Waterfront properties have some characteristics that can be very attractive to investors. For example, waterfront properties in popular vacation destinations often boast high rental rates, and you may be able to use the property yourself when it isn't occupied. However, just like with any other type of investment, there are pros and cons to buying a waterfront investment property, so here's a quick guide to help you get started.
Things to keep in mind before investing in a waterfront property
While a waterfront property can certainly make a good investment, there are some special considerations you need to know about. Here are five in particular that you should keep in mind as you start your home search.
1. Second home vs. investment property
If you're planning to finance your waterfront property, you'll need to decide whether you should pursue financing as a second home or an investment property. And there's a big difference. Second home loans typically have significantly lower interest rates and more flexible qualification standards as compared with investment property loans, but they are only available if you're living in the property at least some of the time. Check out my thorough breakdown on the differences between a second home and investment property if you're not sure which you should pursue.
2. Saltwater issues
There are certain issues that properties near the water face, especially when you're talking about the ocean. Salt air can cause corrosion at a faster rate than you may be used to, so be sure to have the property thoroughly inspected by someone who really knows what to look for with waterfront properties. It's also a smart idea to hire an experienced real estate agent who knows what to be on the lookout for.
3. Rental strategy
Before you buy a waterfront investment property, be sure to formulate a rental strategy. Will the property be located far away from your primary home? Are you going to hire a property manager, or will you self-manage through Airbnb or a similar platform? Will it be a long-term or short-term rental property? (Some popular vacation destinations have restrictions governing short-term rentals.) These are some of the questions to ask yourself before deciding to go through with the purchase of a waterfront property.
4. Don't forget about insurance
If you're buying a waterfront property, you'll probably need to purchase flood insurance. Now, if you have a modern home on stilts, the cost could be quite reasonable. However, with a ground-level waterfront property, the price tag can be astronomical. In addition, you may also need to purchase windstorm insurance (a completely separate policy) if the property is located in a hurricane-prone area. And of course, these specialized types of insurance are in addition to your standard homeowners policy.
5. Condo fees can be high
If your waterfront property is a condo, the good news is that you probably won't have to purchase separate flood and/or windstorm insurance. The bad news is that these costs will likely be included in your condo or homeowners association (HOA) fee, as the association generally purchases policies that cover the entire building. When you add in some of the other costly amenities that waterfront condos might offer, such as resort-style swimming pools and private beaches, it's not uncommon for condo fees to be close to (or even more than) $1,000 per month for waterfront buildings.
The Millionacres bottom line
Buying a waterfront property can certainly be a good investment, but there are some things you need to take into consideration first. By knowing what you're getting into and what to expect, you'll be in a better position to make a smart investment decision.