Outer Banks Beach House
Once a week, we take a deep dive into an existing short term rental that is listed for sale.
This week we’re taking a deep dive into a property in Hatteras, NC in the Outer Banks. As with all of our deep dives we find short term rentals with a history of success on AirBnB that are currently for sale and analyze the potential return on investment.
57390 Lighthouse Rd, Hatteras, NC 27943
Summary
This week we have a property in the Outer Banks of North Carolina. The property is a 6BD/6Bath in the popular beach town of Hatteras. The property includes access to a community beach, pool, and dock for kayak and canoe launching. The current owners have rented the property on AirBnB part-time for over two years and have only 8 reviews, but all 5 stars. According to the listing agent the property does a little more than $60,000 a year with limited rentals. Based on comps in the area a property of this size would likely generate average revenue of a little more than $12,000 a month.
Economics
Asking Price: $1,099,000
Cash-on-Cash Return: 20.79%
RevPAN: $402
Monthly Profit: $4,795
Deep Dive
Pros
Large property with desirable location near beach
High RevPAN
Low-hanging fruit in terms of updated listing pictures etc.
Cons
Seasonal location with negative cashflow during some months
Relatively high purchase price based on recent comps
Hatteras is a more remote section of the Outer Banks
Areas for Improvement
This week’s property has only been used as a part-time short term rental, so many of the features of a full time short term rental are missing. The listing’s pictures are generally poor quality. Updated furnishings and professional pictures will likely increase traffic.
Stress Scenarios
The Outer Banks region of North Carolina tends to be highly seasonal, with the majority of revenue generated in peak summer months. Our model shows negative cash flow November through February and close to break-even outside the peak months of June through August. July is typically the best month with RevPAN exceeding $1,000. So while the base cash-on-cash return is decent at 20.79%, the monthly revenue is very lumpy.
Given the seasonality and negative cash flow outside of peak season, significant reserves will be needed in the first year of ownership and will likely depress the cash-on-cash return. Beyond year 1 the property will require increased cash flow management relative to less seasonal properties producing similar returns. On the positive side, the property has been on the market for over 90 days so there is likely some room for negotiation on the purchase price, which could significantly improve the return profile.
Regulation
The Outer Banks region has historically been a popular destination for short term rentals that predates online platforms like AirBnB. As a result regulation in these areas tends to be well settled. The state of North Carolina has regulated short term rentals for several years and regulation generally requires registration.
Conclusion
While this property exhibits some of the characteristics that make short term rental investments attractive (e.g. 5+ bedrooms), the seasonality of the Outer Banks make this property less attractive at this entry point. With some flexibility on the purchase price there could be opportunity for decent returns.
Quick Programming Note: STR Deep Dive will be taking next week off and picking things back up the following week.