7 tips for buying beach real estate in Del., Md.

 

Tips for buying beach Real Estate in DE & MD

DELMARVA BEACHES — The words “normal” or “stable” may sound bland, but for anyone looking to buy beach property in Delaware or Maryland, that’s what you want to hear your real estate agent say right?

It is definitely getting more normal than it's been the last few years but inventory is still low and with a lot of buyers still out there prices are not necessarily going down.

Because there aren’t lots of properties on the market, people are not able to be as choosy as they would like to be.

We are still seeing some properties sell within a day of being on the market and still multiple offers sometimes while others sit a little longer.

Making a six- or seven-figure investment in a beach property requires a good bit of thought. This is what real estate agents in Delaware and Maryland say on tips on buying a vacation home at the beach. Agents outline a few things that are specific to coastal properties and Delmarva.

1. KNOW WHAT YOU WANT IN A PROPERTY

Why are you buying a beach property? Is it to create family memories? Is it to relax and get away from the everyday stress of urban life? Is it as a future retirement home?

Some say “quality of life” and having a “stress-free” way to come to the beach on weekends, during the summer and in the offseason mattered the most as they searched for an Ocean City property last summer.

Others want to retire here and move here permanently. While we also have investors as we all know there can be good money to be made here in the tourist season.

Knowing the type of home and location will help narrow the search.

Some people want to be on the bayside because they want to have a boat. Some people want to be on the oceanside because they don’t want to cross Coastal Highway with their kids to get to the beach for example.

But not all buyers know what they really want.

What is important is you need to be able to explain to an agent how the property will be used.

The most important question that we can ask as realtors is: ‘What do you want to do with your property? What do you want to accomplish? Do you want to just come down on the weekends? Are you coming down in the offseason? Do you want to make some rental income for a couple of weeks to pay your condo fees and your taxes? Or do you want to purchase as a full investment where you rent it out continuously?

New owners often change their minds about how they will use their condos.

I think their intention when they first purchase is to use it themselves a lot. Then the realize after the second year, baseball games come up at school, or they’re traveling somewhere else. So the first two years, it’s their honeymoon period. Then after that, they go, ‘Maybe I should consider renting a couple weeks. What harm would that be?'”

And a lot of times once they get the taste of the rental income, some buyers then think about buying another property “because it’s a good investment.”

Whether you will use your beach property as a rental property is important.

You can travel 2 1/2 miles from the beach to a resort-type neighborhood. Let’s say like a Bear Trap Dunes that has golf and tennis and pool and clubhouse and restaurant and pro shop, and you can buy a condo, a townhome, a single-family home. They will all be great rental properties if you decided you wanted to get some rental income. You could step 10 feet outside the neighborhood, in a random home, in a random neighborhood, and probably not do any rental income. All this is important to consider.

2. EXPECT A ‘WOW’ MOMENT BUT BE REALISTIC

Most buyers experience a “wow” moment where they fall in love with a property.

When buyers get caught up in the “wow” moment — seeing the seagulls flying overhead and hearing the ocean waves in the background as agents we make sure to remind you what the reality of it all is.

You can get emotionally attached to this, however, let’s look at the numbers. If the numbers aren’t making sense, let’s back away. Let’s move in a different direction because I don’t want you to be that seller who comes to me 10 years down the road and say, ‘I can’t afford this.’ Or five years down the road. ‘I can’t afford this. What do I have to do?

3. REALIZE YOU MAY NEED FLOOD INSURANCE

One cost that can pack a big whammy in coastal towns is flood insurance. It’s a cost that is continually rising.

We recommend buyers talk with their lenders or their insurance agents early in the process to see what type of flood zone the property is in.

As of now, there is no contingency to allow someone to get out of a property contract simply because it’s in a flood zone.

If somebody qualifies for financing and there are no other contract contingencies, they’re kind of locked into the contract, regardless or not of whether they want flood insurance.

Use caution and do not make assumptions by using online mapping tools to determine a property’s flood zone. The online data may be wrong and it could cost them money.

The challenge is with high-risk flood zones. I have personally seen policies range anywhere from $500 a year to up to $7,000 or $8,000 a year. It just depends on the home, the replacement value, the age, obviously, the actual flood zone that it is in.

Older properties, could see flood insurance costs rise 15 to 18 percent a year.

“If you do not have a mortgage, you are not compelled to purchase flood insurance.” You can certainly buy it as an option, which is recommended when living on an island with hurricanes and ''nor'' Easters.

Flood insurance, for some six- and seven-figure buyers in high-risk areas, may not be a big deal, but either way it's precautionary to have.

For the most part, my clients who could afford the mortgages in those locations, they don’t really care about the flood insurance. It’s the cost of having an oceanfront home or a bay front home.

4. PLAN TO ANSWER THE SAME LOAN QUESTIONS OVER AND OVER

While the process of getting a loan hasn’t changed much since the mortgage crisis, what has changed is the amount of documentation required. Expect to be asked a lot more questions about your financial wealth.

Some say the process can be painful.

They do need to get to the bottom of how they can make sure you can afford this house today, where they didn’t in the past. It is a more difficult process to go through.

The documentation process is among the biggest complaints about any transaction.

The loan application itself hasn’t changed much over the years. It’s just the supporting documentation. They ask for your income. They verify your income. They verify your income one more time before you go to closing. They just seem to be asking for the same things over and over again. Knowing this in advance might help with the process.

5. UNDERSTAND TRANSFER TAXES

While property taxes are lower in Delaware, buying property in the First State will cost you more at the outset. The state’s realty transfer tax, which is based on the purchase price, is higher than the realty transfer tax in Maryland.

Transfer taxes are part of closing costs and add thousands to the property’s bottom line cost.

Delaware increased its transfer tax to 4 percent in 2017. It had been 3 percent. Buyers and sellers split the cost of the tax that pays for state and local services.

The transfer tax is one of the reasons why the property taxes are able to stay so low because every time a house transfers, the state and the county collect a transfer tax — 2 1/2 percent to the state and 1 1/2 percent to the county or a municipality, depending on where you are.

Buyers and sellers split the cost of transfer and recordation taxes for Ocean City, Worcester County and Maryland. The tax is 1.66 percent of the property’s cost.

6. FIND OUT IF THERE IS A GROUND LEASE

You may not own the land below your home, if you buy in parts of Sussex County, where the Delaware beaches are located. You may pay a land lease.

There are ground leases throughout the county. Dewey Beach has ground leases in Rehoboth by the Sea. Sea Colony has ground leases, those are just a few. Land rent is based on the value of the land and can cost tens of thousands of dollars a year for some properties.

Paying to lease the land where your home sits can be a sensitive issue. Some buyers dismiss it immediately. Make sure to look at that from the beginning.

Paying to lease the land where your home sits can be a sensitive issue. Some buyers dismiss it immediately.

Some others will come to Dewey Beach for example, and they say, ‘So I can have that whole cottage for $300,000 or $400,000?’ Yeah, you will have land rent, and the land rent is substantial, but it is much cheaper than the debt load you would have had on a $1 million purchase in Rehoboth or Bethany or any of the other towns. For a lot of people, it’s the most affordable way to get to the beach.

7. CHECK OUT CONDO AND CONDO DOCUMENTS

CONDO FEES

With 30,000 condominiums in Ocean City and thousands more in lower Delaware, you will likely pay a condo fee.

Know exactly what those fees cover and look at whether they are in line with fees in similar buildings, real estate agents advise.

Condo fees aren’t necessarily a bad thing. The fees actually cover the exterior of the building. And you are really splitting the cost of the roof, railings, steps. If you were just paying for it all yourself, it would be a lot more expensive.

Condo fees, also known as dues, will be higher in buildings that have elevators, pools, clubhouses, game rooms and tennis courts. Upkeep on these items comes from that money.

Usually, if somebody doesn’t want a pool, they don’t even want to look at a building with a pool because they’re going to be paying for an amenity that they’re not even interested in.

Realize that the type of building the condominium is located in could affect whether you are able to get a conforming loan or have to look at other financing options.

Condominiums that have offices or tiki bars or other businesses on their first floors rely on the income of those businesses, and lenders take that into account.

The way lenders look at it is if that business pulls out of that building, it’s that much money — $20,000 a year income that that building loses. So there are only certain banks that will lend on those buildings, and …it’s the local banks.

To get a conforming loan on the properties is going to be a challenge. It’s not that financing isn’t available. You’re going to pay a different rate, a little bit higher rate for a shorter term.

CONDOMINIUM DOCUMENTS

A real estate listing will tell buyers what the condo fee is for a year, but it’s not until they are under contract that they get the details.

Condominium resale documents will include the condominium’s budget, bylaws, rules and restrictions. We recommend reading them closely.

Sometimes the condo fees may seem high but the condo is probably putting money aside in a reserve fund for future expenses. A lot of time, people don’t realize that that is helpful in the future. That is covering you so you might not have to worry about special assessments in the future. It can be a lot to consider, but important to understand, talking to your agent and asking questions is key so that there aren't any surprises at the end.

Special assessments occur when condominium associations don’t have the money needed for capital projects and deferred maintenance, and have to quickly raise the money from the owners.

The biggest thing is checking to see how much money is in their reserve account. Each building should have a reserve fund. So if there is an elevator that needs to be replaced or something like that, they’re not going to hit you with a special assessment. The money should just come out of reserves.

Reserves also impact whether you get a mortgage.

If you are going to buy in a condominium, most people think, ‘Oh, they’re just looking at me as the buyer and approving me in the mortgage process.’ Most people don’t realize they also have to approve the condominium building. They have to make sure there is enough money in the reserve account. There’s a lot of standards that revolve around approving the condominium building, in addition to the buyer.

OTHER ODDITIES

The nitty-gritty information in those resale documents could make a difference on whether you back out on a sale.

We need to look at the condominium association’s minutes and check for any pending lawsuits.  Checking for restrictions and anything that would hinder how you may want to use the unit is important also.

For example, there may be restrictions on the type and size of dog owners are allowed to have, or whether the condo can be a rental.

If you are not happy with what those documents state, you back out of the contract.

When buying a property at the beach we recommend using a local Real estate agent that know to outline and look for all issues that could be a problem, we know how to protect you as a buyer better.

Use local a real estate agent, a local lender and a local title company and the process will be much smoother.

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