InvestmentPalmetto Bluff: A Real Estate Investment in Vacation Rental

Our family enjoys escaping to Palmetto Bluff, located 2 hours south of Charleston in Bluffton SC. Charleston is steeped in lowcountry style and history, whereas Palmetto Bluff delivers on lowcountry scenery and tranquility. A 20,000-acre land development with only around 800 of an estimated end total of 4000 or so houses built so far. You can ride, swim, boat, fish, shoot and play games all day long and never the same thing twice. Architecture is simply beautiful, scenery stunning and the April weather forgiving for even the most true blooded European amongst us.

We fell in love with this setting so we went on the look out for potential opportunities for real estate investment outside of the usual Charleston property and, as always, had set our filter to a 15% minimum return.  The local Realtor and a property manager established some initial direction but as with any investment they are at pains to indicate that projections are not facts.  Many houses were indeed available to rent for vacationers but you had to be in a Zone that allowed for this.  The rental rates were typically higher than achieved in Charleston though occupation levels considerably lower. That was not a lack of demand but driven as a result of the owners who often lived in their homes for longer periods of time, keeping them out of the rental pool.  Resort fees were considerable though, but reflected the stature of a first class facility. Prices for completed homes were firm and quite high by South Carolina norms.   This would be a tough call. 

Speaking at length with Realtor Thomas Maybank, we quickly discounted buying an existing home. The demand was simply too high and supply too short. No renovation or distressed sales to be had here.  However, they had nearly completed the infrastructure for a new “village ” development, though no work had yet been started.  A tour showed a few home sites of interest, especially those discounted due to lack of river or marsh views but still in a beautiful setting. 

We chose a corner lot on relatively high ground at $395K.  Trees on two sides and a screened car park on the third mean it will always offer privacy.  It was one of about 9 lots on a staged release but differed in that the remaining were all fronting the May River and selling at $1.5M each.  So we have a low-priced lot in a very expensive future development. This is a longer term play as the main facilities and amenities of Moreland Village will not be completed until Winter 2018 and even then this may be subject to some variation but we have no doubt that it’s going to get there in the end.  Our build should start late Spring 2019 giving time to plan.  It’s a large lot that will easily take a 3 or 4 bed main house and a discrete guest cottage.  If the buildings are sited correctly we still have marsh and river views between the frontage setbacks.  A boat landing, dock and picnic facility are within a stone’s throw.

Our estimation is:

• A build cost of around $200 per sq ft. for approx. 3000 sq ft.  
• Meaning a total investment of about $1.0-1.2M.  
• $6000 per week rentals 60/70% of the year yielding a $185 to 220K gross per year, approximately $150/190K net before management.  
• We will use our own construction company or at least act as our own General Contractor to improve build margins which we would estimate at 20% of final costs contributing to retained equity day 1.  
• A standard commercial mortgage at 70% LTV (loan to value) would allow us to take nearly all of our cash back out of the investment and still yield a very healthy cash flow and a free holiday home for the growing family.  

Note: The market in Charleston is very hot right now and everyone is chasing a dwindling supply. Better deals are to be had by leaving the herd and looking elsewhere.  Our new investment should yield returns considerably better than can be achievable in the current Charleston marketplace and provides an available holiday home just hours away. Palmetto Bluff offers the ideal place to experience the beauty of the lowcountry. Is it time you invest in your own Palmetto Bluff sanctuary?  Let us help you understand the investment potential that exists.