I recently had a conversation with a friend who was visiting the beach from Atlanta. I asked her why she hasn’t considered buying her own place down here. She just replied with “(Sigh…) I wish I could”. I know she can afford it, but I think a lot of people just assume that it is too expensive to own your own little slice of paradise. I don’t think they take the time to look at the numbers. If they did, they would see how affordable it is. And, what a great investment it can be. As someone who personally got caught up in the excitement of the last Real Estate boom, and who lost a lot of money, I now look at cash flow when I am considering an investment. I guess I should insert a disclaimer here. I know too many lawyers already. They are all great wonderful people, but I don’t want to meet another one because of this article. So… I am not giving investment advice, you should consult your accountant on the tax implications of buying investment property. You should also see a doctor and make sure you heart is strong enough, and a marriage counselor to discuss the ramifications that investment property can have on a marriage.
Ok, now let’s look at some numbers. While you are on vacation you notice the condo you are staying in is for sale. They want $400,000. Just for fun call Jeff Moore, the hardest working Realtor on the beach and have him offer them $360,000. They accept the offer. Now your heart stops and stomach drops to your flip flops. Things just got serious. This is why I had you check with your doctor before you came down here. If you decide to go through with this crazy idea, what can you expect? Well, expect to put 20% down, which is $60,000. Debt service on $300K is $18,240 per year. This is based on a 30 year loan at 4.5%. Your taxes will probably run about $3,300. If your HOA dues are $500 per month, that is another $6,000. Normally, HOA fees should cover cable, water, and trash. Let’s say you have to pay electric and you want WIFI. That is another $150 per month or $1,800 per year. So your total annual expenses are $29,340.
A pretty good rule of thumb is that a beach rental will bring in around 10% of its value. According to this, your $360,000 property should bring in around $36,000 per year. So after expenses you should net around $6,000 on your investment. This is pretty easy math. That is a 10% ROI. Now… If you really negotiated a great deal and the property is worth $400,000 you should gross about $40,000 which is a $10,000 yearly profit. I do not know many investments that would pay you $10,000 on a $60,000 initial investment. The kicker is that you get a free beach house to stay in anytime you want. But, don’t plan on staying in your fancy new beach house on any of the high dollar holidays (if you are counting that rental income). This scenario doesn’t take into account tax savings or appreciation. Real Estate definitely does not always increase in value. But based on current market conditions I would say that the market is favorable to increase in the next couple of years.
So, have ever thought you would like to own a house on the beach? I hope this has given you some insight and your wheels are turning. I also hope this article made you feel like it owning a beach house is actually a viable option. Wouldn’t it be nice to look at your significant other and say “Let’s go to OUR beach house this weekend”?
You can. Just call your Local at the beach.
Call Jeff Moore
30A Local Properties
Jeff@FindABeachHouse.com
www.30ALocal.com (850)890-3263
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