When you begin to look at vacation rental homes for sale on the Outer Banks, it often becomes obvious… If the property only generates the same income as it does right now, then you’ll end up having a negative cash flow. Why is that? This article will discuss reasons why and help you in the process of finding an OBX Rental Gem.
Flexibility
For many vacation rental homeowners, a home here is not about making money. It’s about having flexibility for OBX vacation time. Of course, these owners want a large portion of this home paid through rental income, but they value that flexibility. As a result, they’ll use the house when they could be generating money. Many owners close the calendar in spring and fall so they can make a trip to the Outer Banks at a moment’s notice. This flexibility is probably the biggest reason why rental income is not as high as it could be.
Below Market Rates
An Outer Banks vacation rental owner who has owned their house for a long time may also keep rates low to keep repeat tenants happy. This is more common when the seller pays their house off or has a super low interest rate. There’s value to repeat tenants. They’ll often take better care of the property. Owners also don’t have to worry about that week booking each year. It’s surprising how many owners are in this situation!
Other Circumstances
Some other common occurrences that affect rental income are changing rental companies, raising the rents too much and ignoring common maintenance items. Worn or stained carpets are particularly common.
So how can you figure out if the property could generate an acceptable amount of income?
Compare Rental History
Most Realtors will obtain a few years’ income history on each house. They’ll post that information in the back end of our MLS system. If you get listing information from the local MLS then most times you can see that history. Here’s a post on how to read it. Compare the rental income on the house you are considering with similar sold or for sale houses.
Talk with Vacation Rental Managers
The vacation rental managers are probably the best source of information regarding rental income. They are in the market every day for years…Some for decades. They know what features result in more income and should know best rates for each area and house size. Frequently listing agents will obtain a rental projection from different rental companies. Most times, you can find the contact info for that property manager on that projection. It’s also a good idea to talk with the rental manager of the current property management firm.
Check Out Algorithm Websites
Similar to house values, there are a few websites that offer estimates of vacation rental income. Sites like AirDnA and rabbu.com have developed algorithms to provide rental projections. It’s not completely clear what information these websites use to provide their income projections but it’s likely that information comes from property management firms, AirBnB and VRBO. Just like house values, it’s not a good idea to count on their projections. On the other hand, it this additional data point should help you develop your own income estimate.
For decades, we’ve been helping people with determining the best vacation rental home for our clients. For us it is like a puzzle that needs to be solved. Finding an OBX rental gem is our specialty. We know how to negotiate through this process and likely can save you time determining if a property will generate enough income for you.
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