Tips on Buying a Beach Condo and the Best Locations to Buy
Does it make sense to continue to rent a place at your favorite beach resort each summer? With rising rent prices, wouldn’t it make more sense to put that money towards purchasing a vacation house that will build equity, provide a deduction on your mortgage interest and even make you little money if you rent it out for a couple of weeks each year?
A beach condo might be the perfect answer. They cost less than single family homes, the upkeep is cheaper and the buying options can be better in markets where new construction is creating new inventory. The demand is strong for vacation properties, especially in the nation’s hottest beach destinations.
Five tips to get you started on buying a beach condo:
- Make sure that you feel committed to using your condo every summer. Buying a second home can be a serious financial commitment- so make sure that you and your family will get your money’s worth.
- Know the area and the local condo market. Buying a condo is slightly different than a single family home. Maintenance and condo association fees add to the cost. Many associations also have covenants that may limit your ability to rent out your condo or have pets. Be sure to work with a local realtor who is well-versed in the condo market.
- Discover how you can use the equity in your primary home to finance your vacation condo. Talk to your loan officer to find out how much equity you have available and how you can refinance your home to generate cash for a down payment on a vacation condo.
- If you’re interested in a low down payment FHA loan, you might be in luck. Recently, FHA revised its eligibility rules to allow more condos to be certified for FHA loans. You can find a list of certified condos in your market online.
- If your plans include renting out your condo for more than two weeks a year, the amount of interest you can deduct under the mortgage interest deduction will decrease proportionately. For more information, check out IRS Tax Topic 415. Also, check out policies of condo management associations on renting out condos.
The current housing boom has stimulated construction of new condos in many vacation markets, and new construction creates opportunities and challenges. New condos can cost as much as three times more than condos in existing buildings. Plus, new condos are marketed before they are built. Delays and unknowns can add stress to the buying process. In overbuilt markets, however, buyers can find deals.
Here’s a quick look at condo markets in three popular beach results:
Honolulu has never been a cheap real estate market, but a drought of condos for sale is driving up prices. Ten years ago, Oahu had twice as many condos on the market. This super-tight condo inventory contributed to a record-breaking median price of $425,000 for condos in July 2017.
New condo projects in Honolulu tend to follow the overall condo market peaks and valleys, but perform on average, 5 percent better (see chart here). In the case of decade-old Hokua – among the first luxury projects completed in now-booming Kaka’ako – initial buyers saw average gains of 75 percent when they resold within just one year of closing. While Hokua’s returns were a combination of luck and timing, nearly all of the other new projects since 2006 have seen an average appreciation of 10 percent or more. So, while investing in a new condo will require some patience, history has shown that buyers may do better than the overall condo market in a relatively short time, according to Locations, a Hawaiian real estate site.
Named one of the top five healthiest real estate markets in the nation, the Jacksonville housing market remains affordable despite nearly three years of appreciation. Currently, homeowners allocate about 9.8 percent of their income to the monthly mortgage. Compared to the national average – 16.3 percent – Jacksonville is more affordable than most markets. Affordability, in association with a strong job sector, will continue to drive supply and demand in the region.
Strong demand has made Jacksonville one of the top markets in the nation for flipping condos. Condo flips rose 41 percent in 2015 and continue to augment condo inventories as price appreciation encourages investors to rehab foreclosures and resell them on the local condo market.
Condo buyers will find bargains in the Virginia Beach market but should expect appreciation rates lower than the national average. Over the past ten years, the average annual home appreciation rate in Virginia Beach during the period has been just -1.08%, which is lower than 70% of US communities. During the past year, Virginia Beach appreciation rates have trailed the rest of the nation. In the last twelve months, Virginia Beach’s appreciation rate has risen to 3.12%, which is still lower than appreciation rates in most communities in America. With a median house value of $263,048, Virginia Beach real estate prices are above the national median, but very affordable for a beach resort.