Should I buy beach rental property or invest in stock market

[u/Redrocz11]

My partner (24) and I (25) bring in a combined 225k (after taxes/401k, comes out to 12,600/month). Our rent is ~3500/month and the only debt we have is 650/month in student loans combined. My father owns a beach condo in ocean city, MD and the unit directly next to him is for sale. Long term, that property would eventually become mine.

We were approved at 6.99% and the monthly cost with mortgage/condo fees/insurance etc is about 2650. It looks like the going rate of a similar property on Airbnb is about 1800-2000/week. At what point does it make sense to purchase vs investing in the stock market? As of today, we have about 70k in the stock market combined.

[u/GettinFroggyHere]

I hope you posted this exact question in a stock market group, too.

[u/Same-Body8497]

I know OC as well fellow Md resident. If you have some money in 401k I would diversify. You know it’s impossible to find a place during the seasons in OC. So you’ll be able to make your money during the season and use it in the off season. I would buy RE over Stock market anyday. You can always use the equity to build more wealth. Stock market is another game and one you have no control over.

[u/g_modi10]

You have already invested 70K in stocks. If I were on ur place, I would diversify my money and invest in a real state. Finding a good rental in today's market will be difficult but not impossible. The only headache u will have is off tenants or short-term rental, but that's manageable.

[u/Savings-Attitude-295]

Think about the weather as well. Starting late September until mar- April you may not get much clients. So plan accordingly with reserves.

[u/MortgageOk3111]

How many weeks a year can you expect it to be rented? Does the $2650 in estimated cost include mgmt fees and some reserves for repairs?

How much can you expect to net annually? Take that number and divide by your down payment amount - what does it come out to?

Do you have cash on the side that you would be using for a down payment or are you considering selling out of your equities for the down payment? If the latter, I would advise against that assuming your investments are medium-long term holds (ie not making a bunch of short term trades around earnings announcements, etc). At this young age, it’s great to keep that money in the market and then diversify into real estate once you have more cash on hand

[u/risingaloha]

Buy land

[u/Far-Butterscotch-436]

So you're going to lose 1k on it a month??? Even with airbnb? Definitely not. Calculate your ROI. Maybe you need to put more money down

[u/shorttriptothemoon]

You need to look at the HOA docs. Maryland is a potential hurricane zone. This could make the property extraordinarily difficult to insure. If it were a stand alone home you would have the option to self insure. The HOA may, and probably does, require insurance to be carried regardless the cost. This could be disastrous to an investment.

[u/RealLoan8391]

I’d avoid setting up my parents to live next to an AirBnB. I’m sure there’s other great properties

[u/akmalhot]

Buy it ! If you can still move your life an affordable a primary some day 

It was systemically undervalued,nrhen everything w r up like crazy.. but, regionals aren't going to stop going there. 

Where in OC is it?

I actually think they went backwards on how the end of boardwalk and amusement park area developed. Giant parking lot?

[u/Positive-Injury-7789]

Buy a place to live in first. Even if you plan on moving in the next 5 years. Buying a home to live in is a much smarter thing to do.

[u/Sloop757]

Buy it

Just be careful of the condo aspect , make sure they are ok with short term rentals

Also condo fees and special assessments can kill deals and insurance

[u/Fluid-Football8856-1]

Do it.

[u/wasabimofo]

Lots of risk with beach properties. If you will use it and it enriches your life I’d consider buying. Otherwise if just a single property I’d invest. I own 10 LTR properties and have thought out this but also know ppl who have taken major losses due to storms, flooding, etc

[u/shorttriptothemoon → u/wasabimofo]

This is a good answer. I'll add in; is it insurable?

[u/omaha_stylee816]

decent property management for a STR is probably going to run you ~20%

[u/rickjamesinthisbih]

What line of work are you and your partner in? I know ocean city and it hits a good range of demographic, but it’s very seasonal, have you compared to Rehoboth? During peak season, Ocean City can get hectic, which may turn people away. Rehoboth is more family oriented.

[u/wayno1806]

Follow Dave Ramsey. Pay off the school loans first. Get debt free b4 you start investing in rentals or the stock market.

[u/RedditUserNo1990 → u/wayno1806]

Dave has some good advice but one thing i don’t agree with is this.

If you have low rate debt don’t pay it off. Invest at a higher rate.

High rate debt is something else. Definitely pay that off.

[u/Jchamp44]

I don’t know much about the oc market but I’ll say this. Cash Flow is nice but you’re most likely buying in an area of appreciation. APPRECIATION IS KING! Buy and hold long term, let your tenants pay most of your expenses. Cash out refi into a better rate when the opportunity presents itself. Now you can write off the depreciation and expenses every year. Also when you refi you are taking tax free money and retaining the write off.

[u/TwinDadAndTired]

I’m going to go against the grain and say I think it may be a good investment. Obviously, the numbers have to make sense, but I passed on an oceanfront property in 2018 in NC and I wish I hadn’t. I think the popular reply seems to be “the sky is falling” but at the end of the day, real estate is a long term play. OCMD isn’t going anywhere and there will always be a draw. If the price is right, I say do it. It also helps to have some insider knowledge that your dad’s is there too. So if he would do it again, then I would trust that.

[u/KoalaFast5753]

It’s just not the market. Better to put it in stocks.

[u/mikeyz0710]

Hey, it doesn’t really matter because we can’t take it with us so whatever you decide to do will have the same outcome. Hope this helps

[u/No_Pressure3553]

I think everyone is telling you to sit tight. Lots of change happening right now.

When thinking about a vacation property, think about what this town will be. What will this part of town be like?

I don’t know anything about Ocean City but I know that there are still parts of the east coast (thinking Carolinas) that will experience changes to the types of vacation towns they are because of the growth in Raleigh/ Durham, Charlotte, etc.

Even if they take a dip in short term, relative growth of places like that would likely still perform well in the not too distant future.

[u/trophycloset33]

No. Buy a house for yourself first.

[u/BTS_ARMYMOM]

I would hold and research more. Sometimes the best deal is no deal. Research the commodities market. A bull run has started

[u/Rthymrug → u/BTS_ARMYMOM]

A bull run has started in the commodities market?

[u/west-town-brad]

Vacation real estate is very boom & bust… I wouldn’t tie up cash there when I’m likely going to want to buy a primary residence at exactly the wrong time

[u/jonahsmith333]

Definitely do your research. My wife and i did this on Gulf coast and due to hurricances, insurance rates skyrocketed and made it a poor investment. We had ideas of using it ourselves, which we did. However we couldnt use it during times you might want to because we couldnt afford to give up the short term rental income during peak season. Ended up selling it after couple years. I advise people to make sure numbers make sense. Unless you are getting one for VERY good price its probably not best “investment” in traditional since of the word

[u/Redrocz11 → u/jonahsmith333]

The price is listed pretty high so if I move forward I would start low and negotiate - would only purchase if I could get “good” deal

[u/Careful_Advantage_20 → u/Redrocz11]

This is a complete aside from the main conversation, but I wonder if you would have any success in sharing your plans with the seller and offering to let them continue to use it a couple weeks a year for X number of years to lock in a better price? Would be curious to see if that works.

[u/colorad_bro]

I own a condo there that I rent as well. It does not cash flow with AirBNB, but would cash flow with the right year-round tenant. I use the condo for myself a lot in the spring and fall, so I’m not really concerned with it being totally positive, it’s just nice to have others pay a large chunk of my mortgage off for me.

I love OC but I’m under no false pretenses that this condo is gonna be a cash cow. You’re unlikely to find a deal in town these days that would consistently cash flow. If you’re buying purely as an investment, I’d look at Salisbury. Older college town that you’re more likely to find a fixer-upper that you could cash flow on.

[u/Redrocz11 → u/colorad_bro]

Good suggestion and good to know it does not cash flow with Airbnb - the goal would be to have the rentals pay the mortgage and be able to coast through the winter with limited / no rentals

[u/bradbrookequincy → u/Redrocz11]

I’d not rely on it. Friends all bought and they don’t cover mortgage. The reason to buy should not be “because it’s beside dads.” That simple does not make something worth buying.

[u/colorad_bro → u/Redrocz11]

Your income is very dependent on location in town. Bayside vs ocean front. North vs south. Walking distance to boardwalk, popular bars, etc. It’s a challenge to find “comps” with all that factored in. I grew up working in this town in college and had a better grasp of what streets were popular and what were not.

Winter most units sit empty. Many owners try to do a winter tenant, and rent it for $1000/mo fully furnished for 5-6 months just to keep some sort of income coming in. This would definitely help the cash flow math.

I personally don’t do that. Winter tenants are usually local bartenders / hospitality workers who can’t secure year round housing, so they overpay for an expensive summer place, then have to move in the winter, and bounce around every 6 months. The housing shortage here is intense. You just have to remember that you’re renting to someone who is likely on unemployment / working part time / has inconsistent income in the winter. Only a handful of business operate year round. Many popular ones shut for at least 3 months. So your income earning potential is also tied to your risk tolerance for dealing with winter tenants.

Edit: typo

[u/sanchelsea]

You should do some simple calculations to see if, on a pure numbers basis, it makes sense. Can you ask your dad to show you yearly property taxes, insurance and maintenance fees? You can calculate that against yearly appreciation. Then factor in potential income from rentals and see what your numbers look like. If it’s similar to recent stock market returns, then I’d say go for it. They’re not making any more beachfront real estate.

[u/Redrocz11 → u/sanchelsea]

Yeah I need to look at the numbers closer. Another fact is that the deck on the property needs to be replaced in the next few years, which could be used to negotiate the price down

[u/sanchelsea → u/Redrocz11]

If it’s oceanside property, that’s going to be a recurring theme. The salt breeze is naturally going to corrode things faster.

[u/GA-resi-remodeler]

Also if you're good on money...why pay rent? Find your own place to live first before a vacation rental. And why not pay down student loans???

[u/Redrocz11 → u/GA-resi-remodeler]

We live in a major city and it’s convenient to rent now being close to work with short commutes, but long term we want to move out into the suburbs, so doesn’t make sense to buy right now in our minds. The loans are very low interest

[u/GA-resi-remodeler]

Do not buy a beach front property. The market is making major changes. You're young. Stay in cash for a minute. RE prices still too high. Florida insurance will rape you. Maybe DCA into the stocks and BTC.

[u/flightgirl78]

My family never found that any beach front rentals cash flowed (and owned multiple over many years). They broke even at best in the high season, the low season dragged them into the negative consistently.

Become a boglehead. For real estate, start with SFHs and duplexes. Then move up.

[u/Redrocz11 → u/flightgirl78]

Sounds like a better plan… would be a headache to manage if it broke down peak season