The rent is not the income. What a coastal rental actually nets. · Journal

Every September I get the same phone call. The season is over, the statements have landed, and somebody is sitting at the kitchen table with two numbers that do not match. One is the gross rent the projection sheet promised back in the spring. The other is what actually reached the bank account.

Both numbers are usually honest. They are just measuring different things, and nobody walked the owner through the gap between them before they signed.

So let’s walk it. Here is where a rental dollar goes on this coast, in order, with the public rules named so you can check every line yourself.

First, the tax the guest pays

Start here because it confuses almost everyone. Inside the Gulf Shores corporate limits, lodging tax runs 16 percent: 4 percent state, 2 percent Baldwin County, and 10 percent city, per the city’s own tax page. In the police jurisdiction the city portion drops to 5 percent, so the total is 11 percent. Orange Beach lands at the same 16 percent inside the city.

That money is not coming out of your rent. The guest pays it on top of the nightly rate. But it matters to you for two reasons.

The first is bookability. When your rate is $300 a night, the guest is looking at a total closer to $348 before cleaning and fees. The number that competes for the booking is the total, not your rate.

The second is paperwork. Somebody has to file it, on time, every month. Gulf Shores wants lodging tax by the 20th for the prior month, filed electronically through My Alabama Taxes, and the city says plainly that a return is required even in a month you collected nothing. Most owners hand this to their manager. If you self-manage, it is now your calendar item, and a missed month brings a penalty plus interest.

Then the license nobody mentions at the closing table

Gulf Shores requires property owners renting inside the corporate limits or the police jurisdiction to submit a business license application. Short-term rentals carry a $45 charge on top of the gross-receipts fee schedule. Licenses expire December 31, renewals are due January 1, and they go delinquent after January 31. Owners of a single unit rented long term, 180 days or more, are exempt from the licensing requirement.

Orange Beach layers on its own certificate requirement and its own zoning rules about where vacation rentals are even allowed. That part is not a fee question, it is a can-you-do-it-at-all question, and it is worth answering before you write an offer rather than after.

It is a small dollar amount and a real deadline. I mention it because January is when people discover it.

Now the line that surprises people most

Renting your place changes how the county taxes it.

Alabama assesses residential property in classes. The Baldwin County Revenue Commission says a second home is eligible for a Class III designation, assessed at 10 percent of value, though it gets no homestead exemption. Rental property is treated as income producing and carries a 20 percent assessment rate.

Run that against the City of Gulf Shores millage, which the city publishes at 33.0 mills total. On a $600,000 condo:

As a second home you do not rent: $600,000 at 10 percent is $60,000 assessed, times 0.033, or about $1,980 a year.
As a rental: $600,000 at 20 percent is $120,000 assessed, times 0.033, or about $3,960 a year.

Same condo, same street, roughly double the property tax bill. That is not a penalty and it is not a surprise anyone is hiding from you. It is just how the classes work, and it almost never appears on a rental projection sheet.

Classification follows use, so if your plan is a few weeks of family time and the rest on the rental calendar, call the Revenue Commission and ask how they will classify your specific situation. Get the answer before you build a budget on the 10 percent number.

The commission, and what it is charged on

Published rate pages from local management companies put the going range around 20 to 25 percent of the rental rate, with some programs advertising lower tiers for owners who put multiple units in the same program.

The percentage is the part everybody negotiates. The basis is the part that actually decides your check. Ask exactly what the commission is calculated against: the nightly rate alone, or the rate plus cleaning fees, pet fees, and other guest charges. Two programs quoting the same percentage can pay out differently depending on that one answer. Ask about payment processing too, since some programs pass along a card-processing percentage calculated on the full booking total.

None of this makes a management program a bad deal. Managing a gulf-front unit yourself from four states away is a genuine job. It just means the honest comparison between two programs is the net deposit on the same booking, not the two percentages side by side.

A worked example

Let’s put a whole year together. A gulf-front two-bedroom, $600,000, in a program quoting a $60,000 gross rent projection. I am going to use round numbers for your building’s costs because those are yours, not mine. Substitute your real ones and the shape holds.

Gross rent projection: $60,000

Management commission at 20 percent: -$12,000
Association dues, at an assumed $900 a month: -$10,800
Property tax, Class II at 33.0 mills: -$3,960
Unit-owner insurance, contents and loss assessment coverage, assumed: -$1,800
Maintenance, turnover wear, pest, furnishings refresh, assumed: -$4,000
City rental license: -$45

That leaves roughly $27,400 before any mortgage payment, and before a single dollar of capital assessment.

Against a $600,000 asset that is about 4.5 percent, and it assumes the projection was right. Projections are built on the calendar the property could book, and hurricane season overlaps the shoulder months, so the year that comes in 15 percent under projection is not a rare year. Run yours at 85 percent of the projection and see whether you still like it.

Then run the real test: your building votes a special assessment. A $20,000 assessment on that unit is most of the next year’s net. I wrote about the mechanics of those in an earlier post, and the reason I keep coming back to them is that they are the single line item most likely to turn a working rental into a decision.

What to actually do with this

If you already own and rent:

Pull your last statement and find what the commission was charged against. Rate only, or rate plus fees. Write the number down.
Check your property tax notice for the assessment ratio. If you are being taxed at 20 percent, that is expected for a rental, and it belongs in your budget as a real cost.
Put January 31 on the calendar for the license renewal.
Total your actual net for the last twelve months, not the gross. That is your yield, and it is the only number worth comparing against anything else.

If you are shopping for one:

Ask the listing side for the last two years of actual owner statements, not a projection. Actuals and projections are different documents and only one of them happened.
Ask the association for the last two budgets, the reserve study, and the current insurance renewal summary, the same packet I tell every condo buyer to ask for.
Confirm the rental is permitted where you are buying before you fall for the unit, especially in Orange Beach.
Rebuild the projection at the Class II tax rate and at 85 percent occupancy of what you were handed. If it still works, you found something real.

None of this is an argument against owning a rental here. Plenty of them do exactly what their owners hoped, and the ones that work tend to be the ones that were underwritten honestly on day one. It is an argument against buying the gross number.

If you want help running these lines on a specific building, or you want to see what your current unit is actually netting against what a house eight minutes off the beach would cost you to hold, call or text me at (251) 597-5809. I answer my phone, and I will show you the math either way. No pressure, just honest numbers.