We frequently receive inquires from potential buyers who want to purchase an Outer Banks property that has a positive cash flow. It’s amazing how many people today want to become landlords! In many places of the country, you can purchase a house, possibly make some improvements, and then have a tenant pay the mortgage and expenses. This is a great way to create wealth. So is the Outer Banks a good investment?
You can use our vacation rental home calculator to determine if a specific house has a positve or negative cash flow. A positive cash flow is a possibility in some cases on the Outer Banks but often sales prices are too high make the numbers work with a minimal down payment. Why is that? In many cases it is because of the purpose for which most buyers purchase Outer Banks property.
The most common Outer Banks home buyer is someone who has vacationed on the Outer Banks for years. They now have a down payment and want to spend even more time here. Each year they spend thousands of dollars on hotels and rental homes. They created some great memories while here. But all that’s about all they had to show for it once they crossed the bridge back to the mainland. These folks conclude that they could spend the same amount of money and have their own vacation rental home. Owning a home here also gives them much more flexibility when to visit the beach. These folks accept this out-of-pocket expense because they know they were going to spend that money on the Outer Banks regardless of a purchase.
Other buyers decide to purchase here because they want to eventually retire here. They plan on renting the home for a few years to help pay for it. Their main priority is to purchase the home with the floor plan and the location that meets their retirement needs. They also want to take advantage of today’s prices. This segment of the market became clearly evident during the pandemic. Many owners switched their residency to the beach between 2020 and 2022.
Real Estate Cycles
It’s well known that real estate markets go up and they go down. Some people don’t realize that the vacation rental market also goes up and down. There are times during the real estate cycle when a vacation rental home will rent better than other times. For example, during the real estate boom years of the early 2000’s, rental income generally went down. That was because each year there were hundreds of homes added to the vacation rental market. Conversely, the rental income went up dramatically when a larger portion of the workforce began to work remotely.
Besides market conditions, net rental income greatly depends upon how much the owner decides to use it and how they maintain it. For example, if you decide to use the house the two weeks around July Fourth then you’ll be missing out on some of the best income generating weeks of the year. Also, homes here need to be maintained and updated to generate the most rental income. Those years when you do things like replacing flooring or HVAC systems won’t be as profitable as years with less required maintenance.
Investment In Lifestyle
So is the Outer Banks a good investment? If you have to have a positive cash flow and a return on your down payment then most times there are better places for your money. On the other hand, how much is it worth to have a place on the Outer Banks to go. How much are those beach memories worth to you? Buying on the Outer Banks is not for everyone. But if you love the beach and want the flexibility of when to come then it’s likely the Outer Banks will be a good investment for you.