By the Numbers: Investing in High End Rental Properties


A client recently asked me about what return might be expected if he and some associates were to buy and rent a $2.6M home in Aqualane Shores with the expectation of selling it in five years. The short story is that with the right older home that is selling somewhat close to lot value but still has significant rental appeal, and with current low 5 year interest rates, the rental income will just about cover the interest and expenses. With 30% down, just looking at the appreciation in lot value and keeping the value the structure constant, if the lot appreciates at a compounded average of 6% per year, the average annual ROI is about 12%. At 10% compounded appreciation, the average annual return is about 25%.

With the anticipated demand of the retiring baby boomers, and looking at historical data, property values west of US 41 in Naples will always lead the way in appreciation. Also, right now rental properties in the upper end neighborhoods are in high demand due to a severe lack of inventory. I recently spoke with a rental agent in Aqualane Shores who has just such a property and she told me she wishes she had 10 of them because the demand is so high. And with Internet sites like VRBO, a rental/property manager can minimize or eliminate the rental commissions.

Setting up a LLC and sharing the investment with a group of 4 to 5 partners makes this investment strategy more accessible for many people. A 30% down payment divided by 5 people in on a $2.6M deal comes to $156,000 each. I would also recommend adding another $10,000 each for a contingency fund, the remainder of which would be returned when the home sells.

If you are interested in looking at the numbers, and finding out about good rental properties, please contact me. I look forward to serving you.

Bill Van Arsdale


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