Choosing Your Dream Beach Vacation Homes

The prices for beach vacation homes are dropping these days, like most real estate across the country. People are drawn to the water and the ocean, so there's a good chance that a beach vacation home will appreciate in value over the long-term. Nevertheless, buying a beach vacation home is not the same as buying an inland vacation home.

If you have never bought a property on the beach before, or if you don't know the area, one of the best things to do is to team up with a good real estate agent that knows the area. You'll want someone with several years of experience in the location you're considering, preferably someone who knows the unique nature of waterfront real estate.

Evaluating the location
The first question to ask is how far you're willing to travel to get to your beach home. Think about how many times a year you would use your beach vacation home. Can you handle the cost for each visit?

Is it important for you to rent the beach vacation home part of the year? Make sure you understand the tax pitfalls of renting part time and enjoying it the other time.

It's not a bad idea to find a comfortable hotel, condo, or home to rent for a period of time, on and off during the different seasonal periods prior to purchasing the home. This way, you can experience the day to day traffic and life around the area.

Renting your beach vacation home
Ask your lender if you are allowed to rent the home when you're not there. If you use a vacation home mortgage, also known as a second home mortgage, to buy the property, there may be restrictions on your ability to rent. Vacation home mortgages typically have a lower interest rate than an investment loan, but an investment loan will give you complete flexibility in how you use the property. If you opt for a vacation home mortgage, be sure to get the rental rules in writing well before the signing to avoid any unpleasant surprises.

If the property has a homeowners' association, make sure you know the rules, if any, for renting your home. You should also check with the local zoning authorities to see how frequent rental turnover can be (daily, weekly, short- and long-term leasing). As a general rule, you'll find few rental restrictions in popular resort areas during the summer months and the shoulder seasons of late spring and early autumn. Properties located on islands or in gated or secluded communities are likely to have more restrictions on rentals.

The pros of owning a beach vacation home
One benefit for having a beach vacation home is being able to walk right on the beach. There is nothing more Zen-like than gazing at a sunrise or a sunset on the mesmerizing waters while listening to the sounds of the natural sea. The sense of calmness one experiences from living on the water will due do wonders to help lower your stress level.

Waterfront homes typically have higher appraised values. The investment in a vacation beach home will likely hold its value better than homes that are inland. To choose a home that's more likely to retain its value, look in areas that are already well-developed and popular. Beaches with derelict waterfronts or those with heavy investments in new condominiums won't hold their value as well.

You'll have a guaranteed vacation destination each year, as well as a cozy getaway that you can use throughout the year. Some people buy a beach vacation home with an eye toward retirement, while others enjoy the additional income that comes from rentals.

The cons of owning a beach vacation home
You'll need flood insurance through the National Flood Insurance Program. Standard homeowners' policies won't provide flood coverage for waterfront property.

You'll own a second home and all the maintenance costs that come with any home. Salt air takes a heavy toll on exteriors, and strong winds mean a shorter lifespan for roofing, so you'll have higher maintenance costs than you would for an inland home.

Beaches carry inherent risks. Red tide, aggressive sea life or shipping accidents could render the beach unusable for a period of time. This not only affects your ability to enjoy the beach, but it could also cause renters to cancel.

Hurricanes and strong ocean storms could cause flooding or severe structural damage. In some cases you may be prevented from rebuilding a property that's been destroyed, if severe beach erosion or damage to a tidal wall leaves your property on a flood plain.

Some locations are undesirable in the offseason. If all the restaurants and shops close down at summer's end, you could wind up feeling too isolated and have a hard time attracting renters.

Should you rent your beach vacation home?
Renting your home when you're not using it is a good way to generate income. Combine that with the tax deductions that come with being a landlord, and you could possibly have your beach vacation home pay for itself. Read IRS Publication 925 - Passive Activities and At-Risk Rules to learn about the tax rules for rentals.

You'll need to find renters and provide them with keys to your property, which means trips back and forth to your vacation home. You may be able to find a local real estate agency that can handle these things for you. Either way, you'll need to share your furnishings and your home with strangers, which can lead to things getting dirty or damaged.

Not surprisingly, the peak rental season is also the time of year when you're most likely to want to use the home. That could limit your flexibility in scheduling your family's vacation.

If you'd like to rent your beach home, it's a good idea to talk to other owners in your area who also rent their properties. Find out the rental rates they charge and ask for referrals to local real estate agencies. Your fellow homeowners will be a valuable resource to help you navigate the local market.