explain to me the finances of owning a rental property in the OBX

[Anonymous]

houses for $900K seemingly can bring in $80K+ rentals. Even with high flood insurance and high management fees (20%), it seems like an easy way to cover your expenses and get a vacation week in the summer and plenty of vacation weeks in the late fall covered by others.

What is the catch?

[Anonymous]

Factor in another 20% annually for maintenance and carry costs, and the fact that you can generally only borrow 70% at higher rates. But yes, if you're fine only vacationing in one place and don't mind the risk of tieing up a lot of cash in real estate that may not exist in 20 years, it can be very profitable.

[Anonymous]

http://www.washingtonpost.com/business/economy/ncs-outer-banks-got-a-scary-forecast-about-climate-change-so/2014/06/24/0042cf96-f6f3-11e3-a3a5-42be35962a52_story.html

[Anonymous]

Anonymous wrote:Factor in another 20% annually for maintenance and carry costs, and the fact that you can generally only borrow 70% at higher rates. But yes, if you're fine only vacationing in one place and don't mind the risk of tieing up a lot of cash in real estate that may not exist in 20 years, it can be very profitable.

Silly you, this area will exist in 20 years... the taxpayers will continue to be required to bail out these homeowners and allow them to rebuild, as many of them are DC politicians and lobbyists.

[Anonymous]

Maintenance costs are definitely not 20%.

[Anonymous]

I doubt a house can net $80k in seasonal rentals. Plus: you need to factor in property management, cleaning service, etc. And utilities and cable, etc. And maintenance. The external wear and tear on a house near the shore is significantly more than usual wear and tear.

[Anonymous]

Probably nets 70%. But the mtg would be $4k. Seems like a nice investment.

[Anonymous]

Some renters will trash it. Can you handle that?

[Anonymous]

Anonymous wrote:houses for $900K seemingly can bring in $80K+ rentals. Even with high flood insurance and high management fees (20%), it seems like an easy way to cover your expenses and get a vacation week in the summer and plenty of vacation weeks in the late fall covered by others.

What is the catch?

How do you get to $80k? Houses in OBX rent well seasonally. Assume rental market is $3,000 a week. Assume 12 to 15 week rental window a year. Realistically you won't have 100% occupancy during this time, perhaps 70% at best. So your gross profit is on the order of $30k to $40k, but let's be generous and say $50k.

A good half of that will go to service your debt (assuming you can put down a large %). Against that take management fees, higher insurance, maintenance (no joke on homes exposed to salty air, wind etc - take it from us we have one). If that doesn't eat most of your funds, it'll eat a large %, and poof your house is perhaps just break even. Against that though you should take the opportunity cost of those funds as well - if say you put in $500k on an $900k house, that $500k could throw 5% in market (on average).