How-to's in buying 1st beachfront property

21 Replies

Hi fellow BPs!

I'm seeking advice from the astute masses on buying vacation properties. I've been a civilian employee within the armed forces for 5 years within the Midwest. Although a lovely area, I've been reluctant to invest in a SFR or an investment property as there is a huge likelihood I will relocate to DC and I do not wish to deal with all the headaches of being an out of state owner in the rust belt. But I do have a great interest in acquiring a property within the Gulf Coast Alabama region.

Over the years I've made connections with some realtors in the area and recently was introduced to a few beachfront properties within the $170-$240K price range. These properties tout a good cash flow history (although I will need to analyze this further) and is within my desire price point; however,  I have no clue how to finance a property like this. 

My hope is to gain some insight as to what financing options are out there for this unique situation. I'm open to suggestions AND critique as well so all ears!

Originally posted by @Victor Warnsley:

Hi fellow BPs!

But I do have a great interest in acquiring a property within the Gulf Coast Alabama region.

Over the years I've made connections with some realtors in the area and recently was introduced to a few beachfront properties within the $170-$240K price range. These properties tout a good cash flow history (although I will need to analyze this further) and is within my desire price point; however,  I have no clue how to finance a property like this. 

My hope is to gain some insight as to what financing options are out there for this unique situation. I'm open to suggestions AND critique as well so all ears!

You will need to finance it as an investment property.  Since you won't have traditional leases you will need to qualify on the basis of your income.  

They key to your success will likely be property management.  You might start there, find a good established company.  They might be able to refer you directly to an owner looking to sell, or they might help with a sanity check on a property you would want to buy(since they make money when you make money).

@Victor Warnsley

Victor, 

I have spent 15 years in the Army myself so thank you for your service.  If you are relocating possible to DC I would look for something on the east coast,Everything from DC is a hr flight or less. Buying ocean front or and water front is normally not cheap.  So make sure your numbers are very tight. Also management is usually two to three times more. I would also ask how many non performing mths the unit or home has. Any other questions be happy to help out.

Originally posted by @Jesse T. :
Originally posted by @Victor Warnsley:

Hi fellow BPs!

But I do have a great interest in acquiring a property within the Gulf Coast Alabama region.

Over the years I've made connections with some realtors in the area and recently was introduced to a few beachfront properties within the $170-$240K price range. These properties tout a good cash flow history (although I will need to analyze this further) and is within my desire price point; however,  I have no clue how to finance a property like this. 

My hope is to gain some insight as to what financing options are out there for this unique situation. I'm open to suggestions AND critique as well so all ears!

You will need to finance it as an investment property.  Since you won't have traditional leases you will need to qualify on the basis of your income.  

They key to your success will likely be property management.  You might start there, find a good established company.  They might be able to refer you directly to an owner looking to sell, or they might help with a sanity check on a property you would want to buy(since they make money when you make money).

Thanks for the advice! A couple questions- An investment property is normally funded at 80% LTV, correct? Would it be a better strategy to obtain it under an LLC and then finance it as a commercial loan or go the good ole' fashion way of financing it under my own name?

A lot of the big name players (Wyndam for example) now manage most of the condos and beach houses in the area I'm targeting so I think that might be my best route.

Originally posted by @Victor Warnsley:
Originally posted by @Jesse T.:
Originally posted by @Victor Warnsley:

Hi fellow BPs!

But I do have a great interest in acquiring a property within the Gulf Coast Alabama region.

Over the years I've made connections with some realtors in the area and recently was introduced to a few beachfront properties within the $170-$240K price range. These properties tout a good cash flow history (although I will need to analyze this further) and is within my desire price point; however,  I have no clue how to finance a property like this. 

My hope is to gain some insight as to what financing options are out there for this unique situation. I'm open to suggestions AND critique as well so all ears!

You will need to finance it as an investment property.  Since you won't have traditional leases you will need to qualify on the basis of your income.  

They key to your success will likely be property management.  You might start there, find a good established company.  They might be able to refer you directly to an owner looking to sell, or they might help with a sanity check on a property you would want to buy(since they make money when you make money).

Thanks for the advice! A couple questions- An investment property is normally funded at 80% LTV, correct? Would it be a better strategy to obtain it under an LLC and then finance it as a commercial loan or go the good ole' fashion way of financing it under my own name?

A lot of the big name players (Wyndam for example) now manage most of the condos and beach houses in the area I'm targeting so I think that might be my best route.

I think it is generally 75% LTV for investment properties.

Look really closely at the fees with a condo.  You probably will have the condo fees, the listing/booking fee and a management fee, not to mention vacancies and the normal costs of owning a property.  You will need a lot higher gross income to cover them for a vacation rental.

Originally posted by @Sydney Chase:

@Victor Warnsley

Victor, 

I have spent 15 years in the Army myself so thank you for your service.  If you are relocating possible to DC I would look for something on the east coast,Everything from DC is a hr flight or less. Buying ocean front or and water front is normally not cheap.  So make sure your numbers are very tight. Also management is usually two to three times more. I would also ask how many non performing mths the unit or home has. Any other questions be happy to help out.

 Thanks for the insight and thank you for your service! I've seen some really nice, affordable beach condos in the Myrtle Beach area, but I've heard that Horry County property tax for non-residents is atrocious. The Gulf Coast AL area seems to be a good area as it is closer to my family in MS, but I'm open to other locations. I'm in no rush to buy, but I'm definitely making sure that I do my due diligence.

Originally posted by @Victor Warnsley:
Originally posted by @Jesse T.:
Originally posted by @Victor Warnsley:

Hi fellow BPs!

But I do have a great interest in acquiring a property within the Gulf Coast Alabama region.

Over the years I've made connections with some realtors in the area and recently was introduced to a few beachfront properties within the $170-$240K price range. These properties tout a good cash flow history (although I will need to analyze this further) and is within my desire price point; however,  I have no clue how to finance a property like this. 

My hope is to gain some insight as to what financing options are out there for this unique situation. I'm open to suggestions AND critique as well so all ears!

You will need to finance it as an investment property.  Since you won't have traditional leases you will need to qualify on the basis of your income.  

They key to your success will likely be property management.  You might start there, find a good established company.  They might be able to refer you directly to an owner looking to sell, or they might help with a sanity check on a property you would want to buy(since they make money when you make money).

Thanks for the advice! A couple questions- An investment property is normally funded at 80% LTV, correct? Would it be a better strategy to obtain it under an LLC and then finance it as a commercial loan or go the good ole' fashion way of financing it under my own name?

A lot of the big name players (Wyndam for example) now manage most of the condos and beach houses in the area I'm targeting so I think that might be my best route.

 Hey Victor,

Good for you. This is a huge accomplishment! I think it was mentioned before, but for an investment property you will need to put down at least 25%. Property Management will be a huge factor and will call for a more in-depth group than the normal PM's. Vacation rentals tend to have high turnover, which requires more frequent inspections, cleaning, tenant placement, etc. If buying a condo, be sure to read up on the HOA regulations pertaining to renters. I spent a lot of time researching in Palm Springs, CA and came across a lot of HOA communities that force renters to stay a minimum of 1 month.

Furthering on what I said earlier about Vacation Rental Property Management, they tend to charge a lot higher than your usual PM's.  I had a quote in Palm Springs as high as 25% of annual rent!  For that rate, it might be a better solution to find a steady, long-term renter and a cheaper (but still good!) PM.  Best of luck to you, feel free to give me a shout if you have any questions and I'll do my best to help you out!

-Matt

Thanks for the information!!

We have done a lot of investing on the Alabama and NW Florida Gulf Coasts. This is a good market right now, as we have had record rental numbers for several years in a row. In this area, you will need at least 25% down. As others have said, be mindful of condo association fees and management fees. Make sure you are on the Gulf and not across the street. Good luck.

Make sure you have good insurance.  We have had a relatively calm few years, but the gulf coast is prone to hurricanes.

@Victor Warnsley

For your financing, check both the residential and commercial options. They each have their own advantages and disadvantages.

If this will be one of your first four properties, you can still take advantage of the Government sponsored mortgages from Fannie and Freddie. You may still want to put 20% down to avoid PMI and to put more margin in your cashflow numbers. Getting the better rate from here instead of a commercial mortgage will make a large difference in your bottom line.

Once you used those four, then step into the commercial loans where you will need 25% down or so, plus usually a slightly higher rate.

Of course, your rate and terms will vary based on your specific circumstances.

Originally posted by @Matt Juels :
Originally posted by @Victor Warnsley:
Originally posted by @Jesse T.:
Originally posted by @Victor Warnsley:

Hi fellow BPs!

But I do have a great interest in acquiring a property within the Gulf Coast Alabama region.

Over the years I've made connections with some realtors in the area and recently was introduced to a few beachfront properties within the $170-$240K price range. These properties tout a good cash flow history (although I will need to analyze this further) and is within my desire price point; however,  I have no clue how to finance a property like this. 

My hope is to gain some insight as to what financing options are out there for this unique situation. I'm open to suggestions AND critique as well so all ears!

You will need to finance it as an investment property.  Since you won't have traditional leases you will need to qualify on the basis of your income.  

They key to your success will likely be property management.  You might start there, find a good established company.  They might be able to refer you directly to an owner looking to sell, or they might help with a sanity check on a property you would want to buy(since they make money when you make money).

Thanks for the advice! A couple questions- An investment property is normally funded at 80% LTV, correct? Would it be a better strategy to obtain it under an LLC and then finance it as a commercial loan or go the good ole' fashion way of financing it under my own name?

A lot of the big name players (Wyndam for example) now manage most of the condos and beach houses in the area I'm targeting so I think that might be my best route.

 Hey Victor,

Good for you. This is a huge accomplishment! I think it was mentioned before, but for an investment property you will need to put down at least 25%. Property Management will be a huge factor and will call for a more in-depth group than the normal PM's. Vacation rentals tend to have high turnover, which requires more frequent inspections, cleaning, tenant placement, etc. If buying a condo, be sure to read up on the HOA regulations pertaining to renters. I spent a lot of time researching in Palm Springs, CA and came across a lot of HOA communities that force renters to stay a minimum of 1 month.

Furthering on what I said earlier about Vacation Rental Property Management, they tend to charge a lot higher than your usual PM's.  I had a quote in Palm Springs as high as 25% of annual rent!  For that rate, it might be a better solution to find a steady, long-term renter and a cheaper (but still good!) PM.  Best of luck to you, feel free to give me a shout if you have any questions and I'll do my best to help you out!

-Matt

 Thanks for your insight! 

Originally posted by @Darrin Carey :

@Victor Warnsley

For your financing, check both the residential and commercial options. They each have their own advantages and disadvantages.

If this will be one of your first four properties, you can still take advantage of the Government sponsored mortgages from Fannie and Freddie. You may still want to put 20% down to avoid PMI and to put more margin in your cashflow numbers. Getting the better rate from here instead of a commercial mortgage will make a large difference in your bottom line.

Once you used those four, then step into the commercial loans where you will need 25% down or so, plus usually a slightly higher rate.

Of course, your rate and terms will vary based on your specific circumstances.

Thanks Darrin! This would one of my first four so I think there is a great opportunity in attaining one. But, in your opinion is it sound investment strategy to work within the current market I'm in or pursue a leisure property?

@Victor Warnsley

It's amazing how the reality of owning investment property differs from the theory of real estate investing. Learning those lessons locally, when you can reach out and touch your investment, deal with local people, not take time off work, etc has tremendous value, far beyond the initial dollars invested.

Because of that, I'm personally a big fan of investing in your backyard first, then expanding to other areas when you have some experience with everything involved. However, it needs to make sense too. 

Obviously Dayton does not have a booming vacation rental market, but it does have a great rental market. A lot of out state people invest here because they cannot get positive cashflow where they live, so it makes sense for them to buy rentals here. 

If you ONLY want to do vacation rentals, then you need to invest in an area where they are in high demand. If you want to invest in real estate, with vacation rentals as part of it, I'd start in your backyard first.

If you are looking for vacation rentals then Ohio isnt the best location...Florida is a good spot for sure...I know that the Florida Panhandle, Tampa, Orlando, & Miami are good spots for that....

Originally posted by @Bryan C. :

If you are looking for vacation rentals then Ohio isnt the best location...Florida is a good spot for sure...I know that the Florida Panhandle, Tampa, Orlando, & Miami are good spots for that....

Thanks! The original question was based on how to finance a condo nearer to the Alabama gulf coast. I segue to the Ohio market as a general question since Darrin and I are members of the local REIA organization in Dayton.

Nice well the Orange Beach or Foley area are worth trying to get into if you want Alabama...

@Victor Warnsley,

    I am certainly no expert at buying vacation properties so please take what I have to say with a grain of salt.

I have recently been doing research on this very topic and in the same area that you have been considering. I have a college friend who happens to run a vacation property management company in the Gulf Shores and Orange Beach areas. I have been picking his brain while doing my research to get a better idea of what to look for and what to expect. Vacation properties are much more complicated, in my opinion, than SFR when it comes to trying to analyze them. There are a lot of assumptions that have to made. They are educated assumption, assuming you have the right information, but assumptions none-the-less.

With vacation properties you have to consider the price, the financing, the maintenance, and the carrying costs. You are responsible for electricity, water, gas, phone service, cable, furniture, HOA/Condo fees, and most importantly ASSESSMENTS. None of these, or very rarely, are factors in SFR properties. Additionally, vacation properties are rented daily/weekly and can be very susceptible economic fluctuations.

When looking at condos, you have to keep the HOA/Dues in mind. An older condo will more-than-likely have a higher monthly fee than a newer condo which has been built to newer codes and thus is cheaper to insure for the condo complex. Amenities will need to be factored in because families will want to have access to pools, parking, etc. while they are staying in your property. Elevators will also be important for your rental considerations. It can be the difference between cutting out a large segment of potential renters (i.e.: eldery/retired folks, people who don't want to walk up a bunch of stairs, etc.) The amenities can make or break your rental if you do not keep that in mind.

Management is one of the biggest factors that you have to consider also. The management fees will be higher than a SFR due to the daily/weekly turnover. The management company also will probably manage many other units in the same complex which means you will need to make sure that the management company is one who will treat you fair and not push renters toward other units which are owned by someone in the company or someone who owns multiple condos that are managed by that management company.

    Another thing that you have to look at are what properties are renting well and what properties may not be. For example, in one area there may be an abundance of 3/2 condos for rent and therefore bring in less rent versus cost than a 2/2 or 2/1 which are less abundant and have a higher demand due to daily/weekly rate for families. The other could be the case also where a 3/2 is a better rental than a 2/2 or 2/1. You also need to be sure to buy what other people want rather than what you want. Being across the street from the beach or on a canal/river/lagoon may be fine for you but the potential renters will want to be on the beach or facing the beach. The things is the properties may be the same purchase price and get the same rent but the beach front property rents more frequently than the other. You also have to keep in mind that the rental amount changes with the seasons and your expenses need to be covered during the high rent season. That way everything else is your profit or covers the maintenance. "Profit" seems to be very hard to achieve when buying a vacation property unless you find one that is deeply discounted or you put a large amount down on the property and have very good financing in place.

I am not saying that vacation properties are not profitable and should not be considered. I am just saying that there are many more factors which need to be considered before buying a vacation property as an investment. If you are looking for one for you to use periodically and rent out to cover most of the expenses then the factors are different. If looking for this property strictly as an investment, then it may be better to get some experience with a/some SFR before jumping in to vacation properties.

Originally posted by @Russell Norgren :

@Victor Warnsley,

    I am certainly no expert at buying vacation properties so please take what I have to say with a grain of salt.

I have recently been doing research on this very topic and in the same area that you have been considering. I have a college friend who happens to run a vacation property management company in the Gulf Shores and Orange Beach areas. I have been picking his brain while doing my research to get a better idea of what to look for and what to expect. Vacation properties are much more complicated, in my opinion, than SFR when it comes to trying to analyze them. There are a lot of assumptions that have to made. They are educated assumption, assuming you have the right information, but assumptions none-the-less.

With vacation properties you have to consider the price, the financing, the maintenance, and the carrying costs. You are responsible for electricity, water, gas, phone service, cable, furniture, HOA/Condo fees, and most importantly ASSESSMENTS. None of these, or very rarely, are factors in SFR properties. Additionally, vacation properties are rented daily/weekly and can be very susceptible economic fluctuations.

When looking at condos, you have to keep the HOA/Dues in mind. An older condo will more-than-likely have a higher monthly fee than a newer condo which has been built to newer codes and thus is cheaper to insure for the condo complex. Amenities will need to be factored in because families will want to have access to pools, parking, etc. while they are staying in your property. Elevators will also be important for your rental considerations. It can be the difference between cutting out a large segment of potential renters (i.e.: eldery/retired folks, people who don't want to walk up a bunch of stairs, etc.) The amenities can make or break your rental if you do not keep that in mind.

Management is one of the biggest factors that you have to consider also. The management fees will be higher than a SFR due to the daily/weekly turnover. The management company also will probably manage many other units in the same complex which means you will need to make sure that the management company is one who will treat you fair and not push renters toward other units which are owned by someone in the company or someone who owns multiple condos that are managed by that management company.

    Another thing that you have to look at are what properties are renting well and what properties may not be. For example, in one area there may be an abundance of 3/2 condos for rent and therefore bring in less rent versus cost than a 2/2 or 2/1 which are less abundant and have a higher demand due to daily/weekly rate for families. The other could be the case also where a 3/2 is a better rental than a 2/2 or 2/1. You also need to be sure to buy what other people want rather than what you want. Being across the street from the beach or on a canal/river/lagoon may be fine for you but the potential renters will want to be on the beach or facing the beach. The things is the properties may be the same purchase price and get the same rent but the beach front property rents more frequently than the other. You also have to keep in mind that the rental amount changes with the seasons and your expenses need to be covered during the high rent season. That way everything else is your profit or covers the maintenance. "Profit" seems to be very hard to achieve when buying a vacation property unless you find one that is deeply discounted or you put a large amount down on the property and have very good financing in place.

I am not saying that vacation properties are not profitable and should not be considered. I am just saying that there are many more factors which need to be considered before buying a vacation property as an investment. If you are looking for one for you to use periodically and rent out to cover most of the expenses then the factors are different. If looking for this property strictly as an investment, then it may be better to get some experience with a/some SFR before jumping in to vacation properties.

 Russell thanks for the in-depth insight! Since you are familiar with the area, I'm sure you agree that there is no place like the Alabama Gulf Coast. My premise for purchasing a vacation property is more so my family and I can periodically use the residence while offsetting the costs through year-round renting. Not that profit is important to me, but I would be satisfied knowing that the rental income is covering most aspects of the ownership costs. 

I completely overlooked the assessments Baldwin County is so well known for! Thanks again for putting it all in perspective! 

I am more than happy to help, just know that this is my opinion and not from experience. If you are looking for something for you and your family then go for it and enjoy. Just make sure you go in to it knowing that you will most likely have to still put your own money in to the deal. AS for me, I am trying to determine if it is worth spending the money on a condo for the same reason you are or to keep putting money back to buy more SFR and then use the income from them to buy the condo. I just don't want to wait so long to buy one that I miss the opportunity to enjoy it with the family before the kids grow up. Good luck to you and if you need anything then feel free to message me.

Originally posted by @Victor Warnsley:
Originally posted by @Sydney Chase:

@Victor Warnsley

Victor, 

I have spent 15 years in the Army myself so thank you for your service.  If you are relocating possible to DC I would look for something on the east coast,Everything from DC is a hr flight or less. Buying ocean front or and water front is normally not cheap.  So make sure your numbers are very tight. Also management is usually two to three times more. I would also ask how many non performing mths the unit or home has. Any other questions be happy to help out.

 Thanks for the insight and thank you for your service! I've seen some really nice, affordable beach condos in the Myrtle Beach area, but I've heard that Horry County property tax for non-residents is atrocious. The Gulf Coast AL area seems to be a good area as it is closer to my family in MS, but I'm open to other locations. I'm in no rush to buy, but I'm definitely making sure that I do my due diligence.

 The taxes are not that bad, I have been here 4 years buying. 

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