Some difficulties in life will appear impossible to many but may be embraced by others who would welcome the lifestyle that particular challenge creates for them. Mention having your own beach house to the average man in the street, and they immediately consider you in a higher tax bracket, never considering the problems and stresses that the property brings.
Renting out your beach house can be a good investment for either short or long-term rentals. Short-term rental income is higher but offers less stability. The income can cover mortgage repayments, but applicable expenses include management fees, damage, maintenance, and inflated insurance premiums.
Like any investment, a beach house requires attention from time to time, and it is not all roses from the outset. Do you purchase the property as a long-term investment and just hold onto it, which means any repairs and maintenance come out of your pocket? Conversely, do you rent it out and use the added income to cover the expenses?
Are You Renting Out Your Beach House For Short- Or Long-Term?
Buying a beach house to rent it out is fraught with problems and yet loaded with possibilities: Do you rent it out for a longer-term, planning to move in when you retire or do you rent it out seasonally, living in it between rentals?
Numerous beach house investors in warmer climes confirm that their rental income for the colder part of the year can cover their expenses for the whole year. In effect, this lets them live in the house for free between peak seasons. People from colder areas often head south in winter and return home as temperatures improve. At this point, the beach house owner can simply move back in if they so wish.
- Generally speaking, short-term rentals will usually bring in a higher rate.
- Tenants and yourselves are not trapped into a long lease.
- Problem tenants can be more easily evicted.
- Maintenance and repairs can be done between stays without inconveniencing tenants.
- Rentals are short-lived.
- High turnover of tenants.
- Less regard for your property and fittings.
- A steady stream of income.
- Less hassle with finding and changing tenants.
- Good tenants are a blessing to any rental situation and worth keeping.
- Tenants are a lot more likely to care for the property if staying longer.
- Easier to place responsibility for damages, etc. if one long-term tenant.
- Problem tenants can be challenging to evict.
- Lower rental rates.
Pros And Cons Of Purchasing A Beach House For Rental Income
We’ve discussed in depth the various aspects of beach house rental, but before you take the plunge, here are the basics in bullet form to assimilate quickly:
Pros Of Buying A Beach House For Rental Income
- Tax Benefits – Many expenses relating to the beach house rental can be written off to tax: insurance, marketing costs, property taxes, insurance, property management fees, mortgage interest, repairs, and maintenance are all deductible, either fully or partially in most states. Check with a Tax Specialist for details.
- Property Appreciation – Beach houses simply do not drop in value, barring freak accidents for which you will have insurance anyway. This is an investment, not an expense, so growth is expected.
- Personal Vacation access – If you are renting seasonally, this gives you a great place to spend your vacations at no extra cost.
- Inflated Rentals – Vacation rentals typically fetch a much higher income than a traditional rental property inland.
Cons Of Buying A Beach House For Rental Income
- Inflated down payment – If this is your second home, a down payment of 20 – 30% is typically required. Vacation properties might also require higher credit scores to offset risk.
- Higher repair and maintenance bills – Short-term leases usually see a much higher impact, and damage, spillage, and repair costs can be higher due to inflated renter traffic.
- Peripheral costs – Costs as detailed above, and also travel costs that are required to check on the property from time to time, even if you have a Property Manager in place.
- Lack of vacation flexibility – Although it’s great to have your own beach house to vacation to, the gloss does tend to wear off eventually, and you will have to choose between a free vacation in a spot you are tired of, or added expense by going elsewhere.
What Bracket Of Beach House Should you Buy?
The rule of thumb when buying a property of any kind to rent it out, is that the higher the rental, the lower your chances – in theory – of having significant issues like vandalism, squatters, or tenants absconding. I know I’m on very shaky ground here because we all know of good and bad at both ends of the income scale, so check references very conscientiously.
What Do People Look For When Renting A Beach House?
Tenants will rent a beach house for a wide variety of reasons. Artists seeking solitude, the recently widowed who just need a place to regroup for a few months: Young families looking for a purer lifestyle, or the elderly who have saved for many years to retire to the beach. All of these are possible tenants for the longer term, and all are looking for something different but in the same vein.
- Fresh Air
- Beach Access
- Holistic living
- Secure Home
- Basic Amenities at least
Not everyone hitting the beach is looking for fun in the sun. Very often, the sound of the waves and the feeling of sand in your toes is all one needs. If your beach house can offer this feeling to a tenant, you have something exceptional.
People in the bigger cities threaten every day to move to the coast where the air is pure and life is more natural. Sometimes, a few weeks is enough, but the change is more permanent for others.
A beach house is not always on the beach, and for many people, this can be a deal-breaker. If your house either touches the beach or at least offers quick access, it will be far more attractive to the elderly and infirm, who may be unable to walk long distances. Families will also be more likely to rent from you if their children can walk straight out onto the beach.
Another good target group are fishermen, who are never happier than when sitting on the beach with a couple of rods aimed out to sea. They disappear for hours and are seldom troublesome.
The world is in turmoil, as we all know, with pollution, war, famine, and disease rampant, and many people are looking for somewhere to rent, where they can live in harmony with nature, both physically and spiritually.
Not surprisingly, people at risk, like the elderly, infirm, single mothers, etc., often consider home security the most critical factor after location. We’re not talking about cameras, alarms, and a security detail outside every door, but is the home safe? Something else to consider when buying the beach house in the first place.
All houses for rent must have running water, electricity, etc., but people renting beach houses generally do their own cooking, so don’t skimp in this department, maybe even springing for some top-of-the-line appliances and lighting in the kitchen.
What Should You Provide In The Beach House?
This will depend greatly on whether you are looking for a long or short-term rental. Short-term rentals usually focus on the entertainment side of things with WiFi, Cable TV, games, and books. Longer rentals usually appreciate good furniture, a modern bathroom and kitchen, and possibly a garage to protect vehicles against salt air.
Renters Might Also Like:
- Bicycles, if shops are not a great distance away or if there are some excellent trails in the area
- A hammock is a welcome addition for lazing about on vacation, particularly at the beach
- A welcome basket on arrival. This need not be extravagant and might contain foodstuffs or thoughtful items like soaps, mosquito cream, matches, a frisbee, candles, etc.
- Local Insights – depending on your location, a map to the area and some shopping or visitor tips may be welcomed. Depending on how short their stay is, they might not have the time to find all of the local sites without any assistance.
- Wood for the fire, if applicable – many beach houses in the US are not in the hottest zones.
What Is The 2% Rule When Applied To Real Estate?
This is the percentage of your home’s total cost you could be asking for in rental income. In practical terms, a property worth U$200,000 should be able to provide at least $4,000 per month in rentals, so it is worth your while. In reality, however, this is very difficult to achieve, and 1-1.5% (U$2000 – U$3000) is far more realistic in metro areas, as shown by research. (Vacation rentals are usually higher)
Beach houses tend to realize rentals based on supply and demand, so, provided you have the three ‘L’s in place (location, location, location), you’re set to go, but naturally, check local listings before diving in. Get quotations from every facility offering a bed for rent in the area, including hotels and motels for comparison. Information is power, (or so a wise Dad once told me), and power in any business is vital.
Capital Gains Tax
Should you decide not to live in your beach house (investment property), capital gains tax on investment properties comes into play, and you will be liable. Living there for at least two years will – in most states – give you some wiggle room to either pay reduced rates or eliminate them entirely.
I have been unable to determine if living in the house between seasonal rentals will mean you don’t have to pay capital gains tax, but I have learned that at the least, you will pay a much lower rate if you hold the property for at least one year. See a tax consultant for confirmation.
Insurance For The Beach House
There is often mandatory flood insurance on a beach house, which can cause the insurance to be much higher than your primary home. Katrina and her devastating hurricane pals have wreaked havoc on the US coastline in the past couple of decades, and insurance companies are not taking chances.
Beachfront properties in California have little chance of being hit by hurricanes, and consequently have lower insurance costs than the East Coast, but higher property prices negate this. The Florida coastline is the opposite in terms of insurance costs, with annual premiums of U$10 000 typical. It’s all about location, as always.
Common Expenses To Consider When Renting Out Your Beach House
No investment should be made without due diligence, and renting your beach house is no different, so spend the time first and earn the income later. Managing a rental property is far more than signing a good rental agreement and banking rent checks each month. Here are some expenses that you might expect to incur: (Note that some will be tax-deductible)
- Refrigerators may need replacing
- HVAC or AC units pack up from time to time
- Pest control
- Roof maintenance
- Landscaping (if applicable)
- Property Managers’ fees
Depending on your proximity to the beach house, you might find it preferable to enlist the help of a good Property Manager, but they don’t come cheap, and you might pay 10% of the rental for this peace of mind. Unless you have the patience and time to do it all yourself, however, a Property Manager can be a real blessing.
If you are in the position to relocate during the season or have a beach house to rent out all year round, it can be a reliable source of income, but do the due diligence in advance. Try to find faults and look at the house realistically. Talk to neighbors and shop owners to get a feel for the situation, and remember the three ‘Ls.’ Get location correct, and the rest falls into place.