Is Hilton Head Island Still a Good Investment for STR?

[Ron Williams]

Is Hilton Head Island Still a Good Investment for Short-Term Rentals?

Many investors and vacationers have approached me in recent months, asking whether Hilton Head Island remains a viable option for short-term rental (STR) investments. My answer to this question is always the same: "It depends."

The fundamentals of real estate investing remain constant, and determining the suitability of a property for STR investment requires careful consideration. While there are still properties on Hilton Head Island that offer attractive returns, the decision to invest here depends on the specific needs and goals of each investor. In this article, I will discuss several factors that potential investors should consider before purchasing property on the island.

Factors to Consider:

1. Cash Flow vs. Personal Use: Are you primarily seeking cash flow and do not plan on utilizing the property for personal use? Or are you looking for a property that allows personal use while also generating rental income? Clarifying your priorities will help guide your investment decision.
2. Objectives: What are your investment objectives? Are you aiming to offset income from your regular job through a cost segregation write-off plan? Are you planning to build a diversified portfolio of properties across different locations? Defining your goals will assist in determining the best approach for your Hilton Head Island investment.
3. Property Improvement Potential: Are you interested in a property that covers its expenses but also offers significant potential for value appreciation through improvements? Identifying properties with such characteristics can enhance your long-term investment prospects.

Current Market Status (as of mid-2023):

1. Value: Hilton Head Island's real estate market has witnessed an overall increase in value, averaging around 5% year over year. While some neighborhoods have experienced higher growth rates, others have seen more moderate increases.
2. Insurance: Insurance costs, particularly for condo owners, have become a significant factor. Many associations have observed insurance cost hikes of up to seven times the previous rates. Monitoring this trend closely is advisable as it may impact investment returns. Associations typically have strategies in place to address these changes, but it is essential to stay informed.
3. Occupancy Rate: The occupancy rates on Hilton Head Island have returned to pre-pandemic levels. Summer months remain particularly busy, while the rest of the year has returned to normal patterns. Ensuring that your properties are well-maintained and up-to-date is crucial to maximizing occupancy throughout the year.
4. Rental Rates: Despite slightly lower occupancy rates compared to the past two years, rental rates have remained stable, especially during the summer season. By keeping your rental units clean and updated, you can sustain consistent rental income.
5. STR Regulations: In 2023, the town of Hilton Head implemented new STR regulations. These regulations mainly consist of common-sense rules that provide clarity for both property owners and guests. The town recognizes the importance of STRs in maintaining the local lifestyle and economy, given the significant contribution of vacationers to the area.
6. Demand: Hilton Head Island continues to attract approximately 3,500,000 visitors annually, with the majority flocking to the island during the summer. However, the current supply of rental units falls short of meeting the high demand during peak season. Consequently, rental properties on the island remain highly sought after. Additionally, there is a steady influx of buyers looking to either reside or invest in the area, indicating sustained demand for Hilton Head Island properties.

In summary, Hilton Head Island remains an excellent location for STR investments. While property prices have increased, the potential rewards justify the higher entry costs. If you are interested in exploring the opportunities available on the island further, please feel free to reach out to me. I am here to assist you in making informed investment decisions tailored to your specific requirements.