Rental Cost Coverage

One of the things I am asked about most frequently as a Realtor in Ocean City is the process of renting out real estate in Ocean City. Folks typically want to know how it works and and what type of income and carrying cost coverage they can expect. I recently wrote a post regarding the overall process of renting property in Ocean City.  In this post I am going to provide an overview of rental income, associated costs and how much of your properties carrying costs you can expect to cover.

The question I am asked the most in regards to renting real estate in Ocean City is ... Will the rental income cover all of the carrying costs for the property?

The short answer is no. There are situations where this is possible, but they are few and far between and typically require a larger down payment. As a general rule I advise my clients to expect the rental income for their property to cover the mortgage principle and interest obligation. This is a conservative approach and in some instances (lower interest rates) you will generate additional income to help cover the taxes, condo fees. etc.   Additionally, if you put down more than the typical 20% down payment you will have a smaller mortgage obligation and the rental income will help cover a larger portion of the other carrying costs..

To illustrate this I will breakdown a rental scenario for your typical two bedroom/two bath ocean block condo purchase:

Costs

Purchase Price: $230,000

Down Payment: $46,000

Mortgage Payment: $10,224 (Yearly principal and interest for a 30 year fixed mortgage @ 4%)

Income

Gross Rental Income: $14,000

Rental Commissions: $2,240

Cleaning Fees: $750 (10 weeks at $75 per clean)

Net Rental Income: $11,010

As another example I will break down a three bedroom/two bath oceanfront condo:

Costs

Purchase Price: $525,000

Down Payment: $105,000

Mortgage Payment: $24,060 (Yearly principal and interest for a 30 year fixed mortgage @ 4%)

Income

Gross Rental Income: $30,000

Rental Commission: $4,800

Cleaning Fees: $1,020 (12 weeks at $85 per clean)

Net Rental Income: $24,180

*In addition to the mortgage obligation in both scenarios you will also have the condo fees and taxes to account for, which you will see noted on each listing report.

As you will see in both examples the net rental income covers the mortgage obligation. This is a conservative approach and only accounts for the prime weeks of the season.  There are plenty of other rental opportunities in the shoulder months to generate additional income.  Another way to generate more income is to rent the property on your own through websites like VRBO and Home Away.

I run similar rental breakdowns for my clients everyday and would be glad to do the same for you. Simply give me a call and let me know what type of property you are looking for and I will run the various scenarios for you. This can be helpful in determining a comfortable price range and what carrying costs you can expect.