What are the numbers on east coast beach homes?

Question

I have been looking into adding a vacation rental on the east cost (NC, MD, NJ) to diversify my existing properties. After looking at some of the sell prices as well as the weekly rental prices offered May-Sept vacation timeframe, I am wondering if anyone is willing to share their experiences on the finance side of their investments. Clearly, there must be a vacany rate issue in the winter months (I assume). However, some of the prices I have seen based on an assumed 25% downpayment on the 30yr fixed (minus in cap exp.) seem to make the RoR reasonable enough to consider. Any details (good or bad) that they wish to share would be much appreciated.

Thanks.

Aubrey Maldonado · Answer

@Chase Cannon, I'm in the Topsail Island area of NC and we are seeing good numbers for STRs. Prices have gone up quite a bit in the past couple of years, but are still pretty affordable compared to other beach locations. It's a desirable vacation spot, especially for people coming from Charlotte and the triangle. There's definitely some seasonality but some investors are able to rent out their beach homes from Oct-April on a mid-term lease to cover the down time and keep it open as a short-term rental during the busy summer months. If you're doing strictly STR, occupancy is probably going to be around 60-70% for most properties on the island that are managed well. With the combo of renting out mid- and short-term, it's possible to get a cap rate around 5-6% or more and ROI in the double digits.

Myrtle Mike Thompson · Answer

@Chase Cannon I can speak to North Myrtle Beach, which sits just below the NC border. Existing STR beach houses are selling for roughly 10 times gross annual revenue. So a property listed for $800k has probably generated about $80k gross rents the past couple years. The ROI numbers often work if you can purchase at a good price, and with good financing terms... most lenders will not require 25% down on vacation houses like they do with the condotel properties around here. Another strategy is to buy a house that has not historically been used as a short-term rental but possesses all the characteristics of a viable STR... large, close to the beach, has a pool or hot tub, etc. These can often be purchased at a bit of a discount compared to existing STR's. Of course, there are typically renovation and/or staging costs to consider, but that process of "making it our own" can be part of the fun of real estate investing. Good luck!

Ty Keller · Answer

Hey Chase, I thought I'd jump in and add a lender's perspective on this. On regular conventional investment property mortgages I have some clients putting the minimum 15% down and on DSCR loans they're putting 20% down. In either case, I've ordered an appraisal with a Form 1007 Market Rent Summary which will give us the amount of income we can use on the loan. On a DSCR loan, this is the only income on the loan, and on conventional it is a supplement to the borrower's other income. I have seen appraisers provide an average rental rate on the appraisal rather than a snapshot of a particular month and it hasn't caused any issues. Georgia and Florida are my two most active markets I lend on for STRs.

Zach Edelman · Answer

I've done a good amount of loans in the Outer Banks, and from what I can tell these properties perform quite well. I just did two loans in Rodanthe, NC that had impressive STR rental history.

Andrew Steffens · Answer

Hey Chase

Im a PM as well as Investor in Tampa, FL. However, I now have some experience in the AC area of NJ. I actually grew up there and an existing client here wanted us to manage his property in Ventnor NJ. It has gone well, with Summer season accounting for 70% of revenue. However, there is some traction during off season with cheap rates. DM me if you are looking for any assistance on that front. Best of luck!

What are the numbers on east coast beach homes?

What are the numbers on east coast beach homes?

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