Beach vacation rentals are hugely popular, especially during warmer weather, so if you’re keen to start a vacation rental business, the thought of buying a beach house and owning your own stretch of sand may have crossed your mind.
Some property investors may buy a beach house close to ocean shores to enjoy with family and friends during the summer and only rent out the property during the winter months. This strategy allows them to earn rental income at a time when the oceanfront house would otherwise stand empty. Others may do the opposite and turn this investment into their main source of income.
Whether you think of your new beach rental as your main or secondary source of income, you need to be well informed to make the best out of your investment. Keep reading to find out where the best places to buy a beach house are in 2023.
Why now is a good time to buy a beach house
The renewed desire to travel has heightened the attractiveness of beaches and open spaces, so beach vacations are more in demand than ever. Meanwhile, the vacation rental market is expected to grow by $62.7 billion between now and 2024, so it is the perfect time to invest in beach property to make money on the side or even to turn your property investment into a full-time job.
Also remember that if you rent a beach vacation home every year for a few weeks during peak season, this may cost you nearly as much or even more than the annual mortgage on a holiday home of your own. What’s more, the rental income you earn during the off-season could help pay off your mortgage.
However, not all beach houses are made equal, and knowing what type of beach house is best suited to your needs as a vacation rental owner, and the best places to buy beach property in the U.S. will help you make the best beach real estate investment.
What to consider when buying a beach house
In this article, we’ll answer some questions you may have about how to buy a shore house and we’ll look at what you can do to make your beach house attractive to potential guests.
We’ll also consider some of the best beach towns to buy a vacation home to inspire you. Of course, other factors such as your budget and where you live are also important factors when choosing the best place to buy a beachfront home.
Define your goals
Why do you want to own a beach house? Do you want to own a spot of heaven near white sand beaches to use during the summer and rent out during the off-peak months? Or, are you thinking of investing in a vacation property to rent out throughout the year?
If the house is for your personal use, you need to love it. However, if it is purely an investment strategy, your personal preferences for the home are arguably less important.
Also, if you only intend to rent out your beach house occasionally or out of season, your financial goals will be different from a vacation rental owner with the sole intention of getting a good return on their investment.
In this case, you’ll have to be strategic when it comes to setting your prices during the spring and summer. Without preparation and a good business plan, it may be difficult to cover the winter months when demand is lower.
On the other hand, the income during the peak season may be more than enough to tide you over the leaner periods.
Also note that travel trends have changed recently, which means more remote workers and families are looking for attractive home-away-from-home options throughout the year. This is not expected to change in the near future.
Do your research before you buy a house close to the beach
As with any significant investment, it is essential to do your research before rushing in. Identify the best place to buy your beach house. Read our list of inspiring beach towns to invest in below as a guide, but bear in mind that location is not the only factor when it comes to making this investment.
Find a real estate agent who specializes in vacation rentals in the area
You want to look for someone who is an expert in this area and whom you can trust completely. A specialist will be able to advise you on the type of property potential guests are usually seeking and the best beach towns to buy a vacation home that guests will love.
Draw up a business plan
The best investment decisions come from doing the groundwork involved in creating a strategic vacation rental business plan – long before you even hand over the deposit or receive the keys. Creating a viable business plan will help you identify risks before you invest, which will, in turn, help you determine the chances your business has of achieving success.
Should I buy a beach house or condo?
Beachfront condos tend to be more affordable than comparable houses in the same location. Keeping the house in a good condition is also usually cheaper and easier, particularly if you are a property manager who lives far away from your investment property.
However, it is also true that single-family houses usually grow in value faster than condos. For example, the median sales price of a condo grew nearly 10% year-over-year in October 2020, according to a report from Redfin, compared to the median sales price of single-family homes which was up more than 15% in the same timeframe.
More recently, in December 2022, U.S. home prices were up 1.2% year-over-year, selling for a median price of $388,100.
However, a condo’s location, condition, and amenities also impact its long-term value and the return on investment from any potential rental income.
How much does a beach house cost?
The average beach house purchase price can be considerably more than a similar house in an inland location, particularly in some of the most popular beach towns.
Remember that mortgage down payments and interest rates for vacation homes, particularly in sought-after towns, tend to be higher too.
For example, a single-family home in Palm Beach County, Florida, at the start of 2022 would have set you back between $526,500 and $826,002.
Condominiums and townhomes in the same area cost between $265,000 in January and $425,484 in the same timeframe, according to Florida Realtors quoted in The Palm Beach Post.
Additional property management costs
Managing a vacation rental entails a lot of work, including marketing the property, managing rental agreements, and ensuring the property is in a good state of repair.
If you are a part-time vacation rental owner, you may need to employ a property manager, which adds to the cost. Advertising your property to potential guests is another possible expense.
A more cost-effective option for short-term rental owners is to use vacation rental software, such as Lodgify, to help manage and grow their businesses.
Also, remember that the furniture and fixings of beach houses often have to be replaced more often than in inland homes due to corrosion because of the salty air.
How to buy a beach house for rental income
For you as the vacation rental owner, what’s even more critical than palm trees or beautiful sunrises, is the capitalization rate (cap rate). The cap rate is the rate of return on your real estate investment.
What is the CAP rate and why is it important for your investment?
CAP rate – short for capitalization rate – is a real estate metric that is calculated by dividing the net operating income of a rental property by the current market value of the property. Although not the only indicator of vacation rental success, it is an important marker for which locations you should invest in.
Find out more about the CAP rate formula and what constitutes a good vacation rental cap rate in our previous post.
The general rule of thumb is that a higher CAP rate equals a better investment, but it could also be riskier. The advice is to hover between 4 and 6% In a very established short-term rental market, a lower CAP rate could still be profitable, though.
When you consider how much it is to buy a beach house, don’t only look at average beach house costs. Also consider hidden costs such as higher insurance rates, mainly because of the risk of flooding. For example, insurance on oceanfront investment property became very expensive on the East Coast, following damage caused by hurricanes.
Understanding the beach house rental tax rates
Also, bear in mind that many beach towns have high taxes because of the higher value of these homes.
In the United States, you won’t need to pay taxes on your income if you rent out your property for no more than 14 days per year and if you use the rental property personally for over 14 days or more, or at least 10% of the total days you would rent it out to guests.
Therefore, if you rent your property for more than 14 days per year, all standard tax laws apply, according to your location of course. Read more about tax implications for short-term rentals in our previous post.
How to finance a beach house
Financing your vacation rental home requires a mortgage. To find out more about mortgage rates and the different types of loans you could apply for as a vacation rental owner, read our post for tips on how to finance your vacation rental home.
Where is the best place to buy an oceanfront property?
Which are the best beach towns for buying a vacation home? This will depend on different factors. If you are looking for the best place to buy a beach condo or house primarily for your own use, you will want to look for a location you love and a home that works best for you and your family from a practical point of view.
If, however, you are looking at the best beach towns to buy a vacation home from a pure investment point of view, you will need to look at lists of beach towns with the highest cap rates.
Bear in mind that managing a property from afar is more complex and expensive, so unless you plan to be near the property, you need to factor in the cost of a property manager for your vacation rental.
When considering the best location, take into account guest experiences during all four seasons. Other important factors include the proximity of an airport, access to public transport, and distance from tourist attractions.
Don’t forget to familiarize yourself with the local vacation rental laws. Some states require a license.
Here are just a few of our favorite beach towns for buying a vacation rental property, chosen from AIRDNA’s list of best cities for Airbnb investment.
Best place to buy a beach house in California
Palm Springs has one of the highest Airbnb rental incomes on a list provided by Mashvisor. It also has a median property price that is considered average within Southern California. As a result of these two factors, this city is considered to be one of the most profitable Airbnb locations for Airbnb beach vacation home rentals. Los Angeles and San Diego also feature prominently on this list.
Best places to buy a beach house in Florida
Kissimmee, Orlando, and Miami Beach also feature on the Mashvisor list for best beach rental investments. Virginia Beach, Virginia, and Myrtle Beach in South Carolina are other good places to invest in Airbnb vacation rentals.
Best place to buy a beach house in Texas
The lesser-known Surfside Beach area in Texas is a good place to consider for vacation rental investments because of its relatively affordable property prices and its quieter beaches. Galveston, Corpus Christi, and Port Arthur are also seen as good spots in Texas to buy a holiday home, according to this list by Filter King.
How to make your beachfront rental property attractive to guests
Here you need only to put yourself in the guest’s position and imagine the amenities and qualities you’d be looking for in a beach house during your holiday. Also, read our post about the best Airbnb interior design trends for inspiration about the types of environments guests love. Which personal touches do you need to add to your property to make your guests feel at home?
Perhaps a nice outside setting for sipping cocktails while watching the sunset, a hammock to relax with a book, or a user-friendly guide with the best nearby beaches and attractions for families.
How to make money with your beach house
The amount of money you can earn with your beach rental depends on many factors, as explained above. These include location, the number of listing sites you use, the condition of your property, and whether you have invested in vacation rental property management software to help you grow your business.
The software allows you to manage your business, grow your direct bookings through your own website, as well as manage bookings on other sites such as Airbnb and Vrbo, with everything synced through a channel manager. Also, read our previous post to find out if beach rentals are a good investment.
Whether you are thinking of purchasing a vacation home to rent out during the winter months or investing in a full-time vacation rental by the sea, there has rarely been a better time to own your own piece of paradise.
