The vacation rental industry is very profitable and has been growing at an exponential rate in recent years. With the emergence of vacation rental booking sites such as Airbnb, HomeAway, VRBO, Booking.com, TripAdvisor, Homestay.com, Interhome, and 9flats, people can now easily access short-term rental properties all over the world.
But, Is a Beach House a Good Investment?
According to ipropertymanagement.com, the vacation rental revenue for 2019 was about $57 billion. Therefore, buying a beach house for rental income can be a very lucrative investment strategy for both beginner and experienced real estate investors.
Here are some of the benefits of buying a vacation rental property:
- Rental income – One of the best things about buying a beach house is the potential income you can make by renting out the investment property. With vacation rental property sites such as VRBO and Airbnb, people’s vacation habits have changed. Instead of staying at hotels, more and more people are choosing to stay at vacation homes. The cost per night is much lower than that charged in hotels, but because of the high demand, you can earn a high rental income.
- Property appreciation – Just like any other real estate property, beach house rentals usually experience an increase in appreciation or equity. If you hold onto your vacation home long-term, you will be able to sell it at a much higher price.
- Tax benefits – An owner of a beach house investment property is entitled to substantial tax benefits. You can deduct expenses such as maintenance and repair costs, mortgage interest, marketing expenses, and property management fees. However, tax laws vary from one state to another. Be sure to get familiar with the taxation laws in your state and plan accordingly.
Related: Your Guide to Short-Term Rental Property Tax Deductions
- Personal use – Buying a beach house to rent out means that you can visit the investment property with your family and friends at no cost when it is vacant.
To start looking for and analyzing the best beach houses in your city and neighborhood of choice, click here.
4 Things to Consider Before Buying a Beach House to Rent Out
While short-term vacation rentals come with a wide range of benefits, they can also be very risky. Here are four things you need to consider before taking the plunge:
Choose the right location
Location is the most important consideration when thinking of buying a beach house to rent out. Your choice should not be based on your personal preference, but rather places where travelers would want to stay. Is the investment property located in an area where people visit all through the year? Besides the beach, are there other attractions in the area? Is the house located near amenities such as hospitals and restaurants? How accessible is the beach house? Is the area profitable for Airbnbs? You can answer this question by using a real estate heatmap!
Calculate the cost of owning a beach house
Buying a beach house to rent out means that you will incur expenses such as:
- The mortgage (if applicable)
- Utilities
- Property taxes
- Repairs and maintenance
- Property insurance
- Hospitality taxes
- Marketing fees
- HOA and condo fees
Some of these are one-time costs, while others are ongoing costs. Consider all these expenses (along with the current real estate market conditions) when setting a rate for your rental property. You want to ensure that what you charge will be able to cover your expenses and leave room for profit. Use an Airbnb profit calculator to get expense, rental rate, and cash flow estimates for a beach house investment.
Know the local laws and regulations
Getting familiar with local laws and regulations is an important aspect of learning how to buy a beach house for rental income. Every city and state has laws and regulations governing the vacation rental market. For example, some cities don’t allow short-term rentals in any form or shape. Other areas place a limit on how long guests can stay at your rental property. In most states, you will need a general business license or a short-term rental license before you are allowed to operate a beach house.
Related: Cities with the Least Airbnb Legal Issues
Have a marketing plan
To succeed as a vacation rental owner, people need to know your rental property exists. Besides getting listed on short-term rental sites, you could work with an experienced local real estate agent. You could also consider hiring a professional vacation rental property manager. They will help you set up a reliable marketing plan based on your property and market of choice.
The Best Places for Buying a Beach House in 2020
Here are some of the best places to buy a beach house in 2020.
NOTE: Although Mashvisor’s data points to these locations as some of the most profitable areas for owning a beach house, real estate investors need to research the local laws to ensure that renting out a non-owner occupied property is legal in each city.
1. Hawaii
The Hawaii real estate market is one of the most popular beach destinations in the US. With its diverse scenery, active volcanoes, oceanic surroundings, and warm tropical climate, Hawaii is a popular destination for biologists, surfers, tourists, and volcanologists.
Kihei, HI
- Median property price – $1,359,497
- Airbnb occupancy rate – 86%
- Average daily rate – $223
- Airbnb rental income – $8,067
- Airbnb cash on cash return – 4.7%
- Days on market – 90
Koloa, HI
- Median property price – $936,657
- Airbnb occupancy rate – 76%
- Average daily rate – $296
- Airbnb rental income – $6,508
- Airbnb cash on cash return – 3.7%
- Days on market – 120
Kapolei, HI
- Median property price – $789,488
- Airbnb occupancy rate – 71%
- Average daily rate – $226
- Airbnb rental income – $4,877
- Airbnb cash on cash return – 4.8%
- Days on market – 6
2. Florida
Buying a beach house in Florida is a great real estate investment. Besides its amazing beaches, the Florida housing market is home to Walt Disney World, Universal Studios, Kennedy Space Center, Seaworld Orlando, and Everglades National Park.
Ormond Beach, FL
- Median property price – $401,379
- Airbnb occupancy rate – 49%
- Average daily rate – $169
- Airbnb rental income – $2,328
- Airbnb cash on cash return – 2.6%
- Days on market – 257
Palm Bay, FL
- Median property price – $219,180
- Airbnb occupancy rate – 61%
- Average daily rate – $95
- Airbnb rental income – $2,245
- Airbnb cash on cash return – 4.6%
- Days on market – 1141
Start looking for and analyzing the best beach investment properties in your city and neighborhood of choice.
3. California
California is a populous state that boasts a rich cosmopolitan culture. Some of the major attractions in the state include the Golden Gate Bridge, Yosemite National Park, Alcatraz Island, and Disneyland Park.
Long Beach, CA
- Median property price – $840,939
- Airbnb occupancy rate – 67%
- Average daily rate – $146
- Airbnb rental income – $3,770
- Airbnb cash on cash return – 2.1%
- Days on market – 23
Malibu, CA
- Median property price – $2,140,694
- Average daily rate – $506
- Airbnb occupancy rate – 59%
- Airbnb rental income – $10,363
- Airbnb cash on cash return – 2.9%
- Days on Market – 35
Wondering how to find a beach house rental? Tools such as Mashvisor’s Property Finder and Heatmap Analysis Tool make it easy for you to identify a wide range of profitable vacation rental properties all over the US housing market. You can use metrics such as cash on cash return, cap rate, and Airbnb occupancy rate to analyze the performance of different beach rentals.
To start your 7-day free trial with Mashvisor and subscribe to our services with a 20% discount after, click here.
Related: 6 Insider Tips for Finding Investment Properties
Conclusion
While it is possible to make a good part-time or full-time income by buying a beach house to rent out, there is no guarantee that you will make money. However, you can enhance your chances of making a good return on investment by doing your own due diligence before buying, using the right real estate investment tools, and seeking advice from an experienced local real estate agent.
To learn more about how we will help you make faster and smarter real estate investment decisions, click here.