Is a Beach Rental Property a Good Investment?
In this article, you'll learn the pros and cons of beach rental property investments.
If you have ever gone to the beach or any vacation spot on the coast, you would have noticed many beach rental properties available. And you would have also noticed that the going rate for renting one is generally very high. Often higher than a hotel room (because you get the whole house as opposed to a room). So, if you are thinking about different types of investment strategies, then a beach rental vacation could be just what you are looking for.
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How to make money from a beach rental property
If you are wanting to purchase a beach property for investment purposes, then you will want to make sure that you purchase wisely. Not every property is going to be an instant money maker and there are a lot of variables to consider.
When renting your beach property, you will source renters in a different way that you would with a traditional property. There are a number of booking sites that specialize in renting out vacation properties including beach rentals. These include VRBO, Airbnb, Booking.com, Flip Key and House Trip to name a few. You will need to pay a small fee to use these platforms. However, they are by far the best way to find renters and earn rental income.
What are the benefits of investing in a beach rental property?
There is a reason why there are so many beach vacation rentals available at any one time. Because they are amazing and hold great benefits for investors. There are many reasons why purchasing a beach rental is a good investment, and these are highlighted by Smart BNB as being:
- Extra income. This is the main reason why people will decide to invest in a beach property as opposed to a property in the suburbs. You will be able to rent your property more by making it week-to-week then you will by getting a long-term tenant in. And the more in demand the beach area is (and how close to the actual beach it is), the more people will be willing to pay.
- You can use the property. There is a reason why people travel to the beach for vacation – it is amazing. And by owning a beach rental, you can make the most of it and have yourself and your family stay in it whenever you like.
- Tax incentives. The tax on a rental property is slightly different for that of a standard rental. And there are several different items that you can write off on tax time that are unique to this sort of rental. These include hosting fees, cleaning costs. Supplies (toilet paper etc.), utility costs and insurance.
What are the cons and risks in investing in a beach rental?
While it may seem like a sure-fire way to make a bucketload of money, there are some definite cons in investing in this type of rental property. These are highlighted by Real Wealth Network, and mainly revolve around cost and increased risk.
- Extra management required. There are extra management needs for a beach rental as opposed to a traditional rental. There will be different tenants and families staying in the property week by week, and so the property will need to be cleaned and restocked each time. You will also need to arrange for the drop off and collection of keys for each family. Unless you are physically located near the vacation rental, then you will need to hire a management company to look after this, which is an additional ongoing cost.
- Extra wear and tear. Extra foot traffic means that there will be extra wear and tear. And you can expect your maintenance and repair costs to be higher. There is generally less responsibility felt for people who stay in a vacation rental, as they do not see it as being their own place (as opposed to a tenant living in a long-term rental). unfortunately, you cannot expect vacationers to look after a property as well as a conventional tenant would as there is no attachment to the property.
- Increased risk. Other than the risk of damage by tenants, there is also financial risk. Vacation homes, especially in beach areas, tend to be more sensitive to economic downturns. In economic hardship, vacations are often the first thing that people will give up. Natural disasters which are more common in beach areas (like hurricanes and tidal waves) is also a risk that can never be predicted or planned for.
How to purchase a beach rental property
Before you jump in and purchase the first house you find on the beach, ensure that you check for any restrictions in the area surrounding short term rentals. Millionacres clarifies, stating that some areas and councils do not like too many vacation rentals, and may have strict regulations around it. Some homeowner’s associations (HOAs) have a blanket bad on any short-term rentals. The best place to check is the areas building committee and any local HOAs.
You will also need to get special financing and make it clear that you intend for the property to be a vacation rental upon purchase. A beach rental is considered an investment property, and these will come with higher interest rates and extra conditions with the lender. You may also need to come up with a greater down payment (often 25% or more).
Many people are finding great success in beach rental property investments, and it is clear that it can be a very good long-term venture if it is managed properly. No two beaches are the same, so location is clearly going to be a major decider on the success of a beach rental. If you are willing to put in the hard work ad ongoing management, then there is no reason why a beach vacation rental cannot be a success for you like it has been for so many others.
Charles is the founder of infoSpike.com. His real estate investing experience started in 2004 and he is currently focused on rental property projects. He enjoys learning about real estate investing, personal finance, and marketing. Read more about Charles here.