THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Saturday, December 2, 1995 TAG: 9511300309
SECTION: REAL ESTATE WEEKLY PAGE: 18 EDITION: FINAL
COLUMN: About the Outer Banks
SOURCE: Chris Kidder
LENGTH: Long : 104 lines
In early October I wrote a column that pointed to Pine Island, a Currituck County subdivision developed by Turnpike Properties and sold by Bob DeGabrielle & Associates. I said Pine Island was ``the fastest selling development on the Outer Banks'' and DeGabrielle's ``big success.''
A Kitty Hawk real estate agent responded to that column, suggesting that ``success'' should take into consideration more than the developer's point of view.
He raised some interesting questions about the satisfaction level of Pine Island buyers who, he'd heard, had been given pie-in-the-sky rental projections.
The idea that sales agents promise excessive rental rates and weeks to clinch deals is not unique to Pine Island.
In the years I've been writing this column, I've heard the same complaint about every major resort subdivision that has come on the market. A few times those complaints have come from disgruntled owners; more often they've been passed along to me as gossip from other real estate agents.
I opened this question up to my readers, inviting them to let me know about their experiences with rental promises and performance. I heard from real estate agents, a couple of builders, an accountant, but only one vacation homeowner.
``I am a homeowner in Pine Island,'' wrote a New Jersey man. ``I made my purchase about three years ago . . . I do not totally blame BD&A for what might be considered a less than spectacular couple of years.
``There was a great marketing approach. An impressive promotion. There was also a whole lot of hype from the surrounding services to support my decision (to buy).
``My first season I had 19 weeks of rental. One more than BD&A told me to expect . . . The second year my rentals fell off. Services could not keep up with the glut of residences. Everyone from the hot tub guy, to the lawn man and the rental agency were pushed to the max.''
The homeowner said he had expected his expenses to exceed rental income for the first couple years, ``but the difference was far greater than expected.''
``Did I make a bad decision?'' he asked. ``Not really. I have a young family. We love the area. . . This purchase was a long term investment. While it may not be paying off now, I am still banking on it in the long run.''
Every property owner needs to understand that vacation rentals are a numbers game - and that there is more than one way to play the game.
Ben Garrett, president of R&R Resort Rental Properties in Duck, says he has 58 Pine Island homes in his 1996 rental brochure (approximately half of all Pine Island rentals), up from 34 last year. ``Pre-reservations for 1996 are way up,'' he says.
Many of the R&R houses weren't available for the entire 1995 season, says Garrett. For those that were, he says rental weeks averaged 18.5. Oceanfront houses averaged 24 weeks.
``We struggled last year,'' says Garrett. ``It's not the price. We needed to build a rental client base and that's what we've done.''
Some rental companies have dropped their oceanfront prices off season ``way down so they can get more weeks. But I look at the gross receipts versus expenses,'' says Garrett, claiming it costs too much to keep a house open through the winter.
``The 18- to 20-week window (May through September) is where we're going to make money.''
``I feel good about Pine Island,'' says Garrett. ``I hate to see all this negativism.''
B&B on the Beach in Corolla has 36 Pine Island homes in its 1996 rental brochure. Last year it had 24. Company president Doug Brindley says that Pine Island is ``a fine market. It's renting quite nicely as are all our markets.''
There may be owners dissatisfied with rental performance in Pine Island but Brindley knows there are happy owners as well. ``Our rentals at Pine Island have met every one of our projections,'' he says. His numbers for average weeks rented match R&R's.
The key to reasonable rental expectations in any new subdivision is to understand the role supply and demand play, says Brindley. A community has to be on the market for a few years to reach its full rental potential, he says. ``Year one won't be as good as year three. It needs to build a history.''
And Brindley cautioned that rate increases must be ``value based.'' Deciding that a development is hot and raising rates above comparable communities backfires. ``You can't go up on rates when a market is growing. Owners have to understand that and work within the market,'' he says.
Buyers should verify with rental agencies the rental projections given to them by sales agents. Brindley says he is always willing to talk with people, whether they're a customer or not, and tell them how he thinks a property will perform on the rental market.
My guess is that most of my readers who buy investment property are like the Pine Island owner from New Jersey. They're skeptical of sales claims; they do their homework.
They talk with knowledgeable rental agents to get the real rental picture. They realize that no one can know how rental properties in a new community will perform during their first years.
I would also say that reputable sales agents do not intentionally mislead anyone. We all hear what we want to hear. Agents may present possible ``best'' scenarios that buyers later recall as promised performance.
Given that clear communication is an inexact science, buyers have a responsibility to double-check critical facts and use common sense. The full rental potential of any home can't be realized until the community has developed an identity and a track record. MEMO: Send comments and questions to Chris Kidder at P.O. Box 10, Nags Head,
N.C. 27959. by CNB