An Outgoing Tide

By Renae Merle
Washington Post Staff Writer
Saturday, June 21, 2008

The pool, hot tub and ocean view are the same this summer at Bandit's Lair, but the seven-bedroom luxury home in North Carolina's Outer Banks is missing something critical: enough renters to keep it fully booked, even at a 10 percent discount.

Owner Pat Sepanak said she may leave the house in Corolla empty part of the summer. The usual herd of vacation renters has been thinned by economic fears and high fuel prices, she said. "It is a tough time. Everyone is tightening their belts," she said. Plus, "it's one tank there and one tank back. I understand the pressure."

It is the situation facing many investors in beach houses this summer. Last-minute rental bookings are off about 20 percent at Outer Banks Blue Realty Services. After a record-breaking year in 2007, rental reservations are down about 14 percent so far this year at Long & Foster's vacation rental office in Bethany Beach, Del. In addition to the economic pressures, investors are facing competition from new condominium beach rentals that are driving down prices in some communities. It's a reminder that investment properties, just like other businesses, aren't guaranteed to produce a profit.

Some vacation home owners are offering incentives or discounts to fill their beds, including free gas or a reduction in the weekly rental rate. Sepanak lowered the cost of a weekly rental at Bandit's Lair, which is less than a mile from the beach, to $4,900 from last year's $5,450. She's also discounted another house from $3,950 to $2,900 a week.

But going any lower would be counterproductive, Sepanak said, because there's a minimum cost to rent the house out. Interiors must be professionally cleaned, and pools and hot tubs must be sparkling.

Buttressed with income from an unexpectedly strong off-season, Sepanak refuses to acquiesce further to bargain hunters. "Some of them want to pay half the original price" for a weekly rental, said Sepanak, a New Jersey real estate agent. "For me, it's not worth the wear and tear. I try to set a good price, and then I don't negotiate."

In a slow economy, investors with beach properties must be realistic, said Tim Cafferty, president of Outer Banks Blue Realty Services. When a few clients became concerned about the shortage of renters, Cafferty said, his staff began suggesting that they offer $250 gas cards. For some homes, the rental management agency will waive its handling fee.

"My advice to my clients is not to panic, to establish the bottom-line rate and then go to that rate as soon as possible and be pleased that you have a fully booked season," Cafferty said.

Michael Bryan, a Winchester, Va., lawyer, said he thinks he has found the right balance to offset economic downturns. He has not raised the rents on his four Rehoboth Beach, Del., properties in four years, despite the money he spends on them. Some years, Bryan paints the homes; others, he focuses on upgrades to the appliances or carpet.

Facing competition from new condos nearby, Bryan said, he wants to ensure that repeat renters, who make up more than half of his business, do not go elsewhere. That has helped offset the economic downturn, said Bryan, who said he has not seen a drop in business.

"Instead of trying to wring every nickel out of it," Bryan said, "I find it is important to invest some. To keep them nice."

As Bryan has found, it can take years for an investor to make money. The properties he bought 10 years ago are turning a profit, but those purchased more recently are not, he said. "You have to be willing to invest for the longer term, for the appreciation factor," he said. Owning rental property "can be a pricy endeavor if you're not in for the long haul."

CONTINUED     1        >

© 2008 The Washington Post Company