In today’s economy, people are spending less, dealing with higher interest rates, and credit is tighter across the board. As 2023 progresses, the trends on the market will largely remain the same. Demand for homes will slow in the coming year as interest rates continue to climb and the housing market continues to cool. Let’s take a look at why you might be able to benefit from purchasing a beachfront property as an investment.
Beachfront property will always have some sort of demand
Your beachfront property will probably take several years before you can sell it for a good return on investment. Home values increase between 3.5% and 3.8% each year. Over a period of time, this compounds each year and your home’s value should double within a timeframe of twenty years. However, that is not always the case with beachfront homes. In some some situations, the demand for a beachfront home is greater:
- In a smaller area, such as Topsail Island, fewer of these properties appear on the market in comparison to more populated areas, such as Florida.
- These types of homes are luxury properties. People purchase them with the intent of using them seasonally and holding onto them.
- The population on Topsail Island increases during peak season, which makes these homes in demand as rental properties when the owner is not using them.
What are some of the higher costs associated with owning a beachfront house?
There are two types of higher costs associated with owning a beachfront home. The first cost comes with flood/hurricane insurance. The second type of cost comes with higher property taxes if the beachfront home is in a tourist destination, such as Topsail Island. While North Carolina commands reasonable flood/hurricane insurance rates, it can still be a drain on homeowners’ finances. In 2021, the National Flood Insurance Program Community Rating System (CRS) and FEMA did a study. Topsail Island’s rating went from a Class 5 (a 25% discount policy on flood insurance) to a Class 7 (a 15% discount policy on flood insurance).
Property taxes also play a role in higher costs when owning a beachfront home. Even though North Carolina’s property taxes are slightly lower than the rest of the United States (.99%), owning a home on Topsail Island is still slightly more expensive than owning property elsewhere in North Carolina. In 2022, Onslow County assessed a property tax rate of .655%, compared to .61% for New Hanover County. Pender County collects about .67% for an effective property tax rate.
What’s the typical profile of a vacation homebuyer?
There are two common trends that emerged during the pandemic when it came to the market for vacation homes. According to the National Association of Realtors, 53% of vacation home purchases were all-cash transactions in 2021. Cash offers generally make for a more lucrative offer for the seller. Additionally, the majority of homeowners who did not pay with cash made a downpayment of at least 20%. The typical vacation homebuyer who is looking for a beachfront house uses cash as leverage to increase the ROI on the house over time. If you are one of these two groups, you will find that your path to ROI on a beachfront home will be easier in the long run.
Why is a beachfront house a good investment?
The majority of beachfront homeowners are not first time homebuyers. In fact, 96% of homeowners who bought a vacation home in 2021 were purchasing a second home. Beachfront property is a great investment for the following reasons:
- When used as a vacation rental, a basic home can bring in an average of $795 per night. Luxury properties used as a vacation rental can be upwards of $1,500 per night.
- Many vacation home owners will only use the property at short intervals throughout the year. Rental revenue can be used to cover expenses for the home.
- Property management services can help maintain and care for the property, which helps improve the property value over time.
There are also some tax breaks that may be available on second homes, but these are best understood under the guidance of your accountant. In most cases, those single or married and filed jointly can potentially deduct mortgage interest. If you own the second home free and clear, you might be operating it as a rental property and deductions could potentially be made for the operating costs of the rental.
Why is Topsail Island a great place to own a beachfront home?
Topsail Island comes to life during the peak season. The population increases to just over 61,000 people. The majority of these people are renting vacation homes (about 49,193). Here are the reasons why Topsail Island is a great place to own a beachfront home:
- Topsail Island is a great location where there is a huge demand for rentals every year.
- Even though hurricanes could impact Topsail Island, hurricanes are riskier for homeowners who have property on the Gulf of Mexico.
- Topsail Island property taxes tend to be lower than the nationwide average, so owning a vacation home on Topsail is more affordable.
Where should you buy a vacation home on Topsail Island?
There are several areas on Topsail Island where you should consider looking at your vacation home. These include Surf City, Topsail Beach, and North Topsail Beach. These areas come to life during the peak season. The economies are heavily geared towards tourist spending. As such, your vacation home will hold its value and appreciate quite nicely. Not only are these communities home to piers and other economic hubs, but they are also central locations on Topsail Island where the majority of tourists book a vacation home throughout the year.
Why Lewis Realty Associates, Inc. is your partner for a beachfront home
As a local real estate company, we have over 60 years of experience in the Topsail area. Our team has an additional 150 years of experience combined as realtors delivering results for our clients. If you are buying your first beachfront property, we can help you understand complicated beachfront real estate issues, such as flood zones, CAMA lines, and erosion rates.
We also know the vacation rental business and help clients with this aspect of their property ownership. Even if you plan on renting, owning beachfront property is great for the right for enjoyment and enjoying the beach with your families. Even when the real estate market has a lull, your property is sure to appreciate over time on Topsail Island.
Beachfront property on Topsail Island is a great investment, especially if you have a trusted realtor like Lewis Realty Associates, Inc. on your side.