All Forum Posts by: Ron Williams

Quote from @Julio Gonzalez:

A cost segregation study was performed on this residential property in Hilton Head Island, SC with a depreciable cost basis of $1,575,761. The property is 3 stories and 4,848 square feet and was constructed in 2001. The property consists of high-end finishes and modern amenities. It features a swimming pool, hot tub, movie theatre among other custom finishes. The exterior is fiber cement siding and the interior has granite countertops, custom cabinetry, and custom lighting.

The use of the accelerated depreciation strategy helps real estate investors to reduce the tax liability immediately which therefore increases their bottom line due to the offsetting of income. An additional benefit of a detailed engineering-based Cost Segregation Study is that it can increase potential insurance premium savings as well as provide support for the property tax appeals process. Additionally, it can help maximize renovations and improvements.

15.86% of the total depreciable basis was classified as 5-year class life. Assets identified in this study include:

• Electrical systems with specialized wiring
• Custom cabinetry and built-ins
• Specialized lighting fixtures
• Entertainment systems
• Kitchen appliances and fixtures

14.88% of the total depreciable basis was classified as 15-year class life. Assets identified in this study include:

• Irrigation system and landscaping
• Outdoor improvements and fencing
• Site utilities
• Swimming pool and equipment
• Concrete pavers and paving

69.26% of the total depreciable basis was classified as 39-year class life. Assets identified in this study include:

• Foundation and floor structure
• HVAC Systems
• Building structure
• Exterior walls and roof
• Electrical and plumbing

This engineering-based cost segregation study included the following methodology:

• Physical Inspection through a site visit
• Documentation review including architectural plans, accounting records and construction documents
• A cost analysis which utilizes engineering principles in order to allocate costs to their applicable asset classifications
• Calculation of the depreciation schedule using MACRS

As a reminder, bonus depreciation started to phase out in 2023. It’s 100% bonus depreciation for properties placed into service in 2017-2022, 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026 and completely phased out in 2027. However, there are tax code changes every year.

For additional questions, checkout this article on Cost Segregation FAQs.

Have you had a cost segregation study performed on your residential investment property?

Hilton Head is a great area to use Cost Segregation. We have seen clients be able to write off close to 1/3 of the purchase price in the first year. Hilton Head provides the opportunity for decent income and very aggressive depreciation due to the STR nature of the properties.  The proper use of cost segregation can take a property that is just an OK deal and turn it into a fantastic investment. 

Great Post!!

Hi @William Goins,

Would be happy to jump on a call to discuss managers in the area.  A lot depends on what you are looking for in a management company and they all have different pros/cons.

Hi @Tyler Hespeler,

I'm here in the Lowcountry. Also previously ran a REI group here in Hilton Head/Bluffton. Happy to connect.

As summer winds down, here’s a look at how things shaped up this season.

Most property managers reported occupancy rates being down by 10-12% year-to-date. August was hit the hardest, which makes sense given that many schools in the Southeast, particularly in Georgia and South Carolina, started classes around August 1—about two weeks earlier than usual. Despite the dip in occupancy, rates remained stable or even edged a bit higher compared to last year. On the retail and restaurant side, numbers followed a similar pattern, down by around 10-15% year-to-date. So, is this a sign of fewer people coming to Hilton Head or a broader reflection of the economy? I lean toward the latter—this is more about economic conditions and the lingering post-COVID effects. But it's important to note that rental and retail figures are still ahead of 2019 levels.

On the real estate front, prices are holding steady, though we’re seeing an increase in inventory. Homes are staying on the market a bit longer, and we’re starting to see some price reductions. That said, we’re still up around 5% year-to-date on the island. Condos, however, are where the biggest shifts are happening. Inventory is growing, and sellers are more motivated to move properties. I anticipate that late fall and early winter could present some good opportunities for those looking to pick up short-term rentals (STRs).

One thing to keep in mind, as with most markets right now, is that return on investment (ROI) isn't going to be sky-high. Today's prices aren't exactly investor-friendly, and typical returns hover around 6-8%. However, there are ways to improve those numbers. For instance, you can take advantage of accelerated depreciation, especially with STRs. And remember, even if you're just breaking even on a leveraged property, someone else is paying off your asset for you. This is the beauty of real estate—especially in resort areas or markets with above-average appreciation. Over time, that 6-8% return can grow to 15-20%, but the key is knowing how to leverage that equity at the right time.

Michael:

Not sure why I just now saw this. I think condos are starting to come down a little bit. But the reality is there is no land left to develop, so these prices are going to stay for a little while. We are currently watching to see what happens this fall. HHI is seasonal and some sellers get motivated to sell late fall through the end of the year. Condos seem to be the spot where some deals might be found, but we will see.  Occupancy was down this summer. Probably more of a reflection of the economy than anything else, but certainly something to keep an eye on. 

If you're keeping an eye on the U.S. housing market, you've probably noticed some pretty interesting shifts happening lately. The National Association of REALTORS® (NAR) just dropped some numbers, and guess what? The housing market is on a bit of a hot streak. Existing-home sales have jumped a whopping 9.5% to a seasonally adjusted annual rate of 4.38 million units. This isn't just good news; it's the biggest monthly leap we've seen in a year, and it's even left the experts pleasantly surprised.

Let’s Break Down What’s Happening

Here’s a quick snapshot of the latest trends that show the market's heating up just in time for the spring selling season:

- New Listings: Barely nudged up by 0.1 percent to 680. It's like a small wave hello, letting us know more homes are trickling in.

- Pending Sales: Took a slight dip of 3.0 percent to 518, hinting that everyone’s jumping on good deals fast.

- Inventory Growth: This one’s big—inventory shot up by 44.6 percent to 1,469 units. More houses on the market mean more choices for buyers.

- Pricing Upswing: The Median Sales Price edged up 3.3 percent to $516,555. Houses are fetching a pretty penny, showing they’re still a hot ticket.

- Market Pace: Houses are taking a bit longer to sell, with Days on Market up by 35.6 percent to 61 days. And with Months Supply of Inventory ballooning by 54.5 percent to 3.4 months, buyers might finally catch a break to make their move.

What’s Fueling the Fire?

So, what's behind this surge? A sweet spot in December saw mortgage rates dip, encouraging more folks to buy. Plus, there's been a boost in how many houses are up for grabs across the country. NAR's numbers show a healthy bump in inventory—a 5.9% month-over-month increase and a 10.3% rise year-over-year, rounding out to about 1.07 million units up for grabs.

Despite the bigger selection, buyers are still out in full force, pushing the median existing-home sales price up by 5.7% from last year to $384,500. It’s the eighth straight month of price hikes, proving homes are still a hot commodity.

What This Means for You

Whether you’re thinking about buying, selling, or just love keeping tabs on the market, these trends offer a lot to think about. The market’s picking up speed, with plenty of opportunities to find a great deal or get a good price for your place. But it’s also a heads-up to stay sharp, keep an eye on those mortgage rates, and be ready to jump when the time feels right.

What terms are you looking for?  I work with a few hard money lenders here in Hilton Head. 

Amanda I would be happy to have a conversation with you and see if mentoring would work. I have been investing in real estate for over 30 years and I currently live in Hilton Head. I look forward to chatting with you. 

The Hilton Head Island real estate market for 2023 was similar to what happened in many real estate markets. Overall there were less real estate transactions than in 2022, but the price of properties continued to appreciate. In our local MLS the year over year appreciation was a little over 5%. Some areas of Hilton Head saw a higher increase in value. Inventory continues to be low, although it is higher than it has been in 3 years. Currently we are sitting with 3 months supply of inventory for all properties. The condo market has almost 4 months supply and the single family home market has 2.4 months supply. Days on market for properties has increased by about 40%.

The condo market is one we are still watching closely. Prices are continuing to stay strong. It seems most of the HOA's have figured out the insurance issues from the past couple of years and have leveled out their HOA fees and insurance assessments. The higher HOA and insurance fees have made investing in condos more complicated and not look quite as appealing, but there are still condos that can be purchased and an owner should be able to cover the cost of ownership.

Single family homes continue to be the most desired investment on Hilton Head Island. Values continue to go up, and demand is high. Sea Pines and Palmetto Dunes continue to bring the highest price points, but the Forest beach area is also a strong area. The days of double digit year on year appreciation seem to be behind us, but 5-8% each year is still above the national average. From an investor point of view for return on investment single family homes continue to be the best bang for the buck.

Rental demand was off by about 10% for the year. Rental prices on the other hand have gone up a little bit. Most investors we represent had at least a 5% increase in rate. The summer demand is still strong. The key is figuring out how to get people to rent the unit in the off season.

Outlook going forward:

It seems the Fed will lower interest rates at their March meeting. The mortgage interest rate should continue to drop over the next couple of months. Nationwide a 1% rate drop in mortgage interest rate (So that means a rate of under 5.75%) will bring 5 million new Buyers into the market. Locally interest rates have less of an effect on the market than they do nationwide with the majority of transactions being cash. Interest rates do effect the condo market a little more, so it seems the price point of condos will not be going down anytime soon. I would say real estate values will continue to go up between 4-6%. While rental demand is going down, there continue to be more people purchasing properties for personal use in turn causing there to be an overall shortage of rental units available in season.

Hilton Head Island continues to be one of the most consistent markets for investors to get a safe return. The lack of inventory. The community understanding Short Term Rentals are needed, so they do not create overreaching rules and regulations. The fact that the island is basically built out, so there is not an opportunity for large new developments. All of these factors help keep this area a safe place to invest.

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.