Economics of Owning a Beach House
The United States offers many different beach house locations to choose from, with 24 states bordering an ocean or the Gulf of Mexico. However, not all beachfront locations are created equal. Each of these states has different tax rates and property values. Certain regions also receive higher volumes of tourists and could prove to be lucrative rental homes.
Upfront costs for beach homes vary by region and by proximity to the water. Parts of Texas, Florida, and Alabama offer great deals on homes that are short distances from the beach. Being directly on the beach with an unobstructed view of the water always fetches a premium to the surrounding market.
Once you've settled on your picturesque beach home, you'll likely need to secure a mortgage. In order to research the best interest rates available it is helpful to use a tool like a mortgage calculator.
Hawaii and the Southeast offer the best year-round climates. Anything along the Atlantic coast up to North Carolina offers warmer waters than anything at equal latitude along the Pacific coast, thanks to the warm Gulf Stream current. In the Northeast, Northwest, and Alaska, colder climates limit the amount of time available to enjoy your beach home. Tourists flock to beaches where the weather and water are warm. A longer warm season makes your beach house more marketable.
Before moving to any new area, review the quality of life and financial risks associated with your purchase. All along the Gulf Coast and portions of the Atlantic Coast, you need to factor the threat of hurricanes into your purchase. With a high risk for hurricanes comes high insurance premiums. In several states, such as Texas and Florida, government-backed policies are sometimes your only option when searching for wind insurance.
Another risk along the beach from hurricanes comes from storm surges. Storm surges count as flood damage and are not covered under a standard homeowners insurance policy. In many cases, your only option for flood insurance is through the National Flood Insurance Program (NFIP). This program has seen substantial rate increases over the past several years, and purchasing flood insurance for property along the beach could be very expensive. The maximum building coverage offered through the NFIP is $250,000. If the replacement value of your home is more, you would be personally responsible for everything over and above that amount.
Each region has different natural disasters and risks that you need to consider when searching for your ideal location.
Just like insurance costs, look into property taxes before signing the contract for your new beach house. These are recurring costs that can add up to large sums of money over time. Hawaii has some of the lowest property tax rates in the country, with a median rate of $1,324 per year. Unlike Hawaii, Florida has no personal income tax and reasonable property tax rates. It is important to look up tax rates in the city and county to which you are looking to move; different cities and counties in the same state may have very different tax rates.
If you are planning on using your beach home for vacations, it is likely to be vacant at different times throughout the year. By renting the home out, you can recoup some or all of the expenses that you normally incur from taxes, insurance and maintenance costs. Good property management companies offer a stress-free way of renting, as they take care of the scheduling, cleaning, and monitoring for the home while you are away. Homes located in warm areas can fetch large premiums during the winter months.
The Bottom Line
You have many different options when selecting the perfect beach home. Consider things such as taxes, insurance, upfront costs and location risks before entering into a contract. By partnering with a property management firm, you may even be able to make a profit.