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Is Investing in Beach Rental Property a Smart Move?

Services for Real Estate Pros with RealEstate.com

There are lots of different reasons to consider investing in beach rental property. Some people wish to have a vacation home that doubles as a rental property, others seek to invest in beach properties for lifestyle reasons or as an eventual residence for their retirement. Here are some guidelines for finding out if investing in beach rental property is a smart move for you.

Examine Your Motivation for Investing in Beach Rental Property

investing in beach rental propertyIf you are looking at beach rental properties purely as an investment vehicle, do the math to be sure that it really meets your need for return on investment and is competitive with other investment vehicles. If you are balancing your interest in investment with lifestyle reasons, then you can be more creative with the equation. For instance, if renting out the property when you’re not using it helps you to fund your summer vacations for 10 years, it may very well be worth the risk and limited return. If you are looking for an investment with a high loan to value ratio, have great credit and can get a superior interest rate, investing in a beach rental property could be a good match your goals.

Consider Your Timeline

Investment rental properties can provide substantial tax savings, but rarely provide immediate returns. If your investment horizon is short, then it’s probably best to avoid beach rentals. If you have a longer timeline, it could end up being a solid long-term investment that may be able to provide income into retirement. If well maintained over a lifetime, investment properties tend to keep or grow their value. The same is not necessarily true for short-term real estate investments.

Calculate Your Costs and Rate of Return on Beach Rental Property

To properly calculate the real rate of return on a beach rental property, it is important to look at the whole picture of costs, interest and your investment timeline. The purchase price, market value and projected rent are important to understand, but there is so much more to take into consideration. The type of loan that will be used to finance the property, the interest rate on the loan, tax benefits such as deductions for travel costs to the location and building depreciation. Closing costs, predicted income, property taxes, maintenance costs, insurance, property management fees, the time that it costs you to manage issues related to the property and the duration of the investment are all important considerations. Try this investment property calculator for a customized rate of return estimate on the property that you are considering.

Every Market is Different - Even for Beach Rentals

When it comes to investing in beach rental properties, location is everything. Before you commit to a property be sure to research it objectively. Here are some factors to take into consideration.

  • Go on a tourism fact-finding mission: Find out how many tourists visit the area each year, how many rooms are rented, the typical cost per room and what the typical in-season occupancy rate is for beach rental properties in the area. You can usually get this information from the local convention and visitors bureau. You may also want to find out how much the local and state tourism bureaus invest in advertising.
  • Get to know the business: Talk to a few local property owners and find out what the season is like, when they make their money and how they market their properties in the off-season. Where are their bookings coming from? Learn as much as you can about the marketing and operations of existing rental operations in the market in which you’d like to buy.
  • Consider property management services: Interview some local property management services to see what the costs of managing and renting your property might be if you’re not within driving distance. This is a great way to get solid information about local rents and the costs of property ownership and management for a given location.

Is Investing in Beach Rental Property Right for You?

Before choosing beach rentals as an investment strategy, first examine your motivations. Do you want to fund your vacations for a lifetime or grow your money quickly? Consider your investment horizon and calculate your costs - including details such as property taxes and management fees. As with any investment, it’s smart to talk to folks who are already renting in the particular market that you’re interested in before you commit to a beach rental as an investment.