An abridged guide for anyone looking to purchase a vacation home in Ocean City while avoiding common mistakes.
For some lucky families, a beach house might be on the top of the Christmas wishlist. However, there are a number of issues to take into consideration when planning a purchase of an investment property.
It’s more than just the purchase price.
Some other issues to consider are:
- Condominium or Homeowner’s Association fees,
- Property taxes,
- Individual income tax implications,
- And possible rental income.
These are all critical in determining whether the purchase of a vacation home is right for your family. Additionally, each of these expenses should be taken into accounting before submitting an offer.
Certainly, it would be advantageous for all (property) investment owners to remember that some rental seasons are slower than others. Owners should be able to carry the property for a full year, without residual income, as a precaution. Further, it should be noted that taxes and condo fees or other fluctuating costs may affect your financial stability as well.
After careful consideration, should you decide to submit an offer to the seller, be cautious that the price of your offer is reasonable when considering all the requisite fees and utilities. Upon acceptance of your offer, the property is considered “under contract.” Within 15 days of the settlement date (as specified in the sales contract), the seller is required to provide condominium documents and/or HOA (Homeowner’s Association) documents to the buyer. These documents will outline the rules and regulations of the property, as well as minutes of the last meetings and a copy of the budget.
Be cautious of special assessments!
As careful as one may be, there are other, outside influences that could drastically alter your financial well-being if all aspects are not carefully considered. When condominium fees are not sufficient to cover costs that were unplanned, or which may suddenly occur, a special assessment is applied to each unit owner. These special assessments are in addition to the regular condo fees. However, these special fees are generally of a temporary nature and only charged to the owners for a period of one – two years.
Regardless, if a property is not carefully managed, or issues are not noticed in a timely fashion, there could be overwhelming fees that could be devastating to an average investor. For example: there is a low rise, masonry building in Ocean City (on the bay) that was built in 1987 and has, historically, been a very popular building. Sadly, a number of severe mechanical issues with the property have recently been found, like a sinking pool and cracks in the building’s foundation.
Due to these enormous problems, it appears the special assessment will run in excess of $75,000 over the next three years. Anyone who purchased in that building within the past four years or so, at a higher price, may not be able to maintain ownership of their Ocean City investment property with the addition of these excessive sums.
Although this scenario is indeed noteworthy, there are precautions that may be taken to reduce this risk. The previously mentioned condominium documents are important in determining what is occurring in any association. The documents disclose discussions between board members and owners regarding upcoming fees that may be confronting the association. Additionally, the budget should reflect upcoming increases to fees that might be on the near horizon.
A buyer may want to consider the following list prior to making the final decision:
- The date the roof was last replaced,
- When the parking area was last paved,
- And when point repairs were completed to the building.
This information is imperative to making a sound decision before any purchase. This may hold true even if buying in a newer building. Two new buildings (also located in Ocean City) had increases and fees which were due to the builders allowing rain-soaked insulation to remain, and mold in place, during construction.
All in all, owning a beach property, or any vacation home, should be a rewarding and pleasurable experience for you and your family for years to come. By taking the proper precautions before submitting an offer should help to avoid financial pitfalls that may affect your enjoyment of ownership. You may wish to contact your local Realtor for guidance. HAPPY HOLIDAYS!