25263 Sea Isle Hills Drive, Waves, NC 27982

# Deal Memo: 25263 Sea Isle Hills Drive, Waves, NC 27982 --- ## Executive Summary **Verdict: Negotiate — Confidence: Medium.** The confirmed historical revenue of $209,764/yr produces exceptional financial metrics across the board—cap rate, cash-on-cash, DSCR, and monthly cash flow all clear institutional benchmarks by wide margins. However, the property's revenue exceeds the area p90 by 54% with no visible comparable achieving even $85K TTM, creating meaningful **concentration and reversion risk** that warrants a price reduction of 5–8% to build margin of safety. At $1,290,000–$1,320,000, this becomes a confident Buy. --- ## Financial Snapshot | Metric | Value | Benchmark | Assessment | |--------|-------|-----------|------------| | Cap Rate (STR) | 10.41% | >8% target | 🟢 | | Cash-on-Cash | 18.10% | >10% target | 🟢 | | DSCR | 1.74 | >1.25 target | 🟢 | | Monthly Cash Flow | $5,124 | Positive | 🟢 | | GRM | 6.6 | <100 target | 🟢 | Every financial metric is green and materially above threshold. The 10.41% cap rate on a coastal property is outstanding. The 1.74 DSCR provides substantial debt service cushion—revenue could decline ~43% before debt coverage becomes stressed. --- ## STR Income Analysis The confirmed annual gross of **$209,764** implies an effective blended ADR and occupancy profile far above the area median. Backing into the math: at the market median ADR of ~$470/night, the property would need ~82% occupancy (or ~300 nights) to hit this figure—plausible for a premium listing with strong reviews and differentiated amenities on the Outer Banks. Alternatively, at a premium ADR of $650+, occupancy in the 60–65% range achieves the same result. **Seasonality is significant.** Waves, NC is a summer-dominant market; expect 60–70% of revenue concentrated in May–September. Net revenue of $17,643/month (after expenses, management, and platform fees) suggests a well-optimized operation—annual net of ~$211K against gross of ~$210K implies extremely tight expense control or that the "net" figure already accounts for some cost structure efficiencies. **Clarify whether the $209,764 gross is pre- or post-platform fees (~15–18% drag).** If pre-fee, true net compression is more severe than modeled. The revenue projection based on confirmed actuals is **realistic as stated**, though it reflects top-decile operational execution that a new owner must sustain. --- ## BRRRR Assessment BRRRR viability is **weak**. At an ARV of $1,598,500, a 75% LTV cash-out refinance yields only **$30,909** returned—just **9.1% equity recaptured**, leaving $308,791 trapped in the deal. This is not a capital-recycling play. The investor should underwrite this as a **buy-and-hold income asset**, not a BRRRR. The 5-year IRR of 7.9% and 10-year IRR of 9.5% (at 3% appreciation) are respectable but not exceptional for the capital commitment, reinforcing that the thesis lives and dies on **sustained cash flow**, not equity arbitrage. --- ## Market Context Waves sits on Hatteras Island in the Outer Banks—a premier East Coast vacation corridor with consistent summer demand driven by beach tourism, fishing, and family travel. The area has **25 active comparable listings**, indicating a small, concentrated market. The subject property's $209,764 TTM revenue is **2.55x the market median** ($77,327) and **1.54x the p90** ($136,060). This level of outperformance is consistent with a best-in-class listing: likely oceanfront positioning, superior furnishings/amenities, a deep review history, and optimized pricing strategy. Notably, the five provided comps range from $16,666 to $83,030 in TTM revenue with occupancies of 11–46%—none approach the subject's performance, underscoring the property's premium positioning and the operational alpha embedded in the current revenue. The 52.6% area vacancy rate aligns with a seasonal beach market where many properties sit idle in off-season months. --- ## Risk Factors - 🔴 **High: Revenue Concentration / Operator Dependency** — The property outperforms every visible comp by 2.5x+. If the current operator's review history, Superhost status, guest relationships, or listing SEO do not transfer, revenue reversion toward $120K–$140K (p75–p90) is a realistic downside scenario, which would compress CoC to ~6–9%. - 🔴 **High: Platform Fee & Gross/Net Ambiguity** — Confirm whether $209,764 is gross booking revenue or net-of-platform-fees. An 18% Airbnb/VRBO fee drag on $209K gross reduces effective revenue to ~$172K, materially altering every metric. - 🟡 **Medium: Outer Banks Regulatory & Insurance Risk** — Coastal NC properties face rising insurance premiums, flood zone reassessments, and potential local STR regulation changes. Dare County currently permits STRs, but political sentiment can shift quickly in resort communities. - 🟡 **Medium: Seasonal Cash Flow Volatility** — With 60–70% of revenue in a 5-month window, the property likely runs cash-flow negative November through March. Reserves of $25K–$30K are advisable to cover debt service and maintenance in shoulder/off months. - 🟢 **Low: Market Liquidity** — Hatteras Island has an established resale market for vacation homes. Exit at or above purchase price within a reasonable timeline is achievable, though the buyer pool narrows at the $1.4M+ price point. --- ## Recommendation **Negotiate the purchase price to $1,290,000–$1,320,000** to create a margin of safety against revenue reversion. At current pricing, the deal is entirely dependent on sustaining top-of-market performance indefinitely—a fragile thesis despite the strong confirmed actuals. A 5–7% price reduction would preserve double-digit CoC even in a scenario where revenue regresses to $160K–$170K (still well above the p75). **Conditions to monitor:** 1. **Confirm gross vs. net revenue treatment** — if $209K is pre-platform-fees, renegotiate price or re-underwrite at ~$172K net. 2. **Secure transfer of the existing listing, reviews, and Superhost status** — this is where the operational alpha lives; without it, budget for a 6–12 month ramp period at 60–70% of historical revenue. 3. **Obtain a current insurance quote and flood zone determination** — coastal insurance costs are escalating 10–20% annually in barrier island markets and could erode $5K–$10K of annual cash flow within 3 years. **Ideal investor profile:** Experienced STR operator (or partnered with one) with coastal market expertise, comfortable with seasonal volatility, and capitalized with sufficient reserves to weather off-season months and potential revenue normalization in year one.