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Buying a beach house as an investment property?

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Thinking about doing this. My thought is, I would buy a beach house and rent it out for the entire summer. Hopefully the income generated during these 13 weeks would pay for (or come as close as possible to paying for) the annual mortgage + regular expenses. This would give me a free place to stay during the spring and fall (when I really want to be there anyway) and I wouldn't feel any obligation to vacation there during the summer because it would be rented out anyway. I would literally pack all my personal/valuable stuff up at the end of May, not see the house for the entire summer, and then unpack it all at the beginning of September. I think keeping a schedule like that would be much easier than trying to bounce back-and-forth between it being a 2nd home and rental.

 

I figure I would be out of pocket for the down-payment and all of the "unforeseen expenses" (of which Im sure there will be plenty), but at the end of the mortgage, Id own it. My primary house is already paid off and I dont anticipate any issues with financing. 

 

Obviously this isnt a unique idea. Would love to hear some feedback from those that have done it or know someone that has.

 

Thanks!  :howdy:

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From what I can tell about your location, I would point out that if you plan to sell the house eventually, just know you would have to list the property as your primary residence for at least 2 years out of the 5 years prior to selling to avoid tax consequences. If you don't list it as your primary residence you will be subject to capital gains tax at the time of sale.

 

If you are renting it up until the time of sale, it can't be your primary residence while renting, even if the rental period is seasonal. If you don't plan to sell for a while then there's no tax worries at the time of sale, but the rental income is obviously still taxable.

 

I had a similar plan once- I live in CT and once I considered the property taxes on a beach house it became very difficult to see the rental income covering the monthly cost of the property with insurance, etc factored in. If you think you can do it, it sounds like a great plan especially if you are able to use it as a fishing headquarters during the productive months!

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Posted (edited) · Report post

Yes, a lot of people do this successfully. As long as it's a desirable location and a clean house, you should be able to pay for most of the expenses with the summer rent. It's more about being able to afford the initial investment and finding a desirable location that won't kill you on property taxes...beach houses aren't cheap.

Edited by C.Robin

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Posted (edited) · Report post

A friend of mine bought a piece of land in O.G. maybe 35 years ago. Not on the beach but still a shore town.  Built  himself a four bedroom, two full bath, Cape home.

Rented it out on a yearly lease, and made enough money to pay it off and buy an actual shore home on the west side of Barnegat Bay for himself.

Even year lease renters are a toss up. Summer renters can be worse, and so it goes.

I met this guy because his last renter at the time ten years ago had wrecked the place. He hired me to fix it all. My ol' lady has a bunch of rentals around here. But she rents to section 8's, so I'm constantly fixing crap. I hate renters.

Take that all just for what it is, lol. 

 

Edited by Ben Lippen

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1 hour ago, Sir Defyable said:

From what I can tell about your location, I would point out that if you plan to sell the house eventually, just know you would have to list the property as your primary residence for at least 2 years out of the 5 years prior to selling to avoid tax consequences.

 

If you think you can do it, it sounds like a great plan especially if you are able to use it as a fishing headquarters during the productive months!

No plans to sell the primary house (kids would kill me) and I assume it be the same with the investment property.

 

That's the plan!

 

1 hour ago, C.Robin said:

Yes, a lot of people do this successfully. As long as it's a desirable location and a clean house, you should be able to pay for most of the expenses with the summer rent. It's more about being able to afford the initial investment and finding a desirable location that won't kill you on property taxes...beach houses aren't cheap.

Thanks, I honestly didn't expect much feedback on this. :)

 

55 mins ago, Ben Lippen said:

I hate renters. 

 

This definitely seems to be the biggest complaint from people who do this. Followed closely by I hate PM companies. Im expecting the worst from both.

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5 mins ago, DZ said:

Check out your flood plain and the history of flooding.

Yer bank and/or mortgage insurance will let you know about that, lol. 

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If you can afford to pay the mortgage if the rental does poorly then it might be a good idea. I've thought of doing this before but it seems to risky for me in my position. If you can do it, more power to you. Any SOL discount?

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36 mins ago, Reed422 said:

If you can afford to pay the mortgage if the rental does poorly then it might be a good idea. I've thought of doing this before but it seems to risky for me in my position. If you can do it, more power to you. Any SOL discount?

^^^^

Very important. I bought a condo in Florida several years ago, not for renting, using it in the Winter. Since then the A/C and the kitchen appliances had to be replaced. So don't forget about things that have to be replaced. I am glad I bought it and enjoy spending the Winters there and the value has gone up about forty percent. I hit a home run on this one. 

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I have year round renters in a barrier island beach house, ocean block - very desirable, I don't want to deal with summer renters even though it may be more money in my pocket.  Hopefully putting this up for sale in 18 months - how much do you want to pay?  For taxes, I declare income from the rent, deduct expenses/capital purchases/property taxes/etc, and depreciate the house.  Talk to your accountant.  How will you advertise the rental; realtor, AirBnB, VRBO?  Realtor/property manager gets a cut.  Who cleans between renters?  You buying a fully furnished house or buying furniture?  Good luck     

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You mention your primary residence is paid off. Do you have a home equity loan?  You could get one rather quickly for 50% of the value of your home.  No closing costs or any fees. Also having it could give you buying power. Knowing you won't have to wait for loan approval.  So many deals fall through because buyers get rejected for a mortgage.  Good luck. 

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Buy sooner rather than later, money is super cheap right now. I put my place in Florida on the market last week and the buyers are frothing. Three showings today alone for an acre on the water with a 4/3 and 150' private dock into the bay. Thought long and hard about renting it out (VRBO calculator was $83,000 a year as a vacation rental) but I decided that the rental income estimate was a hard sell on their part. I ran the numbers and I feel the profits would be better served closer to home on other types of rental properties and developments. I always follow Warren Buffet's rule of only investing in things you understand completely.

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4 hours ago, J Wagen said:

^^^^

Very important. I bought a condo in Florida several years ago, not for renting, using it in the Winter. Since then the A/C and the kitchen appliances had to be replaced. So don't forget about things that have to be replaced. I am glad I bought it and enjoy spending the Winters there and the value has gone up about forty percent. I hit a home run on this one. 

Did about the same except Mobile home and we own the property under it. Less than1,500$  a year in maintains expenses a year , oh hell no it is not for rent!

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I live on the OBX.  I have a carpet/tile/furniture cleaning business that also does water damage work.  90% of our work is from weekly rental homes.  Expect unforeseen loss of rental income and expenses. Stuff will get broken, stolen etc.  Salt air/winds do a number on heat pumps, Paint and roofs.  Hurricanes/water damage cause loss of rental income.  Septic/flooring/furniture can take a beating due to numbers of people in the house.  Weekly house cleaning/pool and hot tub cleaning/landscaping adds up.  High electric bills - renters set thermostat to cool at 62 degrees and leave all windows open. HVAC filter changes/lightbulb replacement/ small maintenance jobs all cost $.  Winterizing the house, etc. If you go into it as a business your mindset will be a lot better. If you think of it as your home, you will cry when something happens.  I meet a lot of owners in the off-season who come down and do nothing but work for an entire week getting their house ready to rent through the summer.  I honestly have no idea about the financials but this is a lot of what you can expect.

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