Typically 60-70% of the buyers I work with here in Ocean City NJ are looking for an investment that they can produce some type of income from. This is almost always to offset the cost of a 2nd home. Most of the time this comes from weekly summer rental income. The high rental income OCNJ properties receive often makes ownership affordable for a lot of people who think it may not be. Many buyers will ask for a property that has "break-even" potential...meaning that the rental income will cover all of the monthly expenses including mortgage, taxes, association fees, insurance, and utilities.
The bad news is, this is almost never possible in Ocean City with a typical mortgage. If 80% of a property is financed with 20% down on almost any property the mortgage payment will be too large for a break even investment. Generally speaking a property still might be (behind) $200-300 per month. With that said, once in a while I will typically see an exception to the rule, but more often than not it is on large 5 bedroom homes.
Now of course a cash buyer with no financing, will see a cash machine at the end of every month. A good rule of thumb in Ocean City is that it will take 35-40% down on a mortgage to at least break even, depending on the particular property and how many weeks are rented.
A lot of buyers will be scared if a property is "losing" a couple of hundred dollars every month with that standard 20% down mortgage. However, you might not be losing as much as you think. There's a few other points to consider which may negate that monthly loss.
- Your personal enjoyment - Most owners will use the property personally for at least a few weeks out of the year. Nobody can put a monetary number on personal use, but vacation rentals aren't cheap! Your enjoyment is worth something.
- Appreciation - Ultimately the true investment goal is to have the Ocean City property you buy appreciate over the next few years. A few hundred dollars a month will look like nothing in the long run with your property value appreciates. Obviously appreciation is never guaranteed this is the "risk" in real estate. However, all sign show for a strong future.
- Tax advantages - This is the one thing you cannot ignore. Of any investment, real estate simply has the strongest advantage when it comes to your taxes. Make sure you accountant uses every "write off" available to you. The tax money you save from owning a property adds up. This again, has to be considered when analyzing different investments.
When looking at Ocean City properties for sale...Don't forget to ask for rental income numbers! If a property owner (seller) does rent their property they will almost always have income numbers available. Compare the previous years rental income with costs (mortgage, taxes, utilities, insurance, etc.).
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