As a real estate investor, there are plenty of good reasons to buy an investment property. Not only can you use that home to generate rental income, you'll have the potential to build equity and sell it at a profit later on.
If you're going to buy an investment property, you may have your eye on a beach house -- one likely to appeal to families or groups and fairly easy to market. But before you take the plunge on a beach house, here are five things you should know.
1. You may be limited to a single season of income
If you buy a vacation house in Florida, it might manage to generate rental income for much of the year. But if you buy one in New Jersey or Delaware, you may be limited to just a single season of income each year. That may not be enough to cover the costs associated with owning the property.
Before you buy a beach house in an area that experiences all four seasons, do some research to see what rental prices you can command during summer to make sure it's enough to make that purchase worthwhile. You may find you're better off buying a home that's more suited to year-round income -- like a log cabin in the woods, which might peak during ski season and fall foliage but attract spring and summer renters as well.
2. Expect your homeowners insurance to be costly
A home near the ocean is more likely to incur water damage than one miles away, so expect to pay up for your homeowners insurance. Chances are, you'll have mandatory flood insurance, too.
3. Gear up to pay high taxes
Many beach towns have high property taxes, and the closer your home is to the water, the more you should expect to pay. Property taxes also have a tendency to rise over time, even during periods when home values decline, so make sure you can handle those increases or that the local rental market is strong enough to help you handle them.
4. Paying a premium to be right on the beach could be worthwhile
The term "beach house" can be flexible. For some, it means a home with front steps leading right to the sand. For others, it means a short walk from the beach.
While you'll pay a lot more money for the former, it could be worth it. You'll have a much easier time marketing a home that faces the water than finding renters for a home without a view. And because parking can be tricky in beach towns, you don't want to put renters in a situation where they have to drive to the beach and then struggle to store their cars somewhere.
5. Aim for a beach that's more than just sand
Owning a home near the water can make for a rewarding investment. But if you really want to increase your chances of commanding top dollar for your rental, it could pay to buy a beach home in an area where there's an actual boardwalk with food, rides, and entertainment. These types of beaches tend to lure more vacationers than those without attractions, so you may find it's worth paying more for a home in a known destination.
The bottom line
Buying a beach house could be a smart move that pays off in the long run. Just make sure you know what you're getting into before moving forward.