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Can You Afford Your Own Beach Home?
Do you love your San Diego vacations and long for a second home at the beach? Buy that second home and let it help pay for itself as a vacation rental, suggests Will Holland, president of San Diego Sunset Vacation Rentals and Real Estate.
“Beach area homes are in high demand, so they don’t get hit with the down side of the real estate market to the degree other segments of the market are affected,” says Holland, who bought his first beach area home in 1999.
Vacation rental owner Pam deDomenico says she invested in a beach property in order to provide retirement income. “It was for the income, plus to have a great vacation spot to share with the children and grandchildren,” she explains. “It’s only a good investment if you consider the value of personal use and property appreciation,” she adds.
Jim Fox and his wife Marcie enjoy getting away from their Washington home in the winter to visit family in San Diego. “A vacation rental fits right in,” he says. “We have a place to stay when we visit; it’s an investment with equity growth, and the rental income makes the payments.”
You need to work with a broker who is experienced with both real estate sales and vacation rental management so you can understand the ins and outs of vacation rental ownership. “Look at your goals, both short-term and long-term,” Holland advises. If your goal is to have positive cash flow immediately, a large down payment may be necessary or some elbow grease with a fixer-upper. If you can cover a negative cash flow you can buy more with less down, knowing that renters are helping you build equity and pay for the vacation home that you can use whenever you want.“
Location, location, location—you have to have a desirable location,” advises vacation rental owner Sara Siebrand. Her property is 20 minutes from her home and she loves having a place at the beach. “It’s a labor of love,” she explains. “Having a house at the beach is wonderful. It’s rented out most of the time, but when we are there, we are working on it and having fun at the beach.”
Siebrand said her property is mainly an investment, but is also a hobby. “It’s fun,” she says. “We like to make it a total ocean experience so it’s decorated all nautical. We have a guest book and we love it when people write what they liked and what they did while they stayed here.”
Beach area properties range in price, but good bargains and fixer-uppers are still to be found. Holland lived in his first purchase for a year while he renovated it. It has provided a positive cash flow ever since.
If extreme make-overs aren’t for you, there are plenty of condos and homes to choose from that are ready for occupancy. “It’s really the broker’s job to help you sort out your priorities then offer you options,” Holland says. “A good broker can help you estimate the costs of maintaining your rental and the potential income.”
Beach front and bay front properties are most desirable and will bring in the highest rents. “You can expect to pay less for a home or condo a little farther from the water, but it will also bring in lower rents.” In general, you need to decide what your goals are and what you can afford,” he says.
Income on a vacation rental is taxable, but you can claim deductions for many of the expenses, including management fees, advertising, maintenance, depreciation, as well as interest and property taxes. Depending on how much of the time you and/or your family members use the home, the rules for deducting expenses change. “Be sure to talk with your tax professional about the rules regarding second homes and vacation rentals,” Holland advises. “Tax codes and constantly changing and only a tax professional can keep you fully informed."
One piece of advice Siebrand offers, is “you have to a have good management company.”
“The key to success with a vacation rental is having a good management group handle it,” Fox agrees. “When we bought it in 2002 we were with another management company and it wasn’t doing anything.” Fox later signed up with San Diego Sunset Vacation Rentals and saw his rental income grow.
Holland agrees that it is important to have a qualified management company, unless you want to make your vacation rental your full time job. “When I was ready to make my beach area home a vacation rental, I looked for a management company that would market it the way I thought it deserved,” Holland explains. “When I couldn’t find one, I decided to market it myself. It quickly became a full-time job, then a business.” San Diego Sunset now manages nearly 70 properties and offers full real estate services.
There is a lot more involved in marketing, maintaining and managing a vacation rental than a long term rental, Holland says. The money you pay to a professional management company will come back to you many times over in increased tenancy, fewer headaches and hours saved doing bookkeeping. “Unless you really want to be the one they call when the toilet is stopped up or the barbecue won’t light, get a management firm.”
Not all management companies are alike. Be sure to ask how they market properties; what services they provide to owners and guests; what are their office hours; how accessible are they to owners and/or guests; how do they ensure guests will return year-after-year?
There is a lot of help and solid advice available for people longing to own a beach area home, says Holland. “If you really want a beach vacation home, don’t assume it’s out of reach,” advises Holland. “Go for your dream.”
by Suzanne M. Perez