Most Outer Banks buyers want to know about the vacation rental income available with a house. That income helps make homes here more affordable. Good rental income is a critical part of the information needed in most buying decisions. This article will help you better understand Outer Banks vacation rental income.
Property Management Companies vs. Self management
Most OBX vacation rental owners don’t want to be involved with the day to day management of the property. Local property management companies allow these homeowners to spend significantly less time on the tasks involved with vacation tenants. For example, who wants to get called at 11 PM on a Saturday night when the tenant locks themselves out of the house? On the other hand, those owners who self-manage the property can see good rewards. Vacationers would rather converse with the owner. You could also save on management fees.
Obtaining Vacation Rental Income Information
Finding out how much income a house recently generated is pretty easy. You can find an easy way to get that vacation rental income information here. Most times agents will provide it in their listing information. Once you get the numbers there’s still quite a bit to figure out. With homes managed by a property management firm, you’ll often see a report similar to this one.
As you can see that report has the name of the guest, the week they stayed, the owner income and the advertised income. Some companies also have a code about how that reservation was acquired and also the number of days each tenant stayed. Usually when a home is managed by the homeowner then the numbers provided are not so detailed.
Owner Income and Advertised Income
What’s the difference between owner income and advertised income? Many property management firms have additional fees they charge a guest. For example, they might have an early check in fee, a pet fee or possibly a mid-week clean. Most property management firms charge the owner a percentage of gross rental income. Property management firms are able to keep their fees to owners relatively low because they are also making money on the tenants.
So what’s a good amount of income on an OBX vacation home? A common way local Realtors measure rental income performance is to figure out what percentage of the asking price is generated in annual rental income. In fact, there is a field in the local MLS system called Estimated Rental Performance (ERP). That is based on what percentage of the purchase price the annual vacation rental income is. The ERP field in the local MLS system is based on either projected annual income or the best recent year of advertised rental income. Over the years, 10% has been considered pretty darn good. In other words, if the house was for sale for $1,000,000 and it had a advertised rental income of $100,000 then the ERP would be 10%.
Don’t expect your Outer Banks vacation rental home to provide a pot of gold. Occasionally you’ll find a house with a higher ERP but most will be lower. But don’t automatically avoid a house with a lower ERP. Frequently an owner will use a house or only allow renters in it for just part of the rental season. It’s worth investigating why numbers are what they are. Rental income information is just part of the decision making process on a vacation rental home. There are also expenses that need to be considered. I’ll address your vacation rental home expenses in another post soon.