My wife is trying to talk me into "investing" in a beach house. I'm not normally a beach guy, but I'll admit we recently went on a vacation that was one of our favorite places we've ever been for both of us. The problem with these condo's isn't the price. It's the $750-1,000 a month HOA fees that come along with them. My first thought was maybe we can pull this off and Airbnb it when we aren't there. The finance side of my brain has run the numbers 50 different ways and I can't figure out a single way that owning something like this is feasible without losing a bunch of money. I've come to the conclusion that we're much better off to keep investing in the stock market and just vacation here once or twice a year with the proceeds. Of course that answer wasn't super popular with my wife. Does anyone else here own a beach house? How do you make it work? Or does it just cost you a massive amount of money each year?

A lot of beach houses don't have HOA's.

They are the only viable ones

HOA governed waterfront property will never beat non HOA in appreciation.

We own a beautiful small farm nestled in the mountains of NEPA.  My brother just finished building a house on the water in NC.  We visit each other and it's perfect.

The fees are high because of constant maintenance and high insurance costs.

I bought a beach house on the water coastal NC in 19.  I have no HOA.

I tried renting it for the summer, and it was doable, and generated good money, but I hated renting.

I just let it sit when I or family are not there.  I bought before prices and rates took off, so take that into account.

Pm if you would like some specifics.

A condo will have occasional “assessments” over and above HOA dues.  The older, the more often.  Stuff rots quick in salt air.

Our house has appreciated dramatically, and even if it hadn't, I love living on water. We have no HOA.

Attached File

Just keeping renting when you want a vacation, untilyou'rereadytomove. Cheaper and less headaches.

You're going to buy a second home literally at the height of the housing bubble?  Wait.

Years ago my parents had a townhouse in Va Beach. They would go down for weeks at a time. Over the years I went about 10 times. We sold it after they passed. I worked everyday dealing with the public. Why would I go on vacation & deal with crowds & traffic. When I'm off I want to relax & not deal with all that. I bought a cabin in the mountains so I could go & relax & not deal with stuff I had to every other day of the year.

My family has a beach house rental.  I had done plenty of tax returns for beach rentals during my career, and I tried to tell them what the numbers were likely to be.  I was not far off.  Few rentals generate net cash.  They might be a hedge against inflation, if they appreciate.  But even if you don't have a mortgage, they are still basically a BOAT - bust out another thousand.

We get great cash when it is rented, but beach rentals (at least here) are very seasonal.  IF we can get nearly 100% rental in the season, we can come close to skimming by for the year.  The real truth - it is averaging about $20k of additional capital inflow annually.  Tax is a bitch, Insurance is a bitch, Maintenance and improvements are her dependent family.  You have to keep up with the neighbors or you don't rent.  That means a shitload of new carpet, new furniture, etc (renters expect it to look new).  Salt air eats everything it touches.  Then 100% rental in season is still a fantasy because you get last minute cancellations.  Off season, we are lucky to get 6 weeks rented the whole year - so at best, we get that sweet cash flow at most 5 months a year, probably closer to maybe 4.

The biggest cause of roll over is mortgage.  We have fallen short on cash flow every year so far - and that is without having the single largest cash suck, mortgage payments.  Where we are, the houses are not cheap.  Before the interest rate climbs - most of the people around us would have been paying about 60k a year on their mortgages.  Add that to our cash shortages - I think there are a lot of less than happy "owners".

Not saying it pisses me off (as I have to throw in the cash), but it is not the cow they thought they were getting.

That's the thing. It I have no idea what the insurance is going to cost, but it doesn't really seem financially viable before the insurance costs.

Wow! That's beautiful.

Well, here's the thing about that. I've been thinking we were at the height of the housing bubble for 10 years. Prices have about trippled while I've been "waiting" for the big crash. Will they ever come back down? I hope so, but I've stopped holding my breath. We still have a major housing shortage in this country while also having a massive increase in population from all of our new "citizens".

OP,

I live in Sandbridge, I can tell you what I see here as far as rentals.

1.  You will get charged commercial rates for electric, tv, internet, etc
2.  The decks on the house have to meet commercial code.  They have really cracked down on this.
3.  If the house is not modern and up to date, rent suffers.
4. houses rent memorial day to labor day.  
5. be very careful with the short term rentals.  I see a lot of houses destroyed by weekend parties.
6. real estate companies will take 20+ percent and charge you for everything.  People steal and break stuff every single week.
7. Do not depend upon rent to cover the bills.  I see the same rentals for sale on a rotating basis.
8. prices are crazy right now.

Pm me if you have any questions.

That's exactly why I don't generally like the beach. I'm not a fan of places like VA Beach, Myrtle Beach, etc. That's why I was so surprised by this place. Much less commercialized than the other beaches I've been to.

Which beach was it?

This.

My parents owned a lake house. Living in it full time is great. Almost all the neighbors were weekend/2nd homes. They seemed to spend a lot of time unpacking, doing yard work and such Saturday morning. Enjoying the lake Saturday afternoon and Sunday morning then packing back up that afternoon.

When I inherited the lake house the family loved it at first but it became a burden with upkeep. If it was our primary home then we would have kept it but it was too far from our jobs and schools.

This is very informative and exactly the kind of post I was hoping for. It also confirms what I'm suspecting based on the numbers I've run. I have no idea what insurance/repairs are going to cost, but without those I'm estimating that I'd have to rent it out 21 days a month to break even. Maybe slightly less in the 2-3 summer months since prices seem higher, but then again that's without insurance/repairs.

Based on the Airbnb availability of the place we stayed, and the fact that I booked it at the last minute, I'm not convinced these places are staying booked outside of the peak season in the summer. Even during the summer months, many of the places still have available dates. I have no idea if they'll fill up at the last minute or not. That's the part that's hard for me to estimate. I'm just not seeing the ability to rent it 21+ days every single month.

Then add in insurance, repairs, etc. and I suspect I'm going to need to rent it a lot more than 21 days.

I also feel like it's going to by a constant hassle to manage this myself. If I add in a property manager, it seems like they take 40%+/-. That would eliminate some of the hassle, but I'd pretty much be guaranteed to be losing money every single month at that point.

I feel like I have to be missing something here, because I feel like there are so many people that own these places and rent them out, that it has to work. I just can't figure out how it does. I know in the long run you have the value of the house when you sell it. If someone else has paid for 80% of it, you win. However, if I'm putting 20k a year into it, I could put $15k in the stock market, spend $5k a year on a vacation, and come out way better after 30 years than I'd net from selling one of these places.

When I was a teenager my mother had a vacation house in the mountains and it was the same way. I loved it, but she hated it. She'd spend 85% of our vacation each time doing work on the house.

Insurance is a huge issue.

Family had a beach house in DE until 2015 or so. Even back then insurance was getting beyond insane. I think some states like Florida are even worse.

We own a condo overlooking both the Atlantic and Florida Bay in Islamorada. Between HOA fees (outrageous and always going up) the local tax on rentals, INSURANCE, maintenance and cleaning, our rental income doesn’t come anywhere close to making us whole, much less any sort of profit.

For the five or six weeks a year that we are able to stay down there, we would be MUCH better off just renting from one of the other “owners” in the community, when we want to go.

Depends my condo in Key West makes tons of money $3k/day peak season.  My place i sold in Orange Beach, not so much

$3k a day? Holy cow. That's wild, but awesome. How big is it?

My wife and I are trying to make the numbers work on a beach house here. It is the most beautiful place on earth and where I have been the happiest. She has spent the past ten years raining on my parade and telling me it’s a pipe dream. This year we started to move towards making it a reality. The first step for us making sure buying it does not require a “jumbo loan” a high bar as most homes not falling apart are near 1mm.
We plan to use short term rentals to make it possible, but the bank will not consider that as income towards making the payments possible. Short term rental licenses here are not a sure thing and one company dominates the local market. They keep occupancy rates relatively low in order to keep rental prices high.
We are just socking away as much as we can with the understanding that money solves a lot of problems.

I prefer the flexibility that renting offers.

I'll go with this. Owning and maintaining one house is challenging enough for me.

Insurance was enough to kill that dream for me, an

HOA on top of that ?

Nope.

Still kick around the idea of renting one out when not in use just to cover the insurance.

You thought we were at the height of a housing bubble 10 years ago?  What metric gave you that impression?

And yes, housing will eventually correct.  Home price to income ratios weren't this high even in 2007 and the Fed will keep leaning on rates until something breaks.  

Don't fight the Fed works both ways.  Amazing to me that people only parrot that mantra when rates are going down.

My parents built a beach house in 1999 for 300k. It's now worth 1.5-2M. No HOA.

I live a couple of blocks from the beach.
Be prepared to do quite a bit of maintenance. First chlorides are corrosive as hell.  Everything I get, I mean everything metal I get, rusts within days even when it is in my garage--inside the house not that bad.  If you can't seal it in in a plastic container and it is metal, it rusts.  The ocean humidity also tends to be brutal on just about everything.
Just be prepared.

We looked into a beach condo in North Myrtle.  In the end, it was a big no for reasons already posted.  
High maintenance due to salt air
Renters as a majority treat things like shit
High HOA fees to cover security, pool maintenance, elevator maintenance, etc
Assessment fees randomly for new roof, major repairs, etc
Trying to keep it rented out
Constant remodeling

No shit, about the time we were thinking about it I ran into another customer at an AT&T phone store. She was ecstatic and said it was the happiest day of her life because she had just signed the paperwork and sold her beach condo.  

Fast forward a few years.  Wife is getting another itch.  This time she wants a “shit shack” on the local lake to get away to on the weekends.  At the time, the smallest and worst smelling death cabin on the water was averaging $300,000.  I started looking at things through the grounds keeper, maintenance man’s eyes.  So I started looking at living there full time in nicer homes.  Our first was a nice home we looked at was in a cove for $375k.  I told her we gotta move. No way I can maintain both properties and not to mention high taxes on a second property. Take our equity and run.

In the end we found a 2200 sq ft with a walk out basement, full central air, very deep one car garage, a dock that costs more than our first home with a lift. Sitting on .88 acre.  Got it for $590k, but we had to buy a $10k 12X24 storage barn due to loss of garage space and no attic storage.  And it came with a million dollar view.  We also put in a hot tub to sit and enjoy the view.



Barn is in the front yard.


Previous owner used it as a weekend/summer place so yard work was not high on their priority list.  The shoreline was completely over grown as well as the wooded areas along the property lines.  This is one of the pics from the listing. All the shoreline growth is gone except the one tree.


I will say, maintenance is still high on any waterfront.  But at least no salt corrosion.  We get some pretty high winds coming off the water during storms.  It has caused some minor damage I’ve had to repair and prone to spring floods. One neighbor clocked the winds at 77 mph off his dock last week.  

I live 4 blocks off the ocean, maybe 300-400 yards to the sand. Know that maintenance will be close to double when compared to a house in middle America. The salt air and spray during storms destroys all, you’ll go through AC units every 5-7 years & you’ll be lucky to get two years out of a grill. Insurance is a big issue & you’ll pay dearly for it & also likely deal with being dropped / non-renewed often.

There’s definitely downsides but from an investment perspective it’s a great opportunity. They aren’t making any more oceanfront or near oceanfront property.

My old boss has a place in OC Md, its worth a ton now. But he bought it in the early 80's, I think the only way to make a profit is to have bought it 30 years ago. He does not rent it out but every one of the new buyers in the area has to, to afford it. Paying half a mil plus the extras to have a place to go to for a few weeks a year, just does not make sense. He owns his free and clear, still costs him 10 k a year to keep it, his kids are grown now. So the kids use it for probably 2 months a year, so it is worth it to him to keep it.

I did but sold it a few years ago.

Made money then but I don't see how you could make money now with the current costs of ownership.

Glad I did it then. Glad it's gone now.

If/when the market crashes back to reality, I'll pick up another.

My family has a beach condo at Myrtle. Dad bought on the low side but the prices swing wildly depending on the market. It's a rental basically with a realtor with the HOA. It paid for itself, but beyond that the required improvements and maintenance are a pain. We have friends that live on the intercoastal water that enjoy it.

I’ve looked at it as well. Here’s what I see:

If you can pay cash for it, you stand to gain appreciation and some cash return if you rent it. A lot of that will be eaten up with expenses.

HOWEVER…if you own a business, or set it up as a business, then there are cost segregation strategies depreciation and losses that will eliminate your w-2 taxes most likely.

Think of it this way: let’s park 400k in a condo. It might appreciate 3% and be negative cash flow of 24k a year (that you would have put into the stock market). Terrible right?  If you have 250k w-2 income, those losses could wipe out your income tax bill and you still get the appreciation and a house by the beach.


The math is tricky, but unless you have a way to leverage the place against other income to win on taxes, I’d probably just rent not buy.

I live on the beach for 40 years. Yes I loved it there because I knew most of the people and my kids knew all of the other kids. I hated to leave but the boot kalifornia kept on our neck prohibited me retiring there. Sold the house for a large profit and moved to AZ. Couldn't be any happier.
Now the problems. I could spread my arms out and almost touch the house next to me.
During holidays you basically couldn't use the beach due to crowds.
Corrosion was your enemy as it did bad things to any ferrous metal.
Everyone knew what you did all the time due to the proximity of your neighbors.
YMMV.

Good luck.

Every time I've tried to crunch the numbers on getting a secondary beach house or move to the beach the math pretty much works out better to just getting an airbnb or beachfront hotel for a week 2-3 times a year and let someone else deal with the headaches.

@vatopa

LOVE Sandbridge.  We've rented an oceanfront home on the north end for the last few years.

We have a cottage in the mountains.

A few basic RE rules of thumb to evaluate:
- Expected monthly rent should equal at least one percent of the purchase price.
- Half of monthly rent should cover mortgage (or if paid in full, the 27.5 year depreciation)
- STR is a seasonal business.  Use a tool like pricelabs to get realistic seasonal occupancy and pricing estimates.

If the numbers don't pencil out it doesn't work.

If you are going to Airbnb a reliable handyman and cleaner are absolutely vital.

If you are higher income and bumping up against higher tax brackets, a second home can be a useful money pit/tax shelter.

We are happy when ours breaks even.

If you aren't good with taxes you'll need a CPA.

I've occasionally entertained the idea, but there are just too many new places to see and new things to do. One place like that would make me feel like a prisoner of my own property.

The math works out that we can do long vacations in all sorts of places, year after year, for costs that would otherwise be sunk into a second property.

I do, but the HOA is cheap.  

I disagree with HOA on a molecular level, but one good thing is that i know my neighbor isn’t going to have 87 broken down lawnmowers in his front yard.  Keeps the property value stable

I don’t rent mine.  I use it and i let some of my family use it.  I hated using hotels with my dog, so this was the next logical step.

Be very careful about small cost things.  Those small bills add up after a while.  Everything is expensive for beach houses too. Saltwater and salt spray destroys everything it touches.  If you have any questions, just message me.

And then folks like you post photos like that, and my mind wanders wistfully to the idea of having our own place that looks that nice. Marmaduke sure looks content.

A former beachfront owner, stay away from HOA's, condos and time shares.

First thing you need to research, research, research,  find an area. Rent a house or condo and drive the area, is it a destination town or a sleepy seaside town.

The area in NJ we used to own to this day has insane property value increases, so look into past sales so if you don't rent at least the property value is increasing yearly.
Then price insurance and taxes.

My friend currently owns a property in that same town and his property doubled in value in 15 years.
And he has a few long term seasonal renters that make renting a good idea for him.

The house next to me is a rental now.

It was bought  August of 22 by investors as a rental, they resold in February of 23.  Figured they couldn't make it work.

New owner paid 1.1 million for house, put in a pool, new furniture and just yesterday the first renters arrived

I can't see how anyone can invest this much money and expect to turn a profit anytime soon.

I always tell people if you can afford it with depending on rental income go for it.  If not think long and hard.

I have several buddies that own the local real estate rental business, they all live in million dollar houses.??

My folks bought a beach condo for cheap during the Obama recession. Mom  lives there about half the year. Been a crazy good deal for her. But her monthly assessments have gone up. And they occasionally have some sort of special assessment.

Better to rent.

this is exactly what two other people have told me that have beach houses around  Galveston.

We bought a beach house (no HOA) on Lake Huron in 1991.   While we enjoy it and have good memories from there, there is always maintenance.   i don’t need a second house to do work on.    I just spent $55k on roof and windows and siding.       Of course the family members, who don’t do the work, want to keep it in the family.     If I had it to do over again, I’d invest the same money in the stock market and rent vacation properties.     I’ve seen similar stories play out over the years.    A couple buy a vacation property for their young growing family, good time for a while, but when the parents die, the kids ignore the upkeep because they never partook in it and the property deteriorates.

Rent, don’t buy