Vacation Rental Property
I have a friend who is considering purchasing a vacation rental condo on Topsail Island North Carolina.
Price = 180,000
Upcomming assesments = 70,000
Gross Rents = 21,000
Management fee = 30 %
On the face of it, this does not look like a good deal. The gross rent multiplier is well over 10 and this does not take into account the large management fee you need for vacation rental property.
Furthermore, I think appreciation is suspect for any property on the east coast at this point.
Can anyone offer any more feedback I can use to help council her on this decision?
Holiday rentals are mostly about how the buyer feels when they buy. It rarely is about getting the best cash flow or appreciation.
Hence I normally ask people how they expect to use it and if they want to spend a lot of time in the area. This normally gets them to come clean about if the purchases is for personal use or an investment.
John
[addsig]
I'm local to this area, and vacation there. Rentals are selling at caps of ~4-6% net in the area, much lower than caps inland. Check insurance, topsail will probably be one of the highest to insure, all the majors have backed out, topsail usually gets hit the hardest on hurricanes and property values can dip ~30% after. Prices are high on the outer banks now, to high for me, properties selling for much more than you could build new for. There is one major "management company" that rents on topsail (if I remember correctly), costs a lot b/c of all the catalogs they mail out. Apparently the town spent a lot of relief money on capital improvements that has caused local uproar from surrounding areas, expect less help in the future.
Thank you all for the input so far. Especially the information about the insurance companies pulling out. That is certainly an important consideration.