Possible Perks and Perils of Buying Coastal Property

All over the world, from Miami to the Maldives, rising sea levels threaten coastal real estate. Scientists say the daily high-water mark has been rising by nearly an inch a year in places like South Florida. During extraordinary high tides, saltwater even sneaks up the driveways of some multi-million dollar coastal homes.1

While projections vary, the general consensus is that sea levels could rise by anywhere from 3 to 6.5 feet by the end of this century. 2

Many people dream throughout their careers of owning a piece of real estate on the water, perhaps as a retirement first or second home. While oceanfront property demand remains strong and communities are still being developed, the potential effect of climate change is beginning to cast a shadow over this dream.3

According to the federal government, eight out of 10 of the most expensive natural disasters in U.S. history were caused by hurricanes.4 For anyone intending to purchase property near the ocean, it’s an issue that should not be ignored. It’s a good idea to speak with an experienced property and casualty insurance agent to understand a homeowner’s responsibilities regarding coastal property.

If your heart is set on the waterfront, a real estate agent with experience selling these types of properties can be helpful. Buying coastal properties requires a certain amount of due diligence. For example, it’s wise to find out:5

  • The different types of mortgage loans and qualifying criteria, because a loan for waterfront properties can take a lot longer than a normal home loan
  • Whether the structure’s building materials are designed to withstand local weather conditions
  • What’s allowed and what permits are required for any improvements you may want to make, such as adding a deck, dock or boat lift
  • If all the utilities you expect are available, such as cable television, internet access and cellphone coverage

Generally, mortgaged properties in flood zones require flood insurance sold by the federal government. While this insurance may be required to purchase the property, some homeowners later drop their policies. If you don’t have insurance and your house floods, the financial impact could be disastrous. Under some circumstances, the government may still offer assistance but it may not be nearly enough. For example, the average federal assistance in Florida is $4,000, compared to the average flood insurance payout of $51,000.6

Another flood insurance tip: There’s generally a 30-day waiting period before coverage goes in force, so you may not want to wait until your local news starts tracking a storm to purchase flood insurance. 7

Then again, coastal real estate can provide free housing for vacations as well as ongoing rental income. You should carefully consider whether you’re up for the task, which can include landlord duties, maintenance and upkeep, ongoing expenses and the inconvenience of an illiquid asset.8

Content prepared by Kara Stefan Communications.

1 Elizabeth Kolbert. The New Yorker. Dec. 28, 2015. “The Siege of Miami.” http://www.newyorker.com/magazine/2015/12/21/the-siege-of-miami. Accessed Dec 11, 2016.
2 Ibid.
3 Ian Urbina. The New York Times. Nov 24, 2016. “Perils of Climate Change Could Swamp Coastal Real Estate.” http://www.nytimes.com/2016/11/24/science/global-warming-coastal-real-estate.html?_r=0. Accessed Dec 11, 2016.
4 FloodSmart.gov. Sept. 27, 2016. “Tropical Storms and Hurricanes.” https://www.floodsmart.gov/floodsmart/pages/flooding_flood_risks/tropical_storms_hurricanes.jsp. Accessed Dec 11, 2016.
5 Shannon Petrie. HGTV. 2016. “Waterfront Buying: Top 10 Tips from Agents.” http://www.hgtv.com/design/real-estate/waterfront-buying-top-10-tips-from-agents. Accessed Dec 11, 2016.
6 Harold Bubil. The Herald Tribune. March 23, 2016. “Flood insurance is getting expensive, but can you afford to be without it?” http://realestate.heraldtribune.com/2016/03/23/flood-insurance-is-getting-expensive-but-can-you-afford-to-be-without-it/. Accessed Dec 11, 2016.
7 FloodSmart.gov. 2016. “Protect What Matters.” https://www.floodsmart.gov/floodsmart. Accessed Dec 11, 2016.
8 Bankrate.com. Aug. 2, 2016. “Funding retirement with rental income.” http://www.bankrate.com/finance/retirement/funding-retirement-with-rental-income-1.aspx. Accessed Dec 11, 2016.

We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference. 

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