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Buying a house on the beach, that can be rented out during the season to cover costs or even turn a profit, is a popular move for those with discretionary income and a flair for real estate.
Investopedia’s recent article, “Economics of Buying a Beach House: Read Before You Buy,” cautions that before taking the beach house plunge, it is critical to understand the underlying economics involved, like high borrowing costs, high insurance rates, bills, plus the standard issues with property management.
Real Estate Costs and Financing. These properties are substantially more expensive than similar homes located inland. Mortgage interest rates for vacation properties are also higher than those for primary homes. This can really add up.
Insurance. The homeowner’s insurance on your beach house may be several times more expensive than that of your primary home. This is primarily because of the often-mandatory flood insurance. That coverage has skyrocketed in recent years, especially on the East Coast with all of the hurricane damage. Note that an annual premium of $10,000 or more for flood insurance isn’t uncommon for a Florida beach house. Other East Coast states have more reasonably-priced premiums. There is also California with somewhat lower insurance prices, but higher real estate prices.
Regular Expenses. Renting a beach house means bill-paying, in addition to the mortgage, utility, and cable. Your tax bill is likely to be higher with the value of beach houses. If your beach house is an income property, you’ll also typically pay for marketing and advertising, and hiring an agent to show your property.
Property Management. This involves much more than signing lease agreements and collecting rent. If the AC breaks, you’re responsible for the repairs. There is also the cost of landscaping, painting, roof maintenance and pest control.
To maximize your investment, find a reputable full-time property manager who will be able to take care of the day-to-day tasks necessary to maintain the house. That same person should also be able to market the property, manage the leasing process and interact with tenants. Don’t expect this to be a low-cost part of the beach house cost. However, the 6-12% fees will be worth the investment over the long run.
Reference: Investopedia (October 18, 2018) “Economics of Buying a Beach House: Read Before You Buy”