Investment Properties in the Outer Banks
“If you do not find a way to make money while you sleep, you will work until you die.” A pretty grim hyperbole from the man himself, Mr. Warren Buffet, but it does beg the question: What is the best way to generate passive income?
Many investors are quick to tout the benefits and intricacies of the stock market and how to play it just right, but another option has always been real estate. The general view on real estate investment is that it is only for the 1% or that it ties up your cash and does not have the same liquidity as a stock. About 20 years ago and in some regions, this may have been the case, but in the modern era and in the Outer Banks these two assumptions should be examined more closely.
The first thing everyone should understand about real estate investment in the Outer Banks is that this area has developed the majority of the beach in a single-family residential layout as opposed to skyrise hotels and resorts. This is an important distinction because it means the hundreds of thousands of visitors flocking to the OBX each week are staying in rental properties.
These rental properties generate income in two ways: Net Operating Income and through the appreciation of the house when you sell it. If this were to be compared to a stock, then the Net Income would be the dividend and the appreciation of the property would be the stock going up.
If we were to further compare rental property investments to stocks, we would see that the average dividend yield for the S&P 500 in 2021 was 1.3% and a typical return on investment for a rental property in this area is around 4%. Also, the stock market (as of late) has been very volatile, and the housing market is no stranger to swings, but the fact that the Outer Banks is slowly being built to capacity and the demand for waterfront property will always exist may lead many to believe it is a stable alternative to stocks.
Whether you are just researching the pros and cons of investment property, or you have committed to the idea, it is important to know a few basic principles in order to know what type of return to expect and so you are able to compare rental properties apples to apples.
Projected rental income should be at least 8% of purchase price
Net Operating Income takes into account Operating Expenses such as insurance, property taxes, maintenance, and Homeowners Association
Return on Investment equals Net Operating Income divided by Mortgage
All rental properties are unique and this was in no way a complete guide to owning investment property. Please contact Brad Bentley with further inquiries about how to earn passive income in the Outer Banks.