Things to Consider When Purchasing a Lake House as an Investment Property
Posted by Hunter Croan on Tuesday, September 27th, 2022 at 10:26am.
Waterfront properties continue to attract investors due to their income potential, the possibility of long-term value appreciation, and the chance to enjoy the property personally as an owner. However, before you decide to invest in Texas waterfront real estate, there are a few essential considerations to bear in mind.
A Tale of Two Investments
Not all homes carry the same promise of ROI and income potential. When it comes to short term rental (STR) investment properties, for instance, waterfront houses remain desirable above all else. Plus, owning an STR gives you a rare opportunity to have an investment you can play with on your own time!
Many waterfront properties belong to one of the two following categories:
Some people purchase waterfront properties to rent out the home for short-term stays and immediate income. With the rise of platforms like Airbnb and VRBO, lakehouse owners can generate seasonal or year-round revenue by providing accommodations for just a few days (at a much higher rate) instead of committing to a long-term lease agreement.
Of course, it’s important to note that converting a property into an Airbnb rental can come with complications that depend on the location. For example, certain waterfront communities in Texas may have homeowner covenants, city ordinances, or restrictions that can make it difficult to rent the property out to others. Not all STRs make sense on paper due to the cost of acquisition however, this leads us to our next category: future appreciation.
The second type of investment property focuses more on the long-term value appreciation of the home. For most Texas lake houses, the potential return on investment will largely depend upon the location.
Historically waterfront homes have appreciated at a higher rate than non-waterfront homes in the same area. For example, most central Texas lakes, such as Canyon Lake, Lake LBJ, Lake Austin, and others, more than doubled in value in a three-year timeframe from 2019 to 2022. As you can see, this is where the real money is for your investment.
Of course, determining which type of investment property is right for you will depend on your financial goals, the amount of time you’re willing to devote to the home, and where the lake house is located. This is where our waterfront experts at The Lakefront Group are here to help.
At The Lakefront Group, we make recommendations that fit best with your financial and personal enjoyment goals.
In some cases, the houses with the highest annual rate of return from rentals will not appreciate at the rate of other houses on the lake. For instance, one of the best-performing vacation rentals on paper that I have seen was a seven-bedroom lake house located next to a steel recycling plant that ran 24/7, and it was noisy! The owner was able to acquire this property below the value of similar houses on the lake without the noise. But the renters did not care about the noise, and they would spend the same nightly rate for this house as they would for a similar-sized house located in a quieter section of the lake. On the flip side, this house does not appreciate at the same rate as those in less noisy and more popular areas, so the long-term investment return is not as great as the short-term.
Increasing Lake House Investment Value
In many cases, the best waterfront investments will be houses in great locations with something missing that can be fixed before or after closing, such as a remodel, waterfront improvements, fill area issues, etc. Don't be afraid of projects. We have local contractors we can recommend, most of whom we have personally hired in the past.
Whether potential customers are looking to purchase a lake house outright or simply rent out the property for a weekend, making improvements to your waterfront home is an excellent way to generate interest. With a few simple upgrades, you can also increase the investment value of the home over the years.
Here are a few tips to help you get started:
Add Waterfront Improvements
Even if your home is already located on the water, investing in amenities like a retaining wall, a boat house, a beach, or a large dock, will make your property much more appealing to others.
Most buyers are afraid to take on waterfront improvement projects. Because of this, they will pay a lot more for a property with those improvements already completed. This makes improving your waterfront one of the rare investments in real estate where you can really see a positive return on your investment.
Additional Improvements and Upgrades that Enhance Curb Appeal and Value
Consider adding a pool and hot tub, as these are extremely popular for STR tenants. Houses with pools and hot tubs (even when they are on the lake) will bring in more money per night, and the house should be booked more often. Your return on investment from a resale perspective is not as high with waterfront improvements; however, your additional rental revenue makes this project worth considering.
Adding new outdoor structures to a Texas lakehouse investment will make the property much more sought-after. You also might construct a gazebo or a firepit that overlooks the lake.
It’s always worthwhile to consistently keep up with landscaping maintenance to maximize the value and immediate attraction of your property’s listings.
While you might not expect it, lake house values tend to appreciate at an accelerated rate compared to other homes on the market. Why is this?
There is a relatively scarce supply of lake houses, but there is an ever-increasing demand. Waterfront property is limited, and most places are not making any more. These factors combine to make Texas lake house real estate an extremely sound investment.
Of course, it’s important to carefully consider your financial objectives before purchasing Texas waterfront real estate. If you need help finding the perfect property for you or estimating the value of a potential rental spot, contact our team at The Lakefront Group for professional guidance. (Remember, we have access to off-market listings.)