You’re
lounging in the hammock of your Outer Banks rental home, a light
breeze tickling your sun-tanned skin, when you slip into a daydream
about one day owning your own little place by the sea and relaxing
like this more often.
You’ll rent the house, it’ll pay
for itself, and you’ll have your own Outer Banks getaway
for relaxing in the off-season. Is this a realistic vision or
a far-fetched fantasy? Read on to find out.
Many people who rent here dream of owning
something similar one day. With a little prudent planning, the
dream of second home ownership is within reach for many people.
But here’s a piece of advice: Unless you have an unlimited
budget, this is no time to be impulsive. One local Realtor said
that a second home is like marriage — it’s a serious
commitment that you don’t want to enter into lightly.
More than half of the homes on the Outer Banks
are owned by absentee owners, and that includes second homes
for personal use, investment-only rental properties and rental
properties that owners also enjoy. These owners know that Outer
Banks property is a good investment. Prices are affordable relative
to other resort areas, appreciation is steady, and there are
many investment opportunities here.
Renting can make the cost of a second home
more affordable. Renting your vacation home diminishes the costs
of ownership and offers tax advantages in some cases. And if
you want a second home that rents well, the Outer Banks is a
good location choice. The demand for short-term rentals is high,
and the rental season is long, extending well into the fall
and spring.
But while renting offers a way to afford that
second home, real estate brokers and investment specialists
say that is unrealistic to expect that rental income will cover
all the expenses of owning the home.
In general, says one local Realtor, you can
expect the annual rental income on a stand-out property to be
about 5 percent of the total cost of the home. That figure was
a lot higher 10 years ago, but times have changed. Real estate
prices have gone up, and rental rates have not increased at
the same pace, mainly due to the number of rentals available
on the Outer Banks. A good, solid property will rent most if
not all weeks of the peak season, and the payoff varies according
to the ratio of the cost of the house to the price of the rental
and the number of weeks it rents.
If you’re considering buying a rental
property on the Outer Banks, here are a few tips and things
to consider, courtesy of various Realtors and investment professionals.
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Approach the planning and
decision-making without emotion; try to remain objective.
Learn all that you can about the rental process and the implications
of owning a rental home. Renting houses is big business on
the Outer Banks. This is a business investment, so treat it
that way.
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Hire one local agent to help
you in your search. Instead of calling the agent who lists
each property you’re interested in, which means you’ll
deal with numerous real estate agents during your search,
get your own Realtor, a buyer’s agent, who will help
educate you and serve your best interests.
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Get pre-approved for a mortgage.
Many real estate agents will tell you to do this even before
you start looking at properties. This lets you know exactly
how much you can afford, so you don’t waste any time
looking at properties that are out of your league. It also
tells the Realtor and sellers that you’re a serious
player.
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Start out as a renter. Rent
various houses in various areas of the Outer Banks and find
the type of house and location that best suits you. What type
of amenities did you enjoy as a renter? One local property
management company said that every homeowner they represented
had rented with them before they bought.
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Be wary of unrealistic rental
income projections. Some sellers might pump up a property
to look like a cash cow or “easy money.” Your
buyer’s agent can help you determine accurate rental
projections and make suggestions about properties that would
generate reasonable income.
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Know the costs. Besides
the down payment and mortgage payment, you’ll need to
pay for things like annual maintenance, furnishings, updating
and repairs. (Renters can be very hard on a house!) You’ll
also have to consider insurance, which may be more expensive
than your primary home insurance because on the Outer Banks
you also need wind insurance and probably flood insurance.
Also, the second home will have an impact on your taxes, depending
on how often it’s rented. Second homes and rental homes
are subject to many different deduction standards, so consult
with an accountant.
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Be realistic about the amount
of work it is. You can’t rest on your laurels when you
have a house in a rental program. “It’s a competitive
business right now, and if owners are not keeping houses up,
the rents go down,” said the manager of one rental agency.
“You have to keep raising the bar. You have to constantly
keep up with it.”
If you’ve thoughtfully considered all
these points and want to buy and rent a vacation home, how do
you work out a vacation rental, logistically?
This is where property management companies
come in. Most owners of rental properties live outside of the
area and hire a company to handle renting and maintenance. About
50 Outer Banks companies manage properties for off-site owners.
Some are a division of a real estate firm; others deal exclusively
with vacation rentals. Most property management companies charge
the homeowner a percentage of the gross rent, and homeowners
are paid monthly.
Property management companies do many things
for the homeowners they represent. Number one, they market your
home to potential renters via advertisements, catalogs and the
internet. They handle the bookings. They draw up leases, mail
them out to customers and collect their rents, deposits and
taxes. They keep up with the laws in the Vacation Rental Act
and offer Trip Insurance to renters. They field complaints and
criticisms about your property. They handle the cleaning, inspections
and light maintenance after each renter vacates the property.
They do the necessary maintenance to keep your home functioning
properly, including regular pool and spa maintenance. They can
offer tips and suggestions on setting rates and how to get your
house to rent more often. Each company’s services vary,
and each company has a niche that they fill in the rental market.
Unless you are willing to handle all these
things yourself, it is not recommended that you try to rent
or maintain the property on your own. For most people it’s
easiest to do a little work to find a company they like and
then pay whatever it takes to turn the work over to them.
All agents we spoke to for this article
agreed: Owning a rental home on the Outer Banks is a good investment
and a good way to afford a vacation home as long as you approach
the process as a business venture instead of a way to make easy
money.
