• Home Inspections
• Insurance
• Closing
• To Rent or Not to Rent
• Pest Inspections
• Vacation Rental Act for rental home purchases
• Financing Options
• 1031 Tax Free Exchange

Does the thought of making payments on a $500,000, $600,000 or $700,000 cottage scare you to death? If so, you are not alone! But, what if you can buy this property, have the enjoyment of using it some yourself and let other people make most of the payments? Sounds too good to be true! But on the Outer Banks of North Carolina, you do have this wonderful opportunity. The key to making resort property affordable for most owners is weekly rentals. Let’s take, for example, a nice cottage between the highways that sells for $695,000:

• Purchase Price------------------------------------- $695,000.00
• Annual Payments (80% @ 5.75%, 30yrs.--$ 38,936.00
• Annual Expenses (Taxes, Ins., etc.)--------- $ 17,450.00
• Total Annual Expenses----------------------------- $ 56,386.00
• Less Projected Rental Income--------------- $ 35,000.00
• Out-of-pocket (before tax savings)--------------- $ 21,386.00
• Projected after tax costs (after depreciation)-- $ 11,598.00
• Projected Annual tax savings (33% bracket)--- $ 9788.00

Although every property has to be analyzed individually along with the Buyer’s specific situation, there are some generalizations that can be made. With a 20% down payment, most properties that are in good rental areas will actually end up costing the owners somewhere in the range of $1,000 - $1,200 per month after taxes. This makes these properties much more affordable for the majority of owners.

So, if you have always wanted to own a property at the beach, but were afraid you just couldn’t manage the payments, give me a call. I can explain in detail just how the rental program works, give you a projected rental income on the property you want to own and give you an idea of what tax benefits you can expect. You may be pleasantly surprised to learn that you can afford your “place at the beach” today!

Home Inspections      back to top

Home inspections are conducted shortly after the seller’s acceptance of your offer but before closing.  It is the responsibility of the buyer to hire and pay for the professional home inspection.  The purpose of a home inspection is to inform the buyer of any structural or mechanical problems that may exist and help prevent any major surprises in the future.  Home inspections range anywhere from $500-$1000, depending on the size of the home. 

A thorough home inspection should cover a the homes basic systems such as heating and air conditioning, electrical, roof, foundation, plumbing system as well as address any drainage issues.  The doors, porches, decks, windows and interior wall surfaces (cracks, sagging, etc.) are also inspected.

If concerns arise during the inspection, it does not mean the seller is required to fix them, the terms of repair are negotiable by both parties.  Your REALTOR® can help you proceed.

Pest Inspection      back to top

Pest inspections are handled in the same way as home inspections.  They are usually conducted before closing.  It is the responsibility of the buyer to hire and pay for the professional pest inspection.  The price of the pest inspection will vary depending on the size of your new home.  The purpose of a pest inspection is to check the foundation, siding, framing for termites.  The inspection will also reveal if any other critters are staking claim on your new home.

If concerns arise during the pest inspection, it does not mean the seller is required to pay for the treatment.  The terms are negotiable by both parties.  Again, your REALTOR® can help you proceed.

Insurance      back to top

It’s a common misconception that insurance is difficult to obtain for homes on the Outer Banks but actually insurance is available is more affordable than you think. Conventional policies are available for many home.  The “Beach Plan”, a specialty insurance tailored to the needs of oceanside properties, is also available.

Insurance coverage on the Outer Banks is usually sold a la carte offering fire, wind, flood and liability.  If your new home is financed, and located, in a flood zone it requires flood insurance.  Check with your REALTOR®. 

Closing      back to top

Congratulations! At this point in the process financing has been secured, inspections and negotiations complete.  This is the exciting time!  Closing procedures can happen in several different ways: in your attorneys office, with/without your REALTOR® present or mail away via FedEx or other courier service. Arrangements for delivery via courier service must be made in advance and all documents returned, signed and notarized prior to the actual closing date.

As the buyer, be prepared to sign several different documents at closing.  Remember your REALTOR® can go over the closing documents with you if you prefer. Once all paperwork is recorded in the county record books, the buyer can take possession of the home.

Rent or not to rent?      back to top

Property Management, second home or investment property.
Now that all the paperwork is done and you’ve taken possession of your new vacation home – consider letting someone else make your mortgage payments!

The world of Property Management can be a little overwhelming sometimes. There’s more to consider and compare than fees. 

• How long have they been in the Property Management business?
• Are their managers licensed in NC and members of Outer Banks Association of REALTORS®?
• What type of marketing program do they offer? 
• ow well maintained is the office? 
• How knowledgeable is the staff?
• Does a real person or an automated system answer the phones?
• How many rental offices are available and where are they located?  Are they convenient for guests and potential guests?
• What about online reservations and online payment options? How convenient is the booking and confirmation process for guests?
• Are owner statements and reservation schedules available online?
• Do they offer professional in-house maintenance and housekeeping staff?
• Do they offer a variety of different homes for vastly differing budgets? 
• What is their web presence?  Remember, most guests come from out of state.

Sun Realty has been in the Property Management business for over 27 years. Stop in any of our 7 convenient locations and talk any of our licensed managers about a complimentary rental projection.  From Corolla to Hatteras Island-we’ve got you covered!

Vacation Rental Act for rental home purchases      back to top

If intend to let others use for vacations, be sure to make yourself familiar with the North Carolina Vacation Rental Act (NCVRA).  The NCVRA addresses contracts, notification of reservations already on the books, hurricane refunds, “fit and habitable” issues, evictions and advance payments already disbursed to the seller. There’s a lot to know and understand, remember your REALTOR® and our licensed property managers can also help answer any questions. All rentals within 180 days of closing must be honored.

Financing Options      back to top

• Prequalifying
  The first step to prequalification is to contact a lender in your local area or drop by any of our financial institutions during your next visit to the Outer Banks. Knowing in advance how much you can afford will help alleviate a lot of stress during your search and it adds a sense of security for the seller when an offer is presented.  Let your REALTOR® guide you to the most knowledgeable lenders in our market. 

• Owner Financing
  Owner financing is rare but available. Some owners are willing to actively participate in the financing of the home for the buyers.  Owner financing usually involves balloon payments.

• Investor loan vs. Second home loan
  The main determining factor between an investor loan and a second home loan is whether the property will be rented out.  If the property is rented out for any period of time, it is considered an investment property. Traditionally, interest paid on a vacation home (investment property) is tax deductible.  Contact your financial advisor for more information. 

 

1031 Tax Free Exchange      back to top

The 1031 tax-deferred exchange is a process that allow a taxpayer to use capital gains (profits) earned from one real estate transaction for the purchase of a “like kind” investment without penalty.  Of course, certain conditions apply:

• Properties must of “like kind” meaning the old property must have been an investment or commercial property if he/she is looking to purchase an investment or commercial property. 
• Total capital gains earned from transaction must be reinvested into the new property or is subject to taxation.
• New investment property must be identified by the seller within 45 days of the closing of old property
• Seller must take possession of the new property with 180 days of the closing on the old property
• All transactions must go through a Qualified Intermediary.  Always consult with your attorney, CPA or other financial professional for qualified intermediaries in your area and specifics on your transaction. Again, your REALTOR® can help you contact the correct people.