Claims of a vacation rental income paying for itself have been fairly common on the Outer Banks. Of course if you have a large enough down payment, then any vacation rental will have a positive cash flow. A few years ago during the boom, it was almost non-existent for a house to break even with a typical 20% down payment. The majority of vacation rentals for sale today still don’t but the chances of the cottage paying for itself are much better today.
why is it better now?
Sales prices have dropped in just about every Outer Banks market segment by 20% or more and people are still coming here to vacation. Despite the high gas prices, this has been a banner year for vacation rental cottage owners. One reason for this increase in cottage rentals is the supply of available cottages isn’t growing like it used to. New cottage construction is just a fraction of what it used to be and many folks are converting their vacation rentals to just second homes. Another factor that has caused the gap between expenses and income to become smaller is low interest rates. As of this writing, rates well below 5% are available for buyers with good credit. Even if the cottage is not breaking even, it is much easier to own a property today than it was even just a couple years ago.
When determining the cost of ownership, be sure to look at actual income and expenses when searching for an OBX vacation rental property. When actual numbers are not available then talk with the person who completed the rental projection. They should be able to logically explain how they arrived at that number. Actual expenses are usually available from sellers. Don’t forget about the maintenance expenses and a maintenance reserve. Most Realtors have a simple vacation rental analysis they can share with you. These spreadsheets have a space for all income and expenses to keep you from missing a key item. You may also want to include your annual current OBX vacation expenses in the equation. Not having these expenses will improve the bottom line. At the end of the day owning a vacation rental today will likely still cost you money. But having that place to call your own where you can make memories with family and friends is priceless.
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