A beachfront condominium probably offers the most affordable way to get your own piece of the fun-in-the-sun California lifestyle. Affordable is a relative term when buying a basic condo only steps away from the sand; it requires a starter budget of over $1 million. This $1 million buys you a condo with under 1,000 square feet, which might not even have two bedrooms, in a condominium complex with few amenities.

There are two main types of buyers for beach condominiums: those who want to live at the beach and enjoy the laid-back lifestyle and those who want to make money from the strong tourist trade while having a vacation home to visit a couple weeks a year. The friend or enemy of either residents or investors is the covenants, conditions and restrictions (CC&Rs) of the condominium complex.

Why CC&Rs Are Important

CC&Rs set the rules for the condominium complex. They cover everything from parking to what color your front door can be painted. The rules generally apply to common areas and public spaces but can regulate other aspects of ownership such as operating a home business or whether the condo can be rented out. Residents and investors are often on opposite sides of the debate on rental restrictions.

Full-time residents want a strong community, which means fewer renters and no short-term vacation rentals in the complex. Besides the obvious advantages to the day-to-day living environment, there are financial practicalities. Many lenders do not provide owner-occupied loans to purchasers of a unit in a complex that allows vacation rentals or that exceeds a certain percentage of rentable units within the complex. Lenders may require all purchasers to take out loans as investors. Real estate investor loans carry higher interest rates and often require larger down payments.

Investors who think they can buy a unit and do what they want because they have property rights will be disappointed. When a unit is purchased, the buyer must acknowledge receipt and acceptance of the CC&Rs.

Good News for Investors

Fortunately for investors, CC&Rs only apply to the complex for which they are written. Next door to the complex with rules that heavily favor full-time residents can be a different complex that has a very investor-friendly set of CC&Rs. Many coastal complexes in California embrace the fact that owners are investors who want to rent out units at highly profitable short-term rates. These complexes have no restrictions on how many units can be rentals or the length of the rental terms. Investors should check local regulations, which might be more restrictive than the individual complex's CC&Rs.

Some complexes even have management companies that handle rentals, housekeeping, beach equipment rentals and concierge services. Some require all rentals to be handled by the management company, and some allow owners to handle rentals themselves or use the services of companies such as Airbnb.

Other Considerations

The same delightful ocean breezes and salt spray that make living at the beach so enticing also corrode every surface they contact. The result is homeowners associations (HOA) of beach complexes having high monthly fees to cover current and future maintenance expenses. Prospective condo owners should study the HOA’s finances carefully, to make sure the monthly fees cover not only current needs but also that the reserve fund is large enough to negate the possibility of special assessment for larger projects.

Bottom Line

Potential residents or investors must approach a purchase prepared for the work necessary to negate all the potential pitfalls. A beach condo buyer needs to interview real estate agents to find one experienced in condo sales and knowledgeable regarding local regulations. The buyer should retain an attorney who specializes in reviewing CC&Rs and other HOA documents. A couple hundred dollars invested now can save thousands of dollars in the future. The reward for this effort is a piece of the California Dream.