Nathan Colmer | The Van Dyk Group
C: 609.290.4293 | O: 609.492.1511
Buying a home in the LBI real estate market can have many different purposes. For some, a home on LBI is strictly a vacation property, for others it is purely an investment's most it is a combination of the two. Read on to learn about investment in the LBI real estate market and what you need to get started.
Investment in the LBI NJ real estate market usually comes in two main varieties: rental houses and house flipping. A rental house is pretty straightforward. A home is purchased with the intention to rent it out for income over the busy summer months (usually May/June-September/October). The second is house flipping. Unlike a "normal" house flip, investment in this area of the Long Beach Island real estate market usually takes the form of a new build. Building a home on LBI can result in a roughly 20%-30% equity position which is a great return for a year long project.
To begin at the beginning you as a real estate investor need to determine what your goals are. As I mention above, for some the investment is strictly to generate income in the form of a rental property or a house flip. For others, buying a home on LBI is a vacation home with long term equity appreciation in the back of your mind. Others hope to buy a home for personal use while renting out a portion of the summer to help cover the bills.
There is no right or wrong answer. Rather it comes down to your personal goals. What DOES matter is defining your goal upfront as this can have a significant impact on the type of property you should buy in the Long Beach Island real estate market.
The LBI real estate market, like many markets, comes down to location. Generally speaking properties on the oceanfront, ocean-block and oceanside will make better investments long term. This is in terms of both rental and equity position. This is not to infer that homes on the bay side are a poor investment-only that their returns usually lag behind that of the oceanside, ocean-block or oceanfront.
After location the actual type of property must be defined. When looking for a home in the LBI real estate market, especially as an investment, the overall cost of ownership must be considered. For example, a home that is below base flood elevation will have a higher cost of flood insurance. This will lead to higher carrying costs which can negatively impact your returns.
When looking for a spec home (house flipping on LBI) location and lot size are key. The location must be one that will be desirable in the market with a new home built on it and the lot size must be such that a desirable home can be designed. I can go over the specifics of building with you to help you determiner what are the best options in various price points and total budgets but you should see a roughly 20%-30% equity position for the project to make sense.
Regardless if you are looking for a rental investment or a house flip there should be plenty of market data to support the investment and the investment's projections.
When looking for a property in the LBI real estate market as a rental it is fair and expected that you will ask for any past rental history. If there is not a proven rental history that is not in of itself an issue. It is better to look at the fundamentals of a property and the potential, supported by comparable rentals of course, to determine if the rental investment makes sense.
When looking at a flip it is best to look at the final projected sales price, which again should be supported by plenty of comparable sales on Long Beach Island, and then back out your estimated costs. Keep in mind the 20%-30% equity position I mentioned above. If you cannot comfortably achieve that the project needs to be examined more closely and perhaps skipped over.
Investing on Long Beach Island is no small task. Regardless of the price point homes and condos in the LBI real estate market are expensive and will most likely constitute a rather large portion of your net worth. Before making any investment in the Long Beach Island real estate market it is imperative that you speak to any and all financial planners, attorneys, etc. to make sure that this is the right investment for you and that there is a benefit to your making such an investment. Specifically consider how taxable rental income can impact your overall financial picture, if there are any tax advantages to owning another home on LBI and make sure you have enough of a cash reserve in place to withstand any surprises (home repairs, longer hold periods on a spec, etc).
Once you are comfortable with the overall investment prospect on LBI it is time to see some homes. I recommend looking at a variety of home styles and locations before really defining what type of investment you are considering. For example, if you are looking to build a new home for resale, and are rather new to the process, it may be better to start off with a smaller bay side project that will involve less capital upfront.
By looking at a multitude of options and locations you can customize the project for your needs and budget.
Once you have identified the right type of investment (rental or flip house) and the right location for your price point it is time to get specific. By this I mean putting together an estimated cost for each option, including carry costs, potential gross, etc. and seeing which option makes the most sense. Keep in mind the entire picture. The highest POTENTIAL profit may not be the best option if the project is too risky, not backed up by sufficient comparable homes, etc.
I am happy to help in any phase of the investment process so please do not hesitate to contact me with any and all questions about investment in the Long Beach Island real estate market.
Real estate can be an excellent investment and act as a great balance to one's investment portfolio. Of course, it is best to consult your accountant and/or financial advisor to determine the best options available to you, but there are some creative ways to invest in the LBI real estate market by using an IRA. The IRS allows an IRA, Individual 401(k), or HSA to acquire real estate as an asset without penalty and while keeping the tax benefits associated with that account type.
An IRA can purchase any type of real estate, including residential, commercial, raw land, agricultural, and more. The IRA can buy the property outright, meaning the IRA is the title holder. If the IRA does not have the full purchase price, the IRA can partner with a person, company/entity, or another IRA. It can also secure a non-recourse loan (see below) to buy real estate. This can be an attractive option when buying an investment property in the LBI real estate market.
A 1031 tax exchange on Long Beach Island offers the ability to defer the tax paid on capital gains for an investment property when that money is rolled over to a new, and more expensive, investment property. The process involves first listing your house on Long Beach Island for sale and contracting a buyer as you would in any LBI real estate transaction. After an agreement is signed, an Exchange Agreement is signed where the property transfers to an intermediary, usually an attorney, an exchange company of other trusted 3rd party. The sale transaction proceeds as any transaction would and settlement occurs. After settlement, you have 45 days to enter into a contract of sale for a qualifying replacement property.