I wanted to get people's thoughts on if they felt the Hamptons was a great investment in the current real estate environment. I recently bought a home that is in Bridgehampton Village with the hopes of possibly renting it. It is one of the few places I know that one can rent out and get very high rental income for a relatively short period.

The #'s: I paid north of $1.4m and this was on the high side of what I was looking to spend. I received a 10yr arm @ 3.625. I recently rented July for $32k $2500 for monthly expenses. This covers more then 50% of the yearly mortgage. I can rent out the house for August as well if I choose to or can just enjoy.

I know that some years rents are not as high but if an owner is willing to come down and markets the home well this will not be a problem.

Also the house took awhile to make it on the internet and was on most sites by May 15th.

Given the uncertainty of the equity markets is luxury real estate a good bet? This was the idea before making the purchase but am now pleasantly surprised.

I plan on going quite a bit in the offseason so to me this is something that makes a ton of sense. The amount you get for your money is considerably more then NYC plus there is the addition of possible rental income.

What am I missing?

The fact that it's a hassle to be a landlord, and that something important will break the minute you go on vacation yourself (probably when you're out of the country)?

If you are willing to put the time in, it sounds like a reasonable bet to me -- but then, I own two properties.

ali r.
DG Neary Realty

You've already done it and NOW you are asking if the investment is a "great" one? Didn't you sort of put the cart before the horse?

$32K for July sounds a bit high for a property like that, so I don't know that you can bank on that year-to-year. Even so, that means that a full season rental would probably get ~$75K (did you pay a broker? The rental fee is usually 10% Who is paying lawn/pool/housekeeping/etc?). So, you are probably a bit short of break-even vs out-of-pockets if you rented it out for the whole summer without any upgrades, repairs or improvements, but you get a cheap place to use in the off-season. But off-season rentals also are very cheap out east. What are you missing? Is it a good investment? I dunno. Might depend whether interest rates return to 6%, prices rise or fall, what happens if you have years you can't rent, etc. Perhaps more importantly, what are you actually out of pocket year-over-year (added to the headache of being a small time landlord to whiny NYers) vs what value you put on the off-season home.

Ali - Full time landlord can be a hassle (currently rent a condo out in WV)'. Not so sure about a month rental but I would expect the tenants expect almost everything to be perfect for their limited time there. If house is in good condition I would hope not too much of an issue. Also the tenants have an obligation to report any issues in the first 3 days.

NYC - I paid 10% to the broker but was able to get all expenses paid by the tenant, I believe this is fairly standard. I would never expect to rent it out in the offseason, rather use it as a get away. A second home is a true luxury so if I break even or even come close that is a home run. It is painful to watch the market everyday and fluctuations in portfolios can be a hard thing to deal with. I feel like I got a great price and the rental income is just a bonus. We never bought the place needing the rent....just like the fact that we have the option.

Kyle - think I am just looking for validation post rental. We ended up getting 3 offers this past weekend. I think many wait till the end. Plus I did not market heavily.

I believe one needs to havea great relationship with the brokers to get the place rented year in and year out. Also having 2 different families for 2 different periods probably get's you more income.

Does anyone know what range of homes has the most amount of rentals? Is it 75k for the summer? Less? More? Any data that can verify this?

Appreciate evryone's help.

> It is painful to watch the market everyday and fluctuations in portfolios can be a hard thing to deal with.

Ignorance is bliss.

I guess for some folks it is better to have similar fluctuations and just not know about it (I'm talking about Real Estate).

mj

Be a happy owner, and let the lemmings pay your mortgage for you.
Break even if you rent 2 summer months? No brainer.

Idiot renters will tell you it's not worth it b/c you need to fix a $10 faucet once in a while.

Meanwhile, in 30 years, you will have a $1.4m property free and clear,
and $75k of cashflow in today's dollars
AND a free house to use for 10 months a year...

Yes, these stupid renters will fund your entire retirement and college fund for all your grandchildren.
And give you a million dollar payload, as well.

"I guess for some folks it is better to have similar fluctuations and just not know about it (I'm talking about Real Estate)."

The fluctuations are so much smaller, though, and never (barring an earthquake or nuclear fallout disaster, knock on wood) will the value of your property go to zero.

I'm a little disappointed every time I walk past a real estate agent and see that rents in my neighborhood are falling and that I will thus get less from my tenants when the time comes to rent my current place out, but that's nothing compared to the stomach-churning fluctuations in the stock market. I can't even imagine what it must have been like to see your whole portfolio go up in smoke -- as it did for several of my acquaintances, who now have a lot more uncertainty about their futures -- back on the day of the Lehman shock.

Triple zero, how about all those under the water mortgages? is that zero equity value in a house or what? so yes RE can be zero.

@JButton - I'm a prudent homeowner who has never been in such a situation, so I tend to forget that such people exist. ^_^; Their equity can be zero, but at the other end of the spectrum, someone whose mortgage is fully paid off owns an asset that will always have some value.

if there's no mortgage i agree, but you made a blanket statement about RE that in many cases is not true.

Owning an asset free and clear of debt is like owning the whole capital structure of a business, so not only stocks but bonds and loans. In this case your market investments will be far less volitile than if only owning stocks.

>Does anyone know what range of homes has the most amount of rentals? Is it 75k for the summer? Less? More? Any data that can verify this?

Ive rented in the hamptons on and off for 20 years. What you'll frequently see is something like this (based on your 32K July) June 16K / July 32K / Aug 32K and then a discount for MD-LD for 70K /75K.
Sometimes it's tweaked a bit with a bit more then the 50% off for June and a slight bump up from July to August. (ie June 12k /July 32k / Aug 36K)

I'm assuming by the $1.5mm'ish price it's something like a 4 bed 3 bath with maybe a heated pool.

And if so, I find your July 32k rental astounding.Im not in the market this year but I have to believe one can get many entire season MD to LD 4 bed 3 bath houses with pool in Bridgehampton for 40k total.

Of course south of the highway comes into play, particularly in Bridgehampton but then but it will tug on either the sale price or the rental price respectively.

My house is just north of the highway but a 15 min walk to town. 4 bed 3.5 bath no heated pool (families with children thought this was an issue) closed in April and the place was renovated in 2009 and in very good condition. We bought high end furniture and we like to think it is done very tastefully.

40k for entire season would be tough in Bridgehampton so close to town. Even for a 3 bedroom. Maybe north of the highway in Southampton near North Sea.

I believe I got a very good deal and may want to replicate this. If located in a good area I think there will always be demand for high end rentals...even in down years. There is too much wealth in the tri-state area and they are willing to vacation in the hamptons.

I have heard 2009 was pretty bad for rentals out East (I got a great deal that year but had been renting the same house for a few years) but the rents were down roughly 20% for good locations....that is key.

Your $32K for a $1.4M house in Bridgehampton is very far out of the ordinary.

If you look at SE, there are 208 July 4BR Bridgehampton rentals with a median rent of $28K and median size of 2650 sq ft. About 57% of them have rents of $32K or less.

For sales, there are 70 listings with a median price of $2.5M and a median size of 2800 sq ft. Only 16% are priced $1.4M or less.

My personal knowledge of prices vs rents of a house in another "hot" place in the Hamptons would put a rent of $20K on a $1.4M for Aug - LD, which translates to about $15-16K for July.

Congratulations on getting an outstanding rental amount for July. $32K for a house without a pool/not within walking distance to beach or bay/north of highway is fantastic. 15 minute walk to town is not generally valued all that much, imo. It isn't as if you can do without a car with such a rental. I'd say when rental markets are soft a pool-less home north of the highway is more vulnerable obviously than something within walking distance of the beach or a bay and/or with a pool.

wait you don't have a pool? i thought no heated pool but yes pool? either way 32k for 15min walk from the village, no heated pool is a killer deal. If i were you i'd milk that goat and rent them for august because I don't think that kind of a goat comes often.

I am just calling BS that this exists . . .

Rentals
In Bridgehampton
We found 38 listings between $25,000 and $50,000 for Memorial Day - Labor Day with at least 4 bedrooms with at least 3 bathrooms
Median price: $21,380 Median size: 2,600 ft² Median price per ft²: $95

Proximity to town or in the bridgehampton case, proximity to Kmart was never a positive factor in rental pricing.
It was always just a tradeoff between renters who wanted walking distance to town vs renters who want larger yards, land use, privacy.

No pool is tough. Did you rent to cats?
It has to be the most important ammenity (if not near the beach) after bedrooms/bathrooms. But a quick fix. You can probably install a proper pool in the $80k range.

Keep in mind your expenses during the year won't be that cheap. Often hampton homes are rented or attempted to be rented off season for a song just to have someone in there paying maintenance.

And as far as 2009, yes that was a completely different animal all together.
I rented a 4 bed 4 bath with heated pool 800 feet from the bay with sandy beach (true walking distance) in Noyack for $35K MD -LD.
And Noyack is not to be confused with North Sea.

truth you are close to your goal. keep it up

The house is real and I got $32 k for July 3rd - July 30 th. To be honest I had 3 offers last weekend for 3 different periods. One was for 10k for July 3- july 8th, one for $38 k from july 16- Aug 23, and the offer for just July which i took.

The house has vinyl pool but no heater. When I say 15 minutes to town I mean Pierre's, Almonds, &, Starbucks....not the Kmart.

Did I get lucky maybe, but most homes have very crappy dated furniture, all of the stuff in our house is brand new and shows well. People want something new and fresh when they make a rental like this, updates definitely need to occur every 5-7 years to be able to do this on a consistent basis.

Have someone coming this weekend to look for the first 2 weeks inAugust. Will update the group.

I don't know anything about Hamptons real estate, but my friend was looking into purchasing a property just like the OP, as an investment, and he couldn't find any listings where the numbers would actually work out. The sale prices were all too high.

Clearly though if you can afford to buy in the hamptons and renting it out is just a bonus, then it's totally worth it.