Tuesday, October 13, 2020

Is buying a beach house a good investment in 2020


            Is buying a beach house a good investment in 2020



Buying a beach house can bring an excellent return on investment, a reliable income stream, and access to a delightful vacation spot. Many beach house investors purchase homes that they subsequently rent out during peak tourism times. A beach house owner in Ocean City might make the house available to rent from November through April for the off season as the town stays busy and enjoy it for themselves in the beautiful summer months.


Many beach house investors claim that their rental income for the colder half of the year covers their expenses for the entire year. That effectively lets them live in the house for free during the non-peak season.


Like many real estate investors, you have probably dreamt of owning a beach house rental in an exotic location. Such a vacation rental property not only generates income but also provides free accommodation during your much-needed vacations. But, is buying a beach house to rent out a good real estate investment? To answer this question, let’s take a closer look at some of the advantages and disadvantages of this investment strategy.


The Pros of Buying a Beach House for Investment

Let us first look at the pros of buying a beach house investment.

  • Rental income – A major benefit of owning a beach house is the potential rental income you can earn. Typically, vacation rentals generate a much higher income than traditional rental properties.
  • Tax benefits – Owners of vacation rentals are allowed to write off business-related expenses such as mortgage interest, property management fees, marketing costs, insurance, property taxes, and repair costs. Consult your local real estate attorney to find out what tax deductions apply to you.
  • Property appreciation – The value of real estate usually increases with inflation. This means that your beach house will probably be worth much more in the long-term.
  • Personal use and enjoyment – As mentioned earlier, a beach house can serve as a second home during your vacations. This saves you lots of money that you would have spent on accommodation elsewhere and is not a benefit that comes with long-term rental properties.


The Cons of Buying a Beach House for Investment

What are the downsides of buying a beach house to rent out?

  • High down payment – When buying a second home, you might be expected to put down 20-30%. The credit score requirements could also be higher for a vacation rental property.
  • High maintenance and repair costs – Short term rentals usually have higher maintenance costs compared to traditional rentals. With many visitors coming and going, there is a higher chance of things getting damaged in your beach house.
  • Additional expenses – Owning a vacation home comes with a wide range of expenses. Besides the basic costs of owning a rental property, which includes mortgage payments, taxes, insurance, and management fees, you may have to pay for additional permits, fees to short-term rental websites (if you’re using one), and utilities. Because your beach house will likely be in a different town or city so that you can enjoy it as well, you will incur costs traveling back and forth to check on your rental property.
  • Upkeep and management can be time-consuming – Vacation rental properties require a lot of upkeep. You will need to handle guest check-ins and check-outs, restocking, housekeeping, and responding to guests’ concerns and questions. You could also hire a professional vacation rental property manager, but keep in mind this will be another additional cost.
  • More risks – A beach house is prone to natural disasters. Hurricanes and flooding could result in significant damage to your rental property. This is why it is important to have insurance that covers every potential risk.
  • Lack of flexibility when it comes to personal use – While visiting your second home will be great for the first few years, you may eventually get tired of the scenery and want to visit other locations. Of course, you will still have a beach house rental property to make money from, but you will no longer benefit from the free accommodation during your vacations.


What to Consider Before Buying a Beach House

Now that we know the pros and cons, you may have made up your mind to go ahead and buy a beach house. So let us look at some of the things you need to consider before buying a beach house to rent out:

Condition of the neighborhood  

When looking at where to buy a beach house, select your location carefully. Since you are planning to rent out the investment property, the location should be a place that not only appeals to you but also to potential tenants. The first thing to consider is nearby activities. Besides the beach, are there other nearby attractions your guests can enjoy? This could be shopping centers, unique bars and restaurants, parks, museums, mountains, or forests, and other tourist attractions.

Accessibility is another important consideration before buying a beach house . Can guests easily access your investment property? Is there a car rental company nearby? Will your beach house offer private parking for guests? If not, where will they park? A location that is readily accessible will mean higher bookings for your vacation rental property investment.

Because the main aim buying a beach house is to make a good return on investment, it is important to conduct a real estate market analysis before settling on a location. Thats when 

WE CAN HELP

We will be able to find you a profitable real estate market for investing in beach houses that is within your budget. 


Earning potential of a beach house

After finding a great location, you need to analyze different rental properties for sale to determine if they are a viable investment.  We can help you determine an investment property analysis that will reveal figures such as monthly expenses, cash flow, cap rate, cash on cash return, and occupancy rate.

Short-term rental laws

Every location has laws regulating vacation rental properties. Before renting out a beach house, be sure to get familiar with the local laws. In Ocean City you must acquire a license before renting out a house. In most places, you will be required to pay an occupancy tax to the local authority. If your investment property is within a planned development, you will need to adhere to the covenants, conditions, and restrictions (CC&Rs).

Conclusion 

If you mind your due diligence and prepare well, buying a beach house for rental income can be a very lucrative venture. To ensure that you end up making money with a beach house be sure to call us to evaluate your options. Buying a beach house could be the best thing you do for yourself. Just be sure to keep all the cons in mind and work to mitigate them along the way!


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