Investing in Galveston Vacation Rentals

10 Replies

Howdy,

Being investor in Houston/Missouri City area, we love SFH rentals. I also got my interest peaked into owning vacation rental in coastal areas whenever I visit beach. Few years ago, when I visited Galveston I thought about owning one after paying so much for hotel for a night. Later, I never followed through with it. This year we went to Pensacola beach and even checked out few condos to buy but it's too far. Now, an investor approached me to sell his flip property and I started thinking about it again.

I just started researching and learned so much about vacation rentals. I learned about the area, AirDNA and so much. I also found post in BP which is around 3 years old but still had activity last year. I think Patty Debruyne and Timothy Church and few others really gave good insight about that market few years ago. Now the market seems to be one of the best AirBNB markets and still has lots of potential for growth and competition.

I am really strongly thinking about owning few rentals over there and may be help my clients/friends to own few as well depending on how it goes with my investing. While I am still doing my due diligence, if anyone who had invested in the Galveston area in the last year or so, please do share your experience. 

Let's chat @Vijaianand Thirunageswaram -- we had a Galveston STR for about 2 years; sold it last December. We have some good experience. I believe there are a few others on here with some experience as well.


I would sum it as by saying, it can be profitable but it is a good amount of work. And insurance rates will kill your profit unless you buy into a grandfathered flood zone rate. While we have our STR in Wimberley, we sold Galveston one because of a few reasons:

1.  More work that we wanted to put into it.  Beach renters are very hard on a property and when they're spending $2K a week for their once a year vacation, you have to work hard for that 5-star review.

2.  We had a lot of large capex projects coming due on that house that would've killed any profit (replacing windows would be $25K, new deck would be another $15K).  I know these numbers sound high but we've shopped them around and the storm codes and shortage of qualified labor drive a hard market there.

3.  Honestly the hurricanes worry me more and more.   If Ike had come 30 miles west, where we were on Galveston (Pirate's Beach) would've been wiped out.  I know insurance would hopefully help rebuild, but the loss in revenue for what would be 2+ years would be tough to handle.

We bought that place before I discovered BP so I might've handled the purchase differently now that I'm more knowledgeable about planning for capex, etc.  Let me know what else I can provide.

Best of luck!

If I were to do a STR in Galveston, my target market would be refinery contractors. Refinery contractors are my target market of my STRs. There is a refinery in my home town.

Galveston is a great STR location. The City and Chamber of Commerce have done a great job of promoting conferences and events (Triathalons, Dickens, Biker Weekend, etc.) to keep rooms filled in the winter months.

We did great with a property just a block from the Seawall that meant it was actually in an X zone and no flood insurance required. Windstorm is another matter.  I agree the higher end homes and rentals are a different breed than Condos or older home that might be close to the seawall.  East end and West end are two totally different markets.

Don't fall for any ads that say "close to the beach" -everything is close to the beach and it really is block by block whether it's a safe area or not.

I do get off market properties and got few last few months but couldnt able to jump on it due to my financial constraints. In Gavleston it's still scope for vacation rental depends on the location. 

Ironic that there is new activity on this post on the same day a named tropical storm is hitting Galveston.

I own a vacation rental - a condo in Pointe West. It has a tremendous history and has brought in 40-50K gross over the last three years. PW is a fantastic area with the beach club and all of the amenities.

A few notes about vacation properties in Galveston:

1. If you're out of state keep in mind that property taxes in Texas are high, in fact Texas is in the top 5 highest property tax states in the country. So definitely figure that into your analysis. The flip side is property costs are low, much lower than other beach vacation spots like California or Florida.

2. Use a local lender. They understand the landscape the best and can help you best understand the real insurance needs of a condo or beach house (see 3).

3. Don't overpay for the insurance plan. Most insurance brokers for example are going to try to sell you flood as a part of the insurance package. You don't need it. Most Galveston properties are on stilts, high rise condos, a block or two from the beach or back far enough from the beach that flooding is not an issue. If your house or condo floods that means the whole of Galveston island is underwater and it's all going to have to be rebuilt anyway. That said, insurance costs are still higher than other locales, figure $40-50 a month.

4. If you're looking at property managers for a vacation rental let me know. The going rate is 20% and there are multiple companies that offer that. Happy to PM anyone with recommendations. Self-mangers definitely do better but the ones who do best actually live on the island or in south Houston as opposed to remote management.

5. HOA costs vary depending on locale, everything from $200 to $1000/month so pay attention to that in your analysis. I can answer via PM any questions on which condo complexes bring in the best income. And most realtors are happy to provide the rental history for the unit if it has been a STR vacation rental.

6. VRBO and Homeaway are the top sites as opposed to AirBNB for Galveston vacation rentals. Most people list there and get most of their guests from those two. Galveston is very seasonal so most of your income will be March-September and the offseason is pretty slow, so plan your deep cleaning, bug spraying, maintenance, etc in the offseason. Also the salty air tends to be hard on properties so adjust your maintenance up slightly for your calculations.

7. Beware of Spring Breakers and college kids. Most places have a 23 or 25-year-old minimum age requirement and screen guests to weed out the party-goers who will destroy your unit. That solves most all of the problems.

8. There's alot more to do than people think and Houston attractions are just an hour away. Most people vacationing in Galveston are from Houston, then Texas, then the OK-AR-LA region. Very few out of staters beyond that except for some winter snowbirds looking for less expensive places than California or Florida.

You can make money in Galveston as long as you are diligent with the numbers like anywhere else and understand how things work. And hurricanes are just as likely to hit Galveston as they are anywhere else in the Gulf or SE Atlantic. It's part of beach life...

Hope that helps.

In response to point 3, above regarding flood insurance, it isn't true that most properties are far enough from the beach not to need insurance. In fact, behind the Seawall, only the properties near the beach are in low-risk flood zones, while those farther from the beach/Seawall are in higher-risk (more expensive to insure) flood zones. FEMA has a searchable map that can show you which zone a particular property is in. It's true that you can either purchase an elevated house or elevate and existing one, you will still need to obtain an elevation certificate to qualify for lower flood insurance rates. Unfortunately, windstorm is also quite expensive and I haven't found a way to decrease that expense other than the usual deductible/insurance value approaches.

I was mostly referring to the beachfront properties because it's the kind of vacation rentals buyers are usually referring to. And yes Galveston is very area dependent.

For beachfront properties, you typically only need the walls-in insurance. Also, with many of the complexes, the condo complex carries all the flood insurance and has its own insurance that kicks in if the complex itself is damaged. For example Pointe West carries its own $250,000,000 policy.

On windstorm it's sometimes not needed. Most places have windows that are rated up to 100 MPH or higher.

Originally posted by @J Chad Davis :

In response to point 3, above regarding flood insurance, it isn't true that most properties are far enough from the beach not to need insurance. In fact, behind the Seawall, only the properties near the beach are in low-risk flood zones, while those farther from the beach/Seawall are in higher-risk (more expensive to insure) flood zones. FEMA has a searchable map that can show you which zone a particular property is in. It's true that you can either purchase an elevated house or elevate and existing one, you will still need to obtain an elevation certificate to qualify for lower flood insurance rates. Unfortunately, windstorm is also quite expensive and I haven't found a way to decrease that expense other than the usual deductible/insurance value approaches.

 

Hi All

I own 4 sfh in houston and am getting ready to sell one- ideally would like to do 1031 for a str in galveston. minimum 2 bed 1 bath/ prefer 3-2. Prefer condo not sfh. Looking at east beach and Pointe West- I dont need to make a big profit but need to cover costs which can run 18k or so with PW HOA plus TX taxes. Anyone with Pointe West or Islander East or other Condo experience?