There are few properties more desirable than those on the water. While beachfront property values are premium, the potential for lucrative returns makes a powerful case for taking the risk. There are several important factors to consider when purchasing, and renting out, a beachfront investment property that are worth your consideration.
As we mentioned, the costs associated with a beachfront property tend to be much higher. First, there is the premium in property values. According to recent studies, single-family waterfront homes easily cost twice the price of a similarly-sized home. Because of their high prices, these homes often have higher mortgage interest rates, which can add hundreds of dollars to your monthly bills. Second, most waterfront states require owners to have flood insurance, which can add another few thousands of dollars a year. On top of all this, if your beach house is purchased as an investment property, you will have to pay management, maintenance, and utility fees on top of the taxes. Investopedia has an in-depth and sobering glance at all of the costs associated with a beachfront investment property, and they’re nothing to sneeze at.
But if you are reading this article, it is likely that you are no fly-by-night house-flipper looking to make a quick buck. You have probably set your financial goals, or you have a plan to reach them. For even the novice investor, real-estate is an easy code to crack. First, you always want positive cash-flow: when you take out a mortgage, maintenance, utilities, and everything else, you want to be making money (duh). One way to do this, as SFGate’s Homeguides writes, is to rent for around 2% of the purchase price every month. For a beachfront rental property, you can usually rent by the week. You can potentially be more profitable, pushing that total to as much as 4%.
While keeping your cash-flow net positive month-to-month is important, it is just as important to keep an eye on the overall profitability of the property. A good rule of thumb is that you want a 10-12% return on the total cash invested. To determine that return, take annual cash flow of the property and divide it by the total cash invested. So, if your annual cash flow is $10,000, and you invested $100,000 in the property, that’s great, you’re at your 10% goal.
Numbers only make up half the picture, though. As many landlords could tell you, the hardest part about renting a property isn’t the payment, but the people. Do you manage them yourself, through a management company, or with an online rental application? The first step is to know your market. The needs of New England snowbirds are completely different than those of a Midwestern couple looking to rent a home in the best family neighborhoods in Tampa. VR Partners has a great guide to building a vacation rental marketing plan.
Finding and building a customer base is a tricky business, especially for somebody acclimated to more passive investments like stocks and mutual funds. Not everybody is a gifted marketer, but there are a few common-sense tips for spreading the word about your beachfront rental property. These include getting a set of professional photographs taken of your property and setting up social media accounts to advertise your rental — Instagram is probably your best bet here. Social media is also a great buy for your marketing dollars because it allows you to target specific geographic locations. Ultimately, these choices are up to you, but, though profitability is great, peace of mind is priceless. Rental management platforms like Airbnb and Vacasa make vacation rental marketing and management easier than ever. Like any investment, the more seriously you take it, the greater the likelihood of great rewards.