Grandfather passed away, what should we do with his beach home?

Question

My wife's grandfather is in the final stages of his life on hospice care and the family is discussing what to do with his beach home in Nags Head, NC. The home appraises for around $450k. My father-in-law and his two brothers want to sell the house and divide the shares equally. My wife and I are considering purchasing the home as an investment property for peak vacation rental season (5 months) and list it on airbnb in the offseason. The house is 2,000 sq ft., 4 bedrooms, 3 baths and sits on a golf course with beautiful views. We have never been home owners ourselves and are in the beginning stages of our careers. I have one year left in the Army and am considering purchasing the house with a VA loan. The mortgage would be roughly $25k-28k annually (assuming no family discount). The house has been booked week to week in peak season for 5 months every year and generates approximately $35k-$40k in rental income during those months. This more than covers the mortgage and gives us some cash flow for expenditures annually. Additionally, we can expect extra rental income in the offseason through airbnb. My hesitation on doing this is the steep price of the house, especially since it is our first house. With a VA loan I more than likely will have to live in the home for a year, but I could go the route of seller financing. What should I do here? Is this a smart investment property?

Account Closed · Answer

List it on Airbnb... You may make a lot of cashflow, you may not but it will be more than leasing it.

While you're doing that list it for sale for more than it's worth. You just might sell it and make some money. Then take that cash and start investing in commercial real estate.

Good luck.

Jaysen Medhurst · Answer

Account Closed, I think you need a lot more specifics before you can make an informed decision:

• What management costs would be involved with vacation rental / AirBnB? They're definitely higher than a normal rental. Do these costs cover things like lawn maintenance, trash removal, or are those extra?
• What are the up-front costs for any repairs, deferred maintenance, and furnishing the house?
• What are the taxes and insurance costs?

Making a detailed analysis of how this property is expected to perform is essential. Be conservative. Don't tweak the numbers to make it look better one way or the other. Next you have to consider appreciation. Is this area seeing good appreciation? That may offset less than spectacular cash flow, but at the end of the day you have to be sure that the place will support itself and turn a profit.

Without diving too much into the family dynamics, this can be a prickly situation. Don't assume a "family discount" because your FIL and brothers will want to get as much cash from the deal as they can. This can make Thanksgiving uncomfortable in other ways. What if you pay a fair price and buy out the family members, the investment works out great, and you're raking in the dough, will they be resentful and think they got screwed? You might lose for winning here, John. Depends on the family, of course, just make sure you think it all through.

Theresa Harris · Answer

If you know what the family wants for a price, and it is fair, offer them that price and tell them they won't have to list it. Family dynamics are all different, so they may take the realtor's fees off the price realizing it saves them money, or they may not. Talk to a loan officer first to see if you can get approved for a loan of $450K.

Jared McCullough · Answer

Not to expand on the "family dynamics" but I would personally be concerned about having to deal with family requesting access to the property for periods of time as well. Being that it has been in the family for sometime I would think that some may still get the desire to use the property if it stays in the family. This is one thing I would think you would want to set clear expectations around well before purchasing so that you don't have to give up profits or vice versa feel like the bad guy down the road for telling relatives they can't use your beach house.

All in all though I am in agreeance with others try to find anyway possible to make this happen as I have strong feeling you will never regret it.

Jason Hathcock · Answer

My wife and I live and invest in the Nags Head area. If you have the means and the desire to purchase this home as an investment property, make sure you go in with eyes wide open. There are a few things to consider that are unique to this area. Maintenance costs are much higher due to the salt contamination in the air, strong winds, and occasional flooding. You will want to check the flood zone of the property. A good portion of the Nags Head Links neighborhood is in flood zone X which is good (no flood insurance required in X zone), however there are also houses in the AE zone which can tack on several thousand dollars a year in flood insurance premiums. I would ask the rental management company for the last two years of income and expenses for the property so you can plug in actual numbers. I would also find out if the rental management contract allows you to manage rentals yourself (AirBnB) in the shoulder season. Ask the family about the capital expenses, (roof, HVAC, siding, windows, etc.) for the past 5 years. I believe that the HOA requires cedar shake roofs for all houses in the neighborhood, which is costly to replace. Just something to consider. My wife and I live in Kill Devil Hills, just a few miles north of your family's property. Feel free to reach out anytime for advice.

Michael Glaspie · Answer

keep it. however you can. you would be extremely upset if you look back 15 years from now and saw how much the property would be worth or what it would rent for

Paul Bergagna · Answer

Perhaps you could suggest a discount to market taking into account that when selling the property you're on the hook for a 4%-6% broker commission.

Also, if the heirs would be so inclined, perhaps pitch a no-interest or low-interest owner financing....but this might get tricky in this instance.

In the interim, educate yourself. It would be prudent to talk to a few attorneys and run some of the various scenarios by them. Also, talk to some local sales brokers for their opinions of value.

My grandparents left their beach house to my Dad and his sister and they sold it...I was a teenager at the time, and if I had the means to have purchased it at the time, I would have.

Grandfather passed away, what should we do with his beach home?

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