Crystal Coast Vacation Rental Show

Welcome to part two of this two part mini-series. Part 1 looked at planning a vacation to the Crystal Coast. Part 2 is going on advanced mode. We are going to look at what it takes to buy a vacation home. This one is a little long, so let’s get started.

Perhaps you have been coming to the area for years and you have decided it’s time to take another step. In our case, four months after my wife first saw the area we made an offer on a house on the ocean. And it was a third of the way across the country. No matter how you get to that point, you’re here. It’s exciting and scary, but totally worthwhile. Let’s take a look at how to get to the dream.

Get an idea what you can afford. For us, things really got rolling during a conversation with our mortgage broker. We were already in the long term rental business and had a good relationship with our broker. We still do. He’s a thousand miles away, but we call him and ask him questions to this day. We like a broker because of the wide variety of products they have available. He also will tell us to use someone else if it will benefit us. That advice will bring us back to him the next time.

I was stationed in this area long before I met my wife. (Semper Fi.) We made a stop here on the way to see one of our kids who was stationed on the coast. My feelings for the area came back immediately and my wife fell in love with it instantly. After returning to the Midwest we were meeting with our broker for unrelated business. My wife mentioned that she would love to own a beach house at some point. Russ said, “Well, let’s see what you can do.” He flipped over a piece of paper. He wrote down a few things. We answered some other things. Soon, he was telling us what we could do.

The important thing is that we had a relationship with someone who was able to tell us what we could do. If you don’t have that relationship, cultivate it. Find someone you are comfortable with and move forward. Discuss your goals. A good broker may tell you something like, “Do these three things and then we will revisit this.” That kind of advice can save you tens of thousands of dollars and get you where you want. One interesting side note is that I think our amazing broker hadn’t written a mortgage in North Carolina. I’m almost positive he hadn’t written one on an oceanfront rental. We knew he was licensed in the state and we worked together to learn what we needed. Now he’s a pro at this, and we were able to use someone we knew and trusted. Then he did our second property here. Build a win-win situation whenever you can.

Do as much homework as you can. After knowing what we could spend, we got our hands dirty. We made a spreadsheet with all pertinent details of each property in the area that fit our cost requirements. We included cost, bedrooms, and baths. We also noted location relative to the ocean and sound. Where available we recorded rental prices. Additionally, we considered whether it was turn key or not and the type of unit. We annotated property taxes, year of construction, and HOA fees. Any detail that could possibly paint a picture for us was documented. Some of this was to keep things straight, some would come into play later.

Decide if you want to rent it. Not everyone wants to rent their property. I understand that. I speak to people every year that say they couldn’t handle having other people stay in their house. Of course, those people are still renting rather than having others pay for an appreciating asset that they enjoy. (I think my bias is showing here.) The bottom line is that we weren’t comfortable doing it without the cost offset. We could get the money, but that didn’t mesh with our overall financial plan. If you can do it, that’s great. We viewed renting as the way to make this happen. It may seem odd that I’m mentioning this now. But it’s actually critical to pick the proper house if your intention is to rent it. Look back at one of my earlier posts to read about me learning and re-learning this lesson. The bottom line is that there is quite possibly a difference between what you want and what the typical renter wants. I’m confident that the choice I mentioned in my earlier post translated to tens of thousands of dollars difference every year.

Get a real estate agent and start viewing. We had a trip back to EI scheduled. We reached out to the company we were booked with and let them know that we were property investors, when we would be there, and that we were looking for an agent. Yes, it would have been great to get referrals, but we knew NO ONE in the area. We read online reviews and looked at who was moving properties in the area. It was quickly obvious who the players were in the area. We used Emerald Isle Realty for every aspect. And we still use them for management and possible purchases.

Our plan was to use the second half of our vacation week to view properties. After identifying our agent, we sent him the list of properties. We also requested to see anything similar that we may have missed.

Narrow the field. It’s time to separate the wheat from the chaff. We were rookies in the area, but not to the rental game. That meant two things were paramount for us. Control costs and exploit forced equity. Our desire to control costs led to us removing traditional condos from our list. They are great in many ways. I would consider buying one. However, the specter of special assessments scared us away. There’s one filter to apply to the spreadsheet.

Looking for forced equity meant that we wanted a property that could be upgraded in a way that the costs are less than the expected increase in value. Flooring, paint, kitchens and baths are all great ways to do this. Increasing your equity is more than a balance sheet exercise, even if you are not selling. If you buy in a way that requires you to have Private Mortgage Insurance, increasing your equity is the key to dropping that off your payment. There’s another filter.

By the way, if you don’t know if you have PMI on your mortgage, review your mortgage statement. We once had a conversation with a family member and explaining this led to him saving hundreds a month with just a phone call.

Soon we had it narrowed down to a few. One that I liked, as I mentioned. One that my wife was convinced was the one. And I think we kept another in the mix, possibly a condo, as just a point of comparison. We always want to learn as much as possible about an area, so the condo was more for our education.

This is where the most valuable service we encountered came into play. As I mentioned Emerald Isle Realty was showing us properties and we were renting through them. We were happy with the service and our intention was to have them manage it. One service that they provided was spreadsheets detailing how much we could rent for at various times of the year. They were conservative, which is what we wanted. This made the choice for us. The one my wife liked rented for more and more often.

I cannot stress enough, if you are considering renting get estimates like this. If the people you are working with can’t do it for you, consider working with someone else.

Make an offer, start the negotiation and prepare for what comes next. At this point many things are similar to buying a primary home, so I’m only going to highlight a few items.

Get a good inspector. Some say don’t trust your agent for this, but I disagree. A good agent will have an exceptional inspector that he works with. I’ve never had a bad experience with an inspector I’ve met this way. If you don’t want to do that, search the local Chamber of Commerce directory. Beach homes are different, get someone who is familiar with them.

Typically in this area beach homes come with the furniture. There are exceptions, so verify. In our case we budgeted for all new furniture due to not being a fan of what was there. Budget for removal also.

Be aware of the time of year. We ended up closing in June. We didn’t want to deal with carrying costs through the winter without money coming in. We were closing right as the time to make our money was upon us. This meant that we hammered out the rehab. If you close in the slow season, you have more time before it’s critical to be ready. We had plenty of time to plan it due to closing delays so we were ready. My wife came down and worked on it and supervised contractors. She had done this before. If you’re unfamiliar with this or it’s not worth your time, look into getting someone to serve that function. Both management companies and independent businesses are available to work as a project manager.

Your home is in a very harsh environment. Even without storms it’s rough. We rebuilt our deck after purchase and I never saw our walkway over the dunes. Hurricane Florence took it before I made my first trip back. Expect a lifespan of 5-7 years on HVAC on the beach. Everything will rust. Paint gets sandblasted. Additionally, as someone I know put it, “Your house has Thanksgiving 40 weeks a year.” Budget accordingly. By the way, for our own comfort we have decided to never enter our property until it has been cleaned. You will feel better about renting. We learned this quickly.

A minor thing to consider is how you will handle requests from family and friends. Do you feel like giving up thousands of dollars because the cousin you see once every two years can only bring her kids during the summer? Maybe you do. We settled on a couple weeks when everyone is free to come. Just provide a meal at some point. Any other time we give a standard discount decided by my wife and I. It goes to anyone either of us extend it to. No questions asked. It’s a business for us and we treat it that way

And finally, decide whether you will use a management company. I’m personally a huge fan of professional management and we could not do it any other way. We are here full time now and live above our second rental. We still use management. This gives us flexibility and gives our guests a professional experience. Ensuring our guests have a consistent experience is important to us. When we stay at the properties, we still have a professional cleaning for that reason. A property manager has a full team of experts working to make the guests’ experience as perfect as possible. If you have the time and money, rent through some. If you’re not happy with them, your guests won’t be.

In the future I’ll probably look in more detail at some of the parts of this process. If there’s a part you want to discuss or if you have any other questions, feel free to leave it in the comments. Or share your buying experience. I love to hear how it went for others.

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If you are interested in owning a vacation rental in the area, remember the Crystal Coast Vacation Rental Show. It takes place on October 18 and 19.