STR Beach Property in NC

[Parker Brand]

Hi BP Community!

I have been studying the short term vacation market on the North Carolina coast for the last few weeks, particularly Carolina Beach. From in-person chats with STR owners and data from AirBNB/HomeAway, the rental market is incredibly strong and very profitable in these areas.

For example, one half of a duplex (4bed/4bath) two blocks from the beach is for sale for $375,000. The opposite unit has 3 years of rental history averaging $2,250 a WEEK at ~70% occupancy. 

I understand there are additional costs involved with STR's, like property management fees, but I have run the numbers again and again and this property in particular would net ~$60k/yr performing at market average.

Is there something I'm grossly overlooking, or are the numbers really that good? 

[Glenna Wood]

Everything all have said.... Plus here's my Chatty Cathy version: Key factors in a coastal property rental: 1) distance to beach, 2) age of property, 3) quality of PM if you get one, 4) interior beachy vibe and vacation amenities, and 5) increased maintenance costs since salt air and possibly "entitled" quests on vacation can be hard on a house.  

Totally agree with those who have pointed out to look hard at those numbers. Coastal NC is not a popular snowbird destination. I have/had Outer Banks SF rentals since 2005. Had 2, sold 1 because of poor ROI. Winter rentals are nonexistent and I'm across the street from the beach. Does the 70% occupancy include any owner use? Do these numbers come from the agent selling the duplex? Maybe Carolina Beach is an underdeveloped market? If that's the case, you may have found a gem at the right time but in 10 years your ROI may decrease due to competition. Many folks on my OBX Owners blog reported empty weeks in July for first time ever. I had to discount a July week for the first time in 27 yrs. I saw a couple of Wilmington area people on here. Pick their brains as local market knowledge is priceless and vital.

Do you have the operating expenses of your example property? People gloss over or under estimate the impact of salt water. Close to the beach means be prepared to replace the heat pump every 7-10 years, hinges on cabinets and doors will rust since guests want to "enjoy the salt air", and on and on. I wouldn't buy anything over 5 years old then plan to 1031 it in 5-8 yrs  before the roof, decks, septic drain field, etc age too much. Whatever you buy, replace all carpet with LVP and get a WiFi enabled lock.

Someone already mentioned wind and flood insurance. On OBX I pay $3900/yr for a 1008 sqft house. That's more than doubled since I bought it in 2005. Check the flood zone and FEMA claims history. Check property taxes. Coastal counties have little economic diversification and the millage rate reflects that tourism is IT.

On the plus side, tourism is IT so the unincorporated small coastal towns are landlord friendly and already filled with STRs. More importantly local residents are used to transient renters next door and likely their job supports tourism. Only the motels and PMs are maybe looking askance at a growing totally self managed STR population.

I've had out of state coastal STRs since 1992 before "STR" became a buzz word. If/when you look for a PM, I've had better service when they had fewer houses in their inventory. If it's a big PM with hundreds of houses, they are naturally going to pay more attention to their top tier houses (ie, oceanfront, 5+ BRs with pool and hot tub). Interview many as although they may use standard NC leases for guests, they operate uniquely. If you are managing your own bookings but want a PM for eyes on and emergency maintenance, negotiate down from 20%. A few OBX PMs (there are dozens) are now offering "a la carte" management services.

I had an 82 yr old RE agent in N FL tell me years ago that "whether I buy it, sell it or rent it" she IS going to make money and I MIGHT make money. She nailed it and was such a hoot!

OK  I know I sound like your Mom warning you about your first prom...  The upside is that water oriented properties should appreciate better than average. I have no real data to defend that other than my experience. Washing every dish, pan, fork a couple times a year is loads more fun while watching the waves roll in.  It's fun to decorate.  Your internet presence will make or break you  There are lots of great family memories to be made and you can get in the car and just go as your beach stuff is already in your locked owner's closet. 

If you don't plan to use it and solely want to make $$, I would say skip the coast, get an FHA assumable loan to buy an owner occupied quad and self manage 3 STR units in your major university, major medical services Triangle of NC backyard.

Enjoy the hunt and here's to your success!🍻