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Updated over 2 years ago, 08/30/2022
Deciding on Selling Beach House
Hi Everyone,
I have a situation that is causing a lot of stress in my life and I wanted to get some feedback. My sister and I recently inherited a beach house, a condo, and a plot of land in the Cherry Grove, SC area. All 3 properties are paid for in full. The beach house rents during the summer months and nets $30,000 on average. The condo is rented year round to a tenant, and the plot of land is in a perfect spot to build and rent on.
My sister wants to sell everything, but I would like to retain some of it since they are all paid for and are earning money. Along with the NC properties I will have to buy her half out of I only think I can buy out just one of the SC properties. I'm really struggling with making this decision. I'm wondering if buying out the beach house is worth it, or if I should sell it and take the money to try and find other properties to invest with closer to where I live in NC. Ideally I would like to find a way to keep all 3 properties as they are in a great vacation location and will all rent well. I would have to build and rent on the plot of land, but it's in a prime location.
If anyone can just share their opinions as to what you might do in my situation or any creative thoughts at all I would greatly appreciate it.
Hi Joshua, so sorry for the loss that resulted in the inheritance. Could you find out your sister's motivation? If she just wants a lump sum payment, try doing a cash out refi and use the rental income to pay the mortgage. I have MLS access down there and would be happy to run Comps for you if helpful, or if you need a lender I have a guy for that too.
I've owned multiple beach houses. I like them that there is the unique attraction of the ocean. They generally hold their value and increase in market value when times and markets are good. If you do sell and the market goes up more, you could be priced out of the market in the future. The downsides include property management is costly, more so that inland, or more than in regular non resort areas. Depending on the location the season can be short, in the Mid Atlantic area the season is 12 weeks between Memorial Day and Labor Day. That's where you make your money and make very little outside of that window. I've owned multiple beach properties for decades and have never personally gone there in Jan, Feb, or March, even though they were available. Ideally you have renters for each of the 12 weeks, but that doesn't always happen, maybe you only get 10 weeks. How much do you want to use the property? You have to weigh your personal desire to enjoy the beach with the diminshed cash flow if you occupy versus a cash paying tenant. One of the beach houses that I had was never rented, specifically so that I could go there on a moments notice. Weather good go to the beach, no reservations needed. Also family and friend got to use/stay there rent free. One of the other beach rentals, we never occupied and rented on a yearly basis to people who permanently lived at the beach and had full time jobs even in the off season. The 12 month rent was about the same as the 12 week rent, and the tenants paid utilities and were there almost alwasy so that the property wasn't vacant for months on end. For I'd keep the condo with the paying tenant and try to keep the beach property, and ditch the lot. See if your sister would like payment and would finance to you her 50% of the condo and beach house.
David Krulac
Bigger Pockets Podcast #82
#2 General Landlording & Rental Properties Contributor
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Think about the cost of each, how much money they bring in and how much work is involved. How much money to do you have and what can you borrow (ie mortgage)? I'd figure out how much you have to work with (ie can you get a mortgage for $200K) and then how far that would go. Does your sister want her half up front or is she willing to wait a bit?
@Joshua Morton Im sorry for your loss. I love to study the flows of life and the most basic principle in nature is the concept of CREATION. MAINTENANCE. DESTRUCTION, CREATION and the cycle repeats. It reminds me that often times of great destruction can create an opportunity for something beautiful and new to come through and be made.
My family has owned a beach house at the Jersey Shore all of my life. We rent it out all summer and just started renting it in the winter. My grandmother passed away in 2018 and myself, mother and sister inherited the beach property. Together we manage it. When we inherited the property it was as my grandmother called it a "Beach Shack" which she wasn't wrong. We own the property free and clear like you, so we did a CASH OUT REFI and used that money to renovate the house. You just have to make the income from the real estate covers the mortgage, taxes and insurance. Not only did this renovation help to secure the property for future generations but it also allowed us to increase our rents and turn a good profit.
In your situation with your sister it sounds like she has no interest or sees the value in owning real estate. I would have a conversation to see what her vision and expectations are for her inheritance, then use the CASH OUT REFI method to get her the cash she seeks.
If you have to sell something I would sell the land. That sounds like an easy way to get cash. Unless the location has some great opportunity, then I would develop the land, then rent it or sell the developed land.
If you want to keep all 3 properties you might try to sell her on paying monthly cash flow payments from renting the property and put each property into an LLC. As an LLC you both would own the LLC as partners which makes it easy to buy her out in the future because you own the LLC and the LLC owns the property. Its equity ownership rather than direct real estate ownership. LLCs to my knowledge are difficult to get a mortgage on so talk with a lender first.
I would most definitely NOT sell the beach house. Condo's can be annoying because of HOAs telling you what to do and Land can be sold or developed and then sold or rented.
You have alot of great options here and Id be happy to offer more feedback if you have more questions. Im passionate about creating generational wealth and it sounds like you have an opportunity to do just that with this real estate.
Good luck!
Quote from @Account Closed:
Hi Joshua, so sorry for the loss that resulted in the inheritance. Could you find out your sister's motivation? If she just wants a lump sum payment, try doing a cash out refi and use the rental income to pay the mortgage. I have MLS access down there and would be happy to run Comps for you if helpful, or if you need a lender I have a guy for that too.
The house is actually paid off. Could I just pull some equity out of the home to pay my sister's half?
Quote from @Joshua Morton:
Quote from @Account Closed:
Hi Joshua, so sorry for the loss that resulted in the inheritance. Could you find out your sister's motivation? If she just wants a lump sum payment, try doing a cash out refi and use the rental income to pay the mortgage. I have MLS access down there and would be happy to run Comps for you if helpful, or if you need a lender I have a guy for that too.
The house is actually paid off. Could I just pull some equity out of the home to pay my sister's half?
You should be able to, especially if there is a cash flow from rental income. Consider calling up your favorite mortgage lender or banker.
Quote from @Richard Phillip Lewis:
@Joshua Morton Im sorry for your loss. I love to study the flows of life and the most basic principle in nature is the concept of CREATION. MAINTENANCE. DESTRUCTION, CREATION and the cycle repeats. It reminds me that often times of great destruction can create an opportunity for something beautiful and new to come through and be made.
My family has owned a beach house at the Jersey Shore all of my life. We rent it out all summer and just started renting it in the winter. My grandmother passed away in 2018 and myself, mother and sister inherited the beach property. Together we manage it. When we inherited the property it was as my grandmother called it a "Beach Shack" which she wasn't wrong. We own the property free and clear like you, so we did a CASH OUT REFI and used that money to renovate the house. You just have to make the income from the real estate covers the mortgage, taxes and insurance. Not only did this renovation help to secure the property for future generations but it also allowed us to increase our rents and turn a good profit.
In your situation with your sister it sounds like she has no interest or sees the value in owning real estate. I would have a conversation to see what her vision and expectations are for her inheritance, then use the CASH OUT REFI method to get her the cash she seeks.
If you have to sell something I would sell the land. That sounds like an easy way to get cash. Unless the location has some great opportunity, then I would develop the land, then rent it or sell the developed land.
If you want to keep all 3 properties you might try to sell her on paying monthly cash flow payments from renting the property and put each property into an LLC. As an LLC you both would own the LLC as partners which makes it easy to buy her out in the future because you own the LLC and the LLC owns the property. Its equity ownership rather than direct real estate ownership. LLCs to my knowledge are difficult to get a mortgage on so talk with a lender first.
I would most definitely NOT sell the beach house. Condo's can be annoying because of HOAs telling you what to do and Land can be sold or developed and then sold or rented.
You have alot of great options here and Id be happy to offer more feedback if you have more questions. Im passionate about creating generational wealth and it sounds like you have an opportunity to do just that with this real estate.
Good luck!
I'm more rational and financially minded than most.
But if there is no debt on the properties and they're cash flowing well, I'd consider buying your sister out. You can refinance the properties and pull out cash. Take the cash from the refinance to give to your sister for her share. You now own the properties and she is free to do what she wishes.
It'd be a win win. It's important that the properties can handle the debt load though as the debt and properties will now be 100% yours. If there is excess cash from the refinance after paying your sister you could use it to develop the land.
Happy to help with the analysis if needed.
Quote from @Sam Applegate:
I'm more rational and financially minded than most.
But if there is no debt on the properties and they're cash flowing well, I'd consider buying your sister out. You can refinance the properties and pull out cash. Take the cash from the refinance to give to your sister for her share. You now own the properties and she is free to do what she wishes.
It'd be a win win. It's important that the properties can handle the debt load though as the debt and properties will now be 100% yours. If there is excess cash from the refinance after paying your sister you could use it to develop the land.
Happy to help with the analysis if needed.