There are many beach house investors, who purchase homes they will rent out during peak tourism times. A Florida beach house owner might open her home to rent from October through March, when residents from up north want to see the sun. Beach house investors say that, in many cases, their rental income for this period takes care of their expenses for the entire year. This lets them live in the house for free, during the non-peak season.
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 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 high with the value of beach houses. If your beach house is an income property, you’ll 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.
You’re going to want to hire a full-time property manager to deal with all of these daily tasks, market your property in tourist season, get the leases signed and handle the tenants. A reliable property manager won’t be inexpensive. They can charge 6% to 12% of collected rent, which can quickly reduce into your profit margin.
At Gregorek and Associates, PLLC the attorneys are experienced in vacation rental property like beach houses and mountain cabins. Don’t leave this valuable family asset to chance. Generally it is best to own these types of properties in limited liability companies (LLC) or certain types of trusts. This will provide asset protection as well as transition instructions upon your disability and death.
Reference: Investopedia (October 18, 2018) “Economics of Buying a Beach House: Read Before You Buy”