Guide

Making an Island Pay: Resorts, Rentals and Income

Most private islands cost money to hold. A minority are arranged so that they also make it. This is a candid account of the working-island model, whole-island rental, boutique resort development and branded residences, with the numbers that matter and the cautions that usually go unsaid.

The two reasons to seek income

Owners pursue income for one of two quite different ends, and the distinction should be settled before a single figure is modelled. The first is offset: a family wants its island, uses it for six or eight weeks a year, and would like the other forty-odd weeks to defray the substantial cost of keeping the place alive. The second is enterprise: the island is bought as a hospitality business first and a private retreat second, or not at all. The offset owner should aim for a well-run rental programme and be pleased if it covers running costs. The enterprise owner is building a resort, with everything that implies. Confusing the two is the most common and most expensive mistake in the category.

Before either path, the underlying economics of ownership should be clear. Our note on what a private island really costs sets out the holding burden that income is meant to answer, and how to buy a private island covers the acquisition that precedes any of this.

Whole-island buyout: the cleanest model

The most elegant income model is the exclusive-use buyout: the island is let in its entirety, to one party at a time, at a nightly or weekly rate. There is no public guest list, no shared spaces, no reputational exposure to a bad review from a stranger. It suits an island with a comfortable main house, a handful of guest pavilions and a resident or on-call staff.

The rate range is wide and tracks the asset. At the accessible end, modest private islands let from a few thousand dollars a night. Established exclusive-use islands with full staff and infrastructure sit far higher: Panama's Isla Palenque has offered whole-island buyouts from around $18,000 a night; Fiji's Kokomo has commanded roughly $36,000 a night with a multi-night minimum; the best-known names, Necker in the British Virgin Islands, The Brando in French Polynesia, run well past $100,000 a night, the latter effectively an all-inclusive resort taken whole. A well-positioned exclusive-use island can turn over anywhere from a couple of hundred thousand to well over a million dollars in a strong week, and the very best rental programmes are cited at several million dollars a year.

These figures flatter the eye and deserve caution. A headline rate is not a yield. Against it stand agency commission, staff, provisioning, transfers, maintenance and the weeks the island sits empty. Which brings us to the number that actually governs the model.

A headline nightly rate is not a yield. The number that governs a rental island is occupancy, and on exclusive-use islands it is almost always low.

Occupancy is the whole argument

Managed resort-style islands have sustained annual occupancy of roughly 70 to 85 per cent across recent years, but those are staffed resorts with continuous marketing, not privately held retreats let between family visits. A privately owned island offered for occasional buyout is doing well to fill twenty to thirty nights a year at the full rate. Ten weeks of owner use, a slow shoulder season and the simple friction of a remote booking leave a lot of empty calendar.

The arithmetic is unforgiving and worth doing plainly. An island that lets at $20,000 a night and achieves 40 paid nights grosses $800,000. Strip 20 to 25 per cent agency commission, then staff, provisioning and maintenance, and the net contribution can be a fraction of the gross, useful as an offset against a heavy holding cost, rarely a profit in its own right. Model occupancy conservatively, at 25 or 30 per cent of the lettable calendar rather than the resort benchmark, and the offset case becomes honest. Model it at the brochure rate times 365 and you are telling yourself a story.

Building a boutique resort: the enterprise path

The step from letting a private island to operating a resort on it is not a matter of degree; it is a change of species. It brings planning consent, environmental assessment, utilities at scale, a licence to operate, employment law, health and safety, continuous marketing and a management structure. It also brings the possibility of a real return rather than a mere offset.

The capital is considerable. Luxury resort construction runs around $2 million per key in prime destinations, and island sites carry a premium over that for the logistics of building on water, importing every material and generating your own power and water. A twenty-key boutique property is therefore a tens-of-millions undertaking before the land, and remote island builds routinely overrun on both time and budget. Our regional overviews for the Caribbean and the Indian Ocean sketch where the development markets are more, and less, forgiving.

What the margins really look like

Run well, an ultra-luxury resort can reach a gross operating profit margin in the region of 50 to 60 per cent, with net operating profit per occupied room running into four figures a night. That is the figure operators quote. The figure they mention less is that a single independent boutique property, without a brand's distribution and buying power, often lands at a 10 to 15 per cent net margin, because per-room operating costs are high and negotiating leverage with suppliers is low. On an island, where a high staff-to-guest ratio is the whole point of the product and every crate arrives by boat, costs sit at the top of that range. The margin is real, but it is earned, and it is earned by operators, not by owners who happen to own an island.

• Development capital at roughly $2m per key and up, before land and infrastructure.
• A staff-to-guest ratio that can exceed one-to-one at the top of the market, which is a payroll, not a flourish.
• A two-to-four-year build, and a further period to establish occupancy and rate.
• Continuous marketing spend, without which a remote island is invisible.
• Reserves for weather, for the season a reef closes, and for the year a source market softens.

Branded residences and licensing

A third model separates the land from the business through a brand. The owner-developer builds, attaches a recognised hospitality name, sells residences or villas at a branded premium, and the operator earns a licence fee at the point of sale and a management fee thereafter. It is among the fastest-growing structures in hospitality, branded-residence agreements have grown sharply year on year, precisely because it lets a developer recover capital through sales while the operator carries the brand and the guest relationship.

For an island owner the appeal is capital recovery and a name that sells; the cost is the licence fee, the loss of full control over the property, and a long management contract that binds successors as well as you. It suits a larger island that can be subdivided into saleable residences without losing the seclusion that made it worth buying. It does not suit the owner whose first purpose was privacy, because a branded residence scheme is, by design, the end of the island as a single private holding.

Licensing, staffing and the operating reality

Whatever the model, three practical matters decide whether the income survives contact with reality.

Licence to operate

In many jurisdictions the right to run commercial hospitality is separate from, and additional to, the right to own the land. In tourism economies such as Fiji and across the Indian Ocean, operating licences, foreign-investment approvals and tenure conditions are intertwined, and in some the island is held on a tourism concession that requires it to be developed and run. Confirm the licence before the model, not after. The tenure that underpins all of this is the subject of our companion guide, and the local detail sits in the Fiji and Bahamas guides among others.

Staffing a remote asset

The service that justifies the rate depends on people who must live on, or be ferried to, a place with no local labour market. Housing, rotation, training and retention of staff are the quiet engine of a private island's economics, and their cost is fixed whether the island is full or empty. This is why occupancy matters so much: the payroll does not fall on a slow week.

Management

Few owners run these operations themselves. A rental island typically sits with a specialist letting agent; a resort with a management company. Both take a meaningful share, 20 to 25 per cent of gross rents is common on the rental side, a fee-plus-incentive on the resort side, and both are, on a well-chosen island, worth it. The alternative is to become an innkeeper on a rock in the sea, which is a fine life and a poor investment strategy.

The payroll does not fall on a slow week. On a remote island the cost of the people who make the service possible is fixed whether the calendar is full or empty.

A realistic view of yield

Set against a clear-eyed model, the honest conclusions are these. A well-run rental programme on a beautiful, accessible, staffed island can offset a large share of holding cost and, in a strong year, contribute a genuine surplus. A boutique resort, built with adequate capital and run by real operators, can produce a respectable return, in the high single digits to low teens as a percentage, in prime locations, after the build has been paid for and occupancy matured. A branded residence scheme can return capital fastest of all, at the price of the privacy that was often the reason to buy. What no island reliably does is pay for itself as an afterthought. Income on an island is a business, and it repays being treated as one.

If you are weighing an island for its earning potential, our office can model the specific case, rate, realistic occupancy, staffing and the licence position, before you commit. Owners considering the reverse, placing an island into a rental or resort programme, can begin through register an island, and the transaction discipline behind any of this is set out in the acquisition brief. To discuss a particular property, write to us through the enquiry form.

General orientation, not legal or tax advice. Enquiries: the enquiry form.