Have you ever considered an investment in vacation properties? At first, investing in real estate may appear daunting, but you can make it happen! There’s a way to make investing fun and easy. Let’s look at a few ways to begin, or even expand, your real estate portfolio.
Vacation real estate is more than buying a beautiful condo at the beach. A beach-front property is both tangible real property, and an investment in your family’s quality of life. The majority of my clients tell me, “Adam, I just want to be able to go on vacation and have someone else pay the bill.” We all would like that! This is why, when focusing on vacation real estate, there is a balance between the long-term return on investment and the immediate quality time with your family.
When you rent a condo at the beach, such as a two-bedroom condo in Bay Saint Louis, you can expect to spend about $4,000 for one week’s luxury experience. Investing in a beach condo (remember, our goal is a free vacation!) would need to cover carrying costs of the property plus $4,000 (an unrealized expense) to achieve “break-even” status.
Let’s work with an example beach condo with a purchase price of $679,000:
|$49,945 TOTAL INCOME|
Mgt. Fee (20%)
|$22,954 TOTAL EXPENSES|
Using this example, there’s an estimate of $49,945 annually in rental income. After accounting for the annual expenses, there is a positive balance of $26,991 in income, which is that free vacation we all want.
Looking at this same example from an investment-only standpoint, the return of 3.98%, while appearing small, provides a considerably higher return than simply putting money in the bank. Additionally, you potentially will earn an additional 4% (national average) appreciation year after year.
Ready to invest in your first property? Typically, you will find more favorable terms and rates for second/vacation homes vs. investment properties. Many banks are able to do 90% loan to value (LTV) when financing a second/vacation home. Let’s review our beach condo example, which requires a down payment of about $68,000. If you hold this property for 2.5% years, you could expect to earn back your original down payment. Even better… you could sell this vacation property and “roll” the equity from principal build-up, appreciation, and net income into your next vacation property, climbing the ladder and leveling-up your real estate portfolio. After doing this a couple times, your vacation homes can be paid in cash and you’re able to guarantee your family vacations for generations to come, creating memories for life.
So, what are you waiting for? Start today!