at the beach!
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Gene Carter
Beach Pro Team
Cell Phone: 843-455-4785
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The material provided is for informational and educational purposes only and sometimes contains current or forward-looking statements on real estate market conditions, and should not be construed as legal, investment and/or real estate advice. Although the material is deemed to be accurate and reliable, we do not make any representations as to its accuracy or completeness and as a result, there is no guarantee it is without errors, and is not necessarily the opinion of RE/MAX Southern Shores or its agents.
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