With any property investment, the goal is to generate passive recurring revenue from rentals and either use the property as a nest egg to fund further travels or retirement or pay it off and then retire the property in the later stages of life.
With any investment, especially in property, there are always risks and rewards. Beachfront property is no different, but it does have some particular benefits and some serious considerations to weigh up before making a final decision.
Dreaming about the idyllic beachfront home, with the sound of the waves breaking onshore and cocktails on the deck with friends and family is the lifestyle that many investors seek. Let’s dive a bit deeper into this property option as an investment.
There are several reasons why beach properties are an excellent investment, and I believe that these overshadow the risks. With a good strategy and the right people, coastal property investment could be the best thing you ever do.
Reason # 1 – Growing Demand
According to Statista, revenue is expected to grow by more than 36% in 2021! Those numbers will bring a smile for any investor, so this is the right time to look for a coastal property.
As the global pandemic changes the way we do business, there is a vastly growing market of ‘workactioners’- people that mix work and vacation. In this group, coastal properties are in high demand. Able to have their family with them while working and then switch to vacation mode is a big plus.
The impact of ‘working remotely’ due to Covid has been one of the most significant driving forces behind this new market group.
There is also the ever-present for those in the central and mid-west that look to escape the freezing winters and spend time by the warm seaside.
As an investor in a coastal property -you will have no shortage of potential clients!
Reason #2 – Tax Write-offs!
Who doesn’t like paying less tax and an investment in a beach property will give you the chance to do just that! And it’s legal! If you rent the property out for more than 14 days a year, it’s considered a business, and any costs associated can be deducted from your return –keep all the slips!
So if you choose to upgrade the home with new décor, fiber, air-con, and alterations, all of these can be deducted at tax time, which can add up a fairly substantial sum.
Reason #3 – Monthly Revenue
Whether a condo or villa, a beach property delivers steady monthly revenue. Some or all of this can be re-invested if not required to offset mortgage, utility, and other costs associated with the property.
As with #1 above, demand is growing, and this is expected to continue.
Another big plus is that beachfront property rentals are higher than other traditional properties. You can expect more per month from a coastal property than you could from another investment.
Reason #4: Property Appreciation
As real estate increases in value with inflation and coastal properties are no different. Over the long term, your investment will deliver good returns and be worth much more in the long run.
Reason #5: Personal and Family Enjoyment
This is (for me) by far and away the best reason to look at investing in coastal property. Your rental income can quickly pay for a week or two weeks of family holiday on the coast. Being able to pick up and go to the beach when you need to can be a lifesaver, especially in our times.
There is something special about that sea air, sunshine, and sound of the ocean that rejuvenates people, and with the added stress of modern living, a week or ten days at the coast in a beautiful tranquil home is often just what the doctor ordered.
Taking the kids or spending time with a loved one, enjoying breakfast on the deck and the ocean sounds at night is truly soul-soothing and worth every cent on the investment.
Reason #6 : A Valuable Nest Egg
A very popular reason to invest is that it gives you a lucrative next egg to either fund your retirement, travel, or other endeavors once you decide to quit working. Taking the monthly dents and sacrificing some short-term luxuries will pay big dividends in the future.
A valuable beach property could easily generate more than $1million on resale, especially if the location is good and the property has been well maintained and has a good annual revenue with regular clients re-booking.
All in all, six excellent reasons to invest in a beachfront property.
Now, let’s look at some of the necessary elements you need to consider before doing this. While they are not inherently negative, if they are well managed from the start, they will give you more return and less headache.
Coastal Property – The Associated Costs
It’s a well-known fact that property prices on the coast are far higher than that inland. For a property investor, this is a genuine consideration. It directly affects the cost of acquisition, return-on-investment period, and monthly costs like maintenance, utility costs, property management, advertising, and property taxes and insurance.
All of these can take a big bite out of your revenue return on your beachfront property and need to be correctly and carefully measured against the long-term ROI.
The good news is that using a reputable property management company can solve many of these issues and reduce the cost impact on your monthly and annual revenue.
Location , Location, Location
Buying a property that is right on the beach or within proximity may pay good dividends vs. further inland. Whether it’s a condo or house, a beach property that offers easy access to the ocean will be more in demand than those further away – and this means higher rental revenue.
Also, if you look at a beach house that offers more than just sand, your rental revenue will be higher. So boardwalks with funfairs, food, rides, and entertainment will have greater appeal than those without.
With any property, its price will greatly depend on where you buy, and you can see the varying prices on locations below.
Here is a quick overview of property prices from different areas, and you can see the difference in prices as you move from coast to coast.
Bear in mind that the figures below are from 2019, and the variances are also due to real estate factors like the number of bedrooms and amenities.
- Ocean Shores, Wa: $239,400
- Myrtle Beach, SC: $257,000
- Panama City Beach, FL: $419,900
- Gulf Shores, AL: $409,900
- Galveston Island, TX: $350,000
- Kauai, HI: $696,028
- Ocean City, MD: $285,000
- Key West, FL: $817,000
(Source: https://www.royalshellrealestate.com/blog/is-buying-a-beach-house-a-good-investment.html)
Property Structures – Roofs, Windows and Construction
Before you buy, make sure you have a good idea of how the property was built and that the fundamental structures are sound. Have a look at the structural plans and design to see how the house was built and comply with current safety and building codes.
Ensure you know where the coastal flood plains are and the levels that waters could rise to during, and that your property is well above the levels listed.
You need to have robust features like windproof windows to resist high winds, especially if you consider a property in hurricane or severe storm areas.
Strong windproof roofs are also important for your insurance and structural integrity to reduce the risk of damage to the property when the weather turns bad – and it will!
Before you buy, speak to owners and other residents in the area and get some idea of the weather conditions and crime and amenities access.
All of these play important roles in your decision to invest or not.
High Insurance Costs
This is an unavoidable fact of owning a coastal property. The insurance costs are much higher as there are higher risk factors associated with coastal properties by default. Inland coastal properties are less likely to be at risk from flooding than those right on the water.
Flooding, hurricanes, and wind damage due to storms and storm surge all add to greater risk and thus greater insurance costs.
Flood Zone information is usually readily available from local authorities, as would be the history of flooding in the area. Obviously, if the area you are looking at is a high risk, then perhaps this isn’t the right place to put your money.
Higher Borrowing Costs
As an investment or rental property, borrowing costs are higher than if this was your residential home. You need to be aware that the monthly payments could be higher and that the down payment requirement is also usually higher.
Unless you’re buying the property for cash, expect around a 20% downpayment for your coastal investment.
You need to carefully balance this with your estimated revenue income and ensure that you can cover these costs and the others without creating unnecessary stress on your existing monthly expenses.
You don’t want to find yourself struggling to pay the everyday things when you add another mortgage payment and associate monthly costs to your existing budget.
Property Taxes
With an investment property, especially one on the coast, the property taxes will be higher than that inland as the typical value of these homes are much higher. Most coastal towns have higher property taxes, so do your research into some options before fixing your sights on an area.
Like most things, these taxes usually increase over time, so make sure your property rental revenue can effectively mitigate this.
You may also find you need to pay additional license or permit fees, especially if the property is part of an HOA. Some HOA’s don’t allow short-term rentals, so make sure you have that covered too!
Maintenance and Repair Costs
Vacation and rental homes require much maintenance after visitor usage, and repair costs also need to be considered. When doing an initial evaluation of the property you may be considering, look at the air con, internet, appliances, decking, etc., and get a professional to assist with the inspection.
While this may cost some dollars to do, having someone there that can identify potential issues around plumbing, electricity, or other structural aspects may prove invaluable and save you a lot of money on these issues down the line.
Take into consideration your target market and what kind of amenities they would expect in a rental home on the coast.
You may need to install or upgrade air conditioners, internet and appliances to more modern ones and of course, all of that takes money to do.
Property Management and Marketing
While some investors prefer to do all of this themselves, many simply do not have the time to manage these aspects of their property.
As with any other investment, due diligence must be conducted properly, and asking for recommendations on property management companies using social media resources or simply asking other property owners who they use could prove a valuable use of time.
Specialists in the area you have chosen know the kind of people that come to these areas. Therefore, they can be of great assistance in advising, managing and marketing your property for you at a reasonable rate.
Remember that these types of costs can be deducted, and as long as you’re not getting hijacked on their fees, it would be a worthwhile endeavor to ensure year-round bookings and, of course, your own time at the house.
Most decent property management services offer a turnkey solution for the owners, including maintenance and marketing. They would already have the know-how and resources to properly market the house to the right audience and be connected to local contractors and maintenance services.
Another benefit is that you have contractual recourse against them for failure to perform or deliver on obligations. At the same time, the same is not that easy if you or another member of your family is doing it for you!
Guest Booking Systems – The Good News!
As the technology for these platforms improve their functionality and includes aspects like rating and reviews, it’s a little easier these days to manage and monitor guest check-ins and check-outs.
Do your research or ask for recommendations from other owners in the same area.
That first-hand ground intel is worth its weight in gold and can also save you a lot of time and frustration when choosing a platform to use.
Again, a decent management company may provide this as part of their offering, so unless you plan to quit your job to run your rental business full-time, this is probably a good option.
Is A Beach Property a Good Investment?
With the right approach and strategy in acquisition and management and some judicious due diligence, an investment in beach property can yield exceptional financial and personal returns.
As these are generally long-term investments, the initial process of prospecting before you buy and asking all the right questions before committing will determine its’ long-term success.
With interest rates at a good level and rising demand, the time is right now to look at a beachfront property as a solid investment financially and personally.
After all, who doesn’t want a beautiful beachfront property on their investment portfolio?
