There are many factors that go into real estate cost of ownership. 

Most people normally think of the costs being the price and therefore the monthly payments.  When interest rates are down, it allows people to buy a much larger place for the same monthly payment or pay less for the same property.  With the current interest rates, it makes it much easier to own property in our corner of paradise – Hilton Head Island.

The other costs are usually associated with insurance, taxes, homeowners association fees, utilities, yard maintenance, pool maintenance, cable TV, water/sewer, and telephone service.

Most of these costs normally do not increase.  The only ones that do have a tendency to increase are taxes and insurance.

Look at it this way, if a guy in Cincinnati is looking at buying a $500,000 condo at the beach for his family to enjoy.  He is trying to figure out what it is going to cost him after he rents it out.  Let’s say hypothetically that cost him $20,000/year.  He thinks that he can probably handle that plus they can benefit by using it four or five times a year, it adds some tax benefits and my friends can use the condo.  This is how he figures his cost of ownership. 

Now let’s say his insurance and taxes increase.  Instead of costing him $20,000/year it is costing him $30,000/year.  That is a little harder for him to stomach for a vacation getaway and he might decide to sell.

When Hilton Head Island taxes and insurance increase, you have less people buying and more people selling.  You have an imbalance in the Real Estate market causing prices to drop further.

Most politicians do not understand the effect that taxes and other costs have on the economy.  I am pleased that South Carolina has recently reduced tax for single family homes, but they should do the same for 2nd homes on Hilton Head Island as well.

I think this example proves to us that the cost of ownership is more than just the cost of the property and that is what property buyers and sellers are looking at.