Market for Short Term Rental Properties and Vacation Homes

We live in Wilmington, North Carolina along the Cape Fear Coast which includes Wrightsville Beach and Carolina Beach. Like much of the country, the past few years have not been overly kind to the real estate market. A recently report from the local Association or Realtors noted that for the first time in years, real estate prices have been on the rise (yay!). This got me thinking about the market for second homes and short term rentals in our area and all of the deals that are currently out there. For instance, we had a friend who lived on the canal in Carolina Beach who recently sold their home for under $400,000. That same home in 2006 might have sold for $750,000.

When you start looking at second homes and short term rental properties as investments, prices have not been this attractive in years. First of all, with prices in certain vacation areas at 40-50% of their 2005-2006 values, it will only take 50% of the rental income to have the same impact as it would have 6 years ago. And according to one of my business partners whose family owns a rental property in Carolina Beach, business is good. Her family's vacancy rate on their weekly rentals is below 30% year round. She noted that it is pretty empty from December through March but, during the rest of the year, it's almost always filled.

We also talked to Brent Eckhardt, a mortgage banker here in Wilmington and he stated that there are still plenty of financing options for those looking to purchase second homes and investment properties. He noted, "Most borrowers understand that down payment requirements for many products have increased in recent years. But, with home prices falling you don't need as much money to hit those equity requirements"

If you've been kicking around the idea of buying a second home or coastal rental home, now might be the time to get off of the sidelines. If you are not familiar with given real estate market, it might be in your best interest to speak with a real estate agency who has in-depth knowledge of the area. You might also want to speak with a few rental agencies to get a realistic picture of what you can expect in terms of rental income. Keep in mind that investment property loan product and second home mortgage financing guidelines vary. Consult with a licensed mortgage professional to learn more.