When it comes to real estate investing, there are dozens of directions you can go. You can invest in single-family residential properties, multifamily properties, apartment buildings, raw land, commercial buildings, and even mobile home parks. But in addition to these investments, there’s also the niche of vacation properties.
If the idea of owning a vacation property sounds appealing to you, we’d recommend that you at least consider the idea of investing in a beach house. But before you pull the proverbial trigger and make a final decision, we’d recommend doing a little research and strategic planning.
What’s Your Primary Objective?
There are thousands and thousands of beach property investors and each person has their own set of motivations and circumstances. Prior to making your own investment, make sure you’re clear on what your primary objective is. In all likelihood, your beach house will fit into one of three categories:
- Personal enjoyment. Do you plan to use your beach house a lot? Is it primarily for your own personal enjoyment with family and friends? If so, you’re probably less likely to rent out the property and more focused on holding it as a long-term investment.
- Stream of income. Is your primary goal to generate monthly income? If so, then you’ll want to rent the property out for as many weeks and weekends as you possibly can throughout the year.
- Many people who invest in beach properties are interested in a hybrid approach that combines the latter two objectives. If you want to enjoy the property and generate income, you’ll have to balance these two ideas and make some sacrifices to reach your goals.
While plans can change at any time, it’s unwise to invest in a beach property without first crystalizing your underlying objective. If nothing else, it allows you to focus your efforts and channel your energy.
Buying the Right Property
Now that you know what your overarching goal is, you can begin shopping around for the right investment property. Here are some things to consider:
- House vs. condo. One of the first things to consider is whether you want a beach house or a beach condo. This decision will be based on a number of factors, including the price point and the time you have to invest in upkeep and maintenance. (Condos are generally easier to maintain and don’t require as much work on the investor’s part.)
- Beachfront vs. nearby. What’s more important to you: the value of the property or the view? In other words, do you need the property to be on the beach, or are you okay with it being set back a little bit (which will cost less)? There’s no right or wrong answer. It all depends on your priorities, budget, and investment objectives.
- Luxury vs. cozy. No two beach properties are the same. However, if you were to split all properties up into two categories, you’d be left with luxury and cozy. Luxury properties are high-end properties that appeal to wealthy vacationers and people with high taste. Cozy properties are more like bungalows. They’re still nice, but they’re less focused on opulence and more centered on practicality and value.
- 10 percent rule. As a general rule of thumb, you want to make sure you’re generating at least 10 percent of what you’re paying for the property in revenue. This is a healthy ROI and should be attainable in most markets.
- Property taxes and insurance. With beach properties, you have to be especially cognizant of property taxes and insurance. If you’re on the East Coast or Gulf Coast, you’ll probably be required to obtain hurricane insurance. This can significantly increase your expenses and change your ROI equations.
- How close is the property to your primary residence? It’s always a smart idea to be within driving distance of any rental property you own. This gives you the option to stop by when necessary.
This isn’t an exhaustive list, but it’ll at least provide you with a good starting point. Carefully consider each of these factors and use the information you have to make the smartest possible decision.
Managing Your Investment
Buying the property is only the start. In order to maximize your enjoyment and financial return, you’ll need to manage it well. Here are a few pointers:
- Define your target renters. Who is your audience? Are you going after wealthy vacationers or casual weekenders? Is your ideal renter a retiree, or do they have lots of small children? Clarifying your audience will help you develop a better sales and marketing pitch.
- Set your price. Meet with a local real estate agent or property manager to get an idea of what sort of price point is right for your property. (Note: Your prices will probably change throughout the year based on the season.)
- Block off weekends. If you plan on using the property for your own personal enjoyment, make sure you go ahead and block off weekends/weeks as far in advance as possible.
- Hire a team. It’s smart to have a team of professionals on speed dial to help you with your investment. This may include a real estate agent, property manager, handyman, and cleaning service.
- Don’t fall behind. It’s imperative that you stay on top of your investment and avoid falling behind on maintenance and repair projects. Beach properties can take a beating – both from the harsh elements and the constant turnover of renters. By addressing problems as they arise, rather than putting them off, you can maintain the value of your investment.
Don’t be frustrated if it takes you a couple years to figure out the nuances, ebbs, and flows of owning a beach property investment. It requires firsthand experience to fully understand. Before you know it, managing a beach property will feel like second nature to you.
At Green Residential, we believe every rental property investor should take the time to find and hire a professional property management company to handle the dozens of responsibilities that come with keeping a property safe, functional, and profitable.
For more information on our services, please contact us today!