WASHINGTON Nov 14 The scenes rolling in from
the New Jersey shore are devastating, and not just to the people
whose homes were destroyed. Also damaged are the "retire with a
water view" dreams of others who had aspired to vacation
property and may have been thinking about beach real estate -
until they saw what a storm like Sandy can do.
Disclosure here: Along with my husband, I own a small beach
townhouse condominium on the Delaware shore. And because of
Sandy, we had to cancel a weekend's worth of concert tickets and
family plans and instead head to the shore to make sure our
place was still standing, and not full of water.
It was safe and dry, but it hasn't always been so. As top
floor owners, we've had to contend with nor'easter rain in our
bedroom and roof repairs that took years to get right. And as
members of a condo association, we would have been on the hook
had flooding compromised the foundation underneath our
neighbor's downstairs apartment.
So we took ourselves out for a nice beach walk and some
oysters, and talked about how much we dodged a bullet - this
time. We also saw less-lucky neighbors bailing out their
basements and grumbling about how much they would spend on the
After a big storm like that, some people will take their
insurance settlements and walk away from properties that they
will sell "as is" to undeterred buyers who think this is the
time to pick up a beach bargain.
Who's got it right? The National Association of Realtors,
predictably, thinks it is the buyers. "There's intrinsic value
to being by the shore," says spokesman Walter Molony. "It's a
high desire that isn't going to go away."
Maybe that's true, but satisfying that desire could cost
more than you expect, and more than it used to. Here are some
line items to consider before you ride in with your checkbook
and start making offers.
- Prices may rise, not fall. Stan Humphries, the chief
economist for Zillow, the real estate research site, has
observed that home prices typically rise about six months after
an area is hit hard by hurricanes or other major natural events.
Housing stock is depleted and new-construction costs are high.
So, it's unlikely that you will pick up a big bargain, though
some buyers are negotiating hard now on homes they were planning
to buy before the storm hit. As always, people willing to buy
"needs work" homes will get better prices.
- Your flood insurance is going to get more expensive. If
you own a home in a high-risk area, you're already paying about
$275 a month for a policy that will cover a maximum amount of
$250,000 for your building and $100,000 for its contents.
Legislation that reauthorized the National Flood Insurance
Program will require FEMA to eliminate subsidies and raise
premiums on some properties. Premiums could go up by as much as
20 percent a year in some areas. Older "non primary" vacation
homes will take a bigger hit: Their premiums are expected to
rise 25 percent a year until they are fully covering the risk of
- That may be the only insurance you can get. Look at
Florida for an example of what can happen to homeowners who live
too close to the shore. Insurers like State Farm and Nationwide
Insurance stopped writing new policies and raised rates
aggressively on old ones. All across the country, insurers are
revising their homeowners' policies to include hurricane and
high-wind deductibles that run as high as 5 percent of the
insured value of the home. Furthermore, some insurers charge
more for some policies if the home is left vacant most of the
- Your mortgage could cost more, too. Typically, a
second-home mortgage doesn't cost very much more than one for a
primary home as long as you can qualify for it on the basis of
your income. If you need rental income to qualify for the
mortgage, that's a different story. Expect to need a higher down
payment - at least 20 percent - and to pay an interest rate that
is roughly 0.5 percentage point higher, according to quotes from
- You're part of a club. Of course, many vacation places are
simply single-family homes that owners tale care of themselves.
(More about the expenses of that in a minute.) But condos and
resort communities take care of maintenance for you, for a
price. Our tiny place requires a monthly condo fee of $240, for
example, and we don't have tennis courts or a pool, or lavish
grounds or much of anything, save a parking lot and an exposed
outside shower. And it's not just monthly maintenance. Everyone
in a particular condo association pays when repairs are made to
common areas like roofs, sidewalks and golf courses.
When a building sustains significant damage, its condo
association may eventually have to make a special assessment on
all owners, asking them to pony up their share of the fixes. The
last time our building needed new siding and a roof, we were
assessed an extra $21,000. Not all owners were in a position to
pay that and had to borrow the funds.
- You're not there. It's not just your insurance that could
cost more if you don't live near your vacation home. It's the
emergency plumbing, lawn mowing and property management you
might have to arrange from afar. With gasoline at or near $4 a
gallon, the commuting costs aren't insignificant, especially if
you have to race there in a hurry to board up windows or check
on basements. And yes, if the roof fails and you don't have a
condo association to fix it, it's on you to get it fixed.
- Wear and tear is not insignificant. You can make money by
renting out your beach home, but even the most careful and
conscientious renters will break the window shades, wear out the
sofa and track sand across the floors. You'll have to get
everything sanded, cleaned, repaired and replaced often.
Finally, don't forget friends. They will visit week after
week. You'll have to feed them. That's the fun part, and the
happiest expense on this long list.