If you’re like most folks visiting St. John and thinking about owning a home on our beautiful tropical island, you’re wondering what is involved in owning a vacation rental property.
First of all, there are over a dozen rental management companies here providing a valuable service since St. John has only two main hotels. These companies give homeowners the security of knowing that their island home is being well maintained by caring professionals who take personal pride in your island home as if it were their own. They each specialize in certain areas and they encompass both sides of the island with a variety of price ranges.
Many of our Buyers are off island customers who intend to put their St. John home in a rental program, therefore realizing an immediate return on their investment. The income and occupancy levels of a rental home are influenced by many factors, including location, design, amenities and price. Most managers prefer that homes have a pool and equal sized bedrooms with adjoining baths. If you buy a home without these features, you may be able to add them at some future date. Air conditioned bedrooms, which most residents don’t find necessary for everyday life here, are also considered to be desirable by rental guests and managers. Views, breezes and an accessible location are important too.
If you buy a home that is already on a rental program you will inherit the benefit of repeat guests that return to the same home every year and guarantee immediate revenue, besides the existing reservations and referrals from past guests. Otherwise, if new to the rental market, a picturesque and descriptive brochure is important and a strong website presence. You may want to offer a lower rental price to build up occupancy the first season. However, with the right management and amenities, you could expect a home to consistently achieve annual occupancy levels of 65% or higher. Every home rents well throughout the winter season. The high season months of December through April are great, and then expect May and June to be a little slower. Houses with pools and a/c are more popular during the summer than those without. Expect guests to stay longer in July and August when families visit the island. Then, September and October are light, and a good time to schedule home improvements and maintenance (or add that pool!).
November picks up again and is an excellent time to come down yourselves and prepare for another busy season. Rental income will be enhanced if you do not use the property yourselves during prime weeks (i.e. Thanksgiving, Christmas, New Year, Presidents week in February, and Easter).
It is generally the same cost to maintain a four bedroom home as a one bedroom, but you get more income if you can accommodate more guests. Rates are often based on 2, 4, or up to ten guests. Logic dictates that a multi bedroom home, although initially more expensive to purchase, will bring in higher revenue. However, a smaller house has the potential to be expanded and enhanced as time goes by and will most likely bring in more income.
Rental managers’ commissions range from 20% to 30%, depending on the scope of marketing and management they provide. This usually includes advertising and booking the home, handling the deposits and payments, arranging for rental cars, meeting guests upon arrival on the dock, taking them by the grocery store on the way to the property and explaining the little idiosyncrasies of island life and your home in particular. Their fees usually include routine maintenance, accounting, paying utility bills, marketing, etc. Additional expenses are incurred at local hourly rates for cleaning and housekeeping, pool maintenance, gardening and hurricane prep before and after storms. Some managers charge up to 40% for an “all inclusive” program. Utility bills for water, electric, cable TV, telephone, propane gas, insurance, exterminating, homeowners’ association fees, taxes, etc. are extra. Overall, no matter which way expenses are taken care of, owners can generally expect to net between 50-60% of their gross rental income after commissions and expenses (not including mortgage payments, if applicable).
Most rental managers open a joint checking account for each homeowner at a local bank. The manager then maintains that account and provides a monthly report of income and expenses to the homeowner including an up-to-date schedule of rental reservations. Excess funds are distributed to the homeowner regularly as warranted and the manager prepares annual income statements.
Gross Receipts – paid monthly, 5% of any rental income in excess of $9,000
V I Hotel Tax – 12.5%, paid by guests
Income Taxes – paid by owner to VI Govt on net annual at same rate as US income tax
Property Taxes – Residential real property taxed at .003770
Travel Agent Commission – 10% when applicable is generally deducted from gross income before management commission is computed.