Buying an investment property is a good way to generate wealth, but not all properties are created equal. If you're eager to add a vacation home to your real estate portfolio, you may be considering a lake house.
The upside of a lake house is clear: You can attract guests with incredible views, comfortable lake breezes, and the benefit of instant entertainment. But before you buy a lake house, be aware of the following five possible pitfalls.
1. Your rental income may be limited to just a few months
During the summer, a lake house can be a solid source of rental income; during the rest of the year, less so. While some guests may be willing to pay for those views year-round, the bulk of your bookings are apt to come within the same short time frame, so you'll need to account for that when buying your home, making sure you can cover your costs in the absence of year-round income.
Of course, you may be able to think of creative ways to market your lake house during the off-season -- but that'll require extra effort on your part. Even then, the prices you command will likely be lower than what you get during peak season.
2. You may struggle with access to utilities
In exchange for the spectacular views you'll get by being on a lake, you may struggle to get certain services, like cable and internet. And while you could always pivot and market your property as a digital detox, it may be difficult to attract guests when some of the basic comforts and amenities they'd expect aren't available.
3. Expect your homeowners insurance costs to be higher
A lake house, by nature, has little protection from the elements, so don't be surprised if you have to pay a higher homeowners insurance premium because of that. Furthermore, you may need to purchase flood insurance, an additional expense you'll need to budget for.
4. You may need to spend money on maintenance and insulation
Proximity to the water can make your lake house very cold during the winter months. If you want the option to rent out your home when temperatures drop, be prepared to sink some money into it to ensure that it's adequately insulated. You may also spend more money to maintain that home -- even if you buy a place that already has weather-resistant features.
5. The lake you buy on may be restricted
It's easy to market a lake house as a fun vacation destination. But if your lake has a lot of sporting restrictions, it could hurt your ability to attract guests. Before you purchase a lake house as an investment property, research the rules of that lake. Some lakes prohibit activities like jet skiing or don't allow certain types of boats. Get the facts ahead of time so you don't wind up limiting your booking potential.
The bottom line
A lake house can be a great investment. But before you buy one, make sure you know what you're really getting into. That way, you're more likely to make money rather than lose it.