Tim Barca had a good summer- a really good summer, maybe the best one ever. It’s all recorded, not on film or on social media, but in a ledger. During the twelve weeks that stretch from the beginning of June to the end of August Tim made money. A pretty good sum, too.
“I definitely exceeded my expectations,” said Barca. “I was hoping to just break even. Get enough to pay the mortgage and the expenses….and I have far exceeded that.”
In March Tim and his wife Heidi closed on their first vacation rental, a second row home in Ocean Isle Beach. It’s a four bedroom, three bath cottage that measures just over 1,200 square feet. But perhaps the most important number is nine. It can sleep nine comfortably. A property that size is big enough for large families planning their summer vacation.
“We did a lot of research before buying. I wanted to understand what I was getting myself into and not get killed with taxes.”
An investment purchase tends to be a little more complicated than other real estate transactions. To begin with, unless the buyer is paying in cash, lenders will require they put a larger deposit down. Where people buying a home that they plan to occupy can get away with only a 3% down payment (and in some cases 0% depending on the location and type of loan) most lenders will require investment owners to come up with 20% to 25%.
And while that is a steep price to pay, there are also some intentional advantages to purchasing an investment property. For instance buyers can use the potential of income to qualify for a loan. This comes into play when they might be right on the edge of getting approved. If their job, investments and savings are not enough to process the mortgage, some lenders will take a look at the rental history. If you can prove that the property you want to buy has a track record of bringing in money, then that income can be counted as your own… even though you don’t own the property yet.
As we said investment transactions can be completed. But working with a buyer’s expert can make all the difference in the world. It did for the Barcas. Just For Buyers Realty agent Scott Saxton helped the couple find a home that was being sold with 27 reservations already on the books. The day they closed on their investment they were actually presented with a check for $40,000, money that had already been paid to reserve property for upcoming vacations. “We got very lucky. We were set up very nicely,” said Barca.
Are short-term rentals right for you?
The fantasy of buying a second home and turning it into short –term rental is a dream the Barcas share with a lot of folks. Some are just looking to offset costs. They really want the place as their own. They know they’re going to use it on the Labor Day and Memorial Day weekends, maybe even the 4th, too. All they want is to make a little side cash with people occupying during the rest of the summer.
Others understand that 12 weeks of summer can make or break your entire year. Tim knew if he was able to turn the key from one client to another every seven days, then all of his expenses are paid for the entire year. He charges $5,500 a week, and for three months has no problem finding takers.
Can his experience be duplicated? Are other short term landlords bringing in as much? To find out we conducted a research project to uncover how much income vacation homes really make.
Here is how we did it. We looked at 187 properties that sold in the tri-county area in the last year. Each one of these homes was listed providing an official rental history. On the high-end we found a large single family home on Bald Head Island that brings in more than $200,000 a year. On the lower end was a three bedroom, single family home, in walking distance to the beach in Surf City that recorded only $10,000 (it likely was not made available for the entire 12 weeks of summer.)
Obviously the condition and size of the homes are a key factor in what owners can charge. Single family homes will charge more than condos. Properties with five bedrooms can charge more than places with three bedrooms. Overall we discovered, using the most generic figures, that vacation rentals can expect to pull in 7% to 8% annually of the total purchase price. Some we found generated up to 10 % and 12%.
Here are some examples of what we found. Keep in mind there is no way for us to determine how many weeks these properties were made available to the public.
| Location | Type of Property | Range of Annual Inome |
| Wrightsville Beach | One Bedroom Condos | $24,000- $50,000 |
| Wrightsville Beach | Single Family Homes | $110,000- $140,000 |
| Pleasure Island | Mulit-Family Homes | $30,000- $95,000 |
| Pleasure Island | Single Family Homes | $50,000- 120,000 |
| Oak Island | Multi Family Homes | $36,000- $50,000 |
| Oak Island | Single Family Homes | $40,000- $110,000 |
| Holden Beach | Single Family Homes | $34,000- $131,000 |
| Ocean Isle | Multi Family Homes | $17,000- $25,000 |
| Ocean Isle | Single Family Homes | $29,000- $85,000 |
| Sunset Beach | Multi Family Homes | $30,000- $41,000 |
| Sunset Beach | Single Family Homes | $12,475- $70,000 |
| Surf City/ Topsail | Multi Family Homes | $11,900- $30,000 |
| Surf City/ Topsail | Single Family Homes | $10,100- $104,000 |
| Bald Head Island | Single Family Homes | $110,000- $200,000 |
These numbers are not all profit. Investment owners have other expenses. There are monthly fees to a property management company, and occasional repairs. All rentals have occasional repairs- you can’t avoid it. But in the end Tim did so well during those three months that he told us anything that happens from September to the end of May is just “the gravy on top.”
And he is not done yet. With his first successful year in the books he has already started taking reservations for next summer and currently only has a few weeks left. He has also used the income to put a down payment on an investment condo in Myrtle Beach with hopes of other properties in the future.
“I am definitely planning on doing more. It’s kind of my retirement plan. If I could get a total of 10 properties, making $10,000 a year, that will set me up nicely.