THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Saturday, July 6, 1996 TAG: 9607040486
SECTION: REAL ESTATE WEEKLY PAGE: 12 EDITION: FINAL
COLUMN: About the Outer Banks
SOURCE: Chris Kidder
LENGTH: 100 lines
A Norfolk reader is interested in purchasing rental property north of Southern Shores. ``I'm beginning to research such a purchase and, where possible, would like to avoid ``re-inventing the wheel,'' she wrote.
``Could you provide me with either information or referrals (realty companies, banks, property managers, county agencies, etc.) related to the most frequently asked questions regarding home ownership on the Outer Banks? I want to be as thorough and prepared as possible prior to contacting an agent.''
When folks already know whom to call and where to start, they're on the phone with their real estate agent, not me. The questions that I'm most frequently asked are the all-encompassing, general questions that often obscure some of the more important smaller questions.
Buying resort property is a major financial investment. Buyers must make decisions about places they've only visited and never lived. They become taxpayers without a vote and long-distance landlords. Most buyers are not North Carolina residents and few first-time buyers understand that North Carolina laws governing real estate, construction and finance may be very different from their home state's take on the same subjects.
Questions that ought to be asked are: How does the financing of an investment property work? Do projected rents count as income when applying for the mortgage? If rents don't meet projections, if hurricane season blows renters away, what then? What's the procedure for foreclosures in North Carolina?
Buyers getting into the rental business for the first time need to understand their financial and legal obligations to renters in North Carolina. They need to be aware that the state legislature has - and probably will continue to - consider legislation changing the ``advance rent'' policies that currently provide year-round cash flow for resort property owners.
If you're considering the purchase of investment property, start by talking with several mortgage lenders on the Outer Banks. Every financial institution has different products and different interpretations of the same product. One lender may turn you down flat; another may say no problem. This is one case where shopping around can pay off.
Lenders will help you get a fix on what you can expect to borrow - which, in most instances, translates into what you can afford to buy. You may be pleasantly surprised: I've talked with many investment property owners who were able to borrow more than they expected.
Once you have a ballpark figure for your purchase, identify a general area where you wish to buy and pinpoint a couple of subdivisions you find especially appealing. You can check prices in publications like Homes & Land.
Since almost every rental property is identified with a real estate company sign, it's easy to see which companies do business in the subdivision.
Make a note of them. As a buyer of investment property, you should be more concerned with the companies handling rentals than with those listing properties for sale. (With most companies belonging to the Outer Banks Association of Realtors' Multiple Listing Service, just about any agent can sell any property.)
When you're buying property knowing that you want to put it into a rental program, take that into consideration in choosing your real estate agent. In fact, whenever possible, shop for a rental program first and then shop for the property. Your contacts in the rental department will probably be happy to recommend an agent in their sales department.
The important thing when buying is to do business with a real estate agent who personally knows or has the resources to find out the answers to your questions about the specific property and neighborhood in which you have an interest. The more property his or her company handles in an area, the more likely you are to get reliable information
In the past, I've said that - lacking other recommendations - choosing the company with the largest number of houses rented in a particular neighborhood would be your best bet. But I've talked with real estate agents who say choosing a company with a smaller presence is better because those companies will work harder - and they've made convincing arguments for that strategy.
So, consider the other companies represented in the neighborhood. If the subdivision is large and one company has a stranglehold on rental listings, going with the No. 2 or No. 3 company could be a smart move.
But you should have a really, really good reason to sign with a company that isn't already doing business in the neighborhood. Rentals beget rentals. As a general rule, being the only house in the neighborhood in a rental brochure just doesn't produce maximum rental income, no matter how hard the company tries.
Sales and rental departments are almost always separate, but using the same company for both services should be easier. Depending on the time of year you buy, coordinating your purchase and your property management contract may need fine tuning to take full advantage of the rental season. As crass as it sounds, there's leverage in providing a company with multiple commission opportunities. This can work to your advantage.
When you have your financial information in hand - purchase price range, mortgage terms, anticipated rents and property management and maintenance fees - sit down with your accountant and get an unbiased view of whether your plan is workable.
Everyone else you've talked with up to this point stands to profit from your plan. Let your accountant play the devil's advocate before you proceed.
If your accountant gives you the go-ahead, start shopping. You already know what you can afford and what you need to realize in seasonal rental income. Now you need to choose a property that fits the bill.
Next week, we'll look at, using a home inspector, the questions you ought to ask about the property and a few books that provide useful information about the buying decision. MEMO: Send comments and questions to Chris Kidder at P.O. Box 10, Nags
Head, N.C. 27959. Or e-mail her at realkidd(AT)aol.com by CNB