Recently, I asked whether I should buy a vacation rental. I wondered if it made more sense to buy a second home versus a vacation rental. The vacation rental would strictly be an investment property requiring a hefty 20% down payment (minimum). Even if I chose the vacation rental route, the next logical question would be where should I make such a purchase? Since I’m mainly interested in beachfront property, I’ve considered such areas as: Virginia Beach, Panama City Beach, Destin area, Myrtle Beach, and even Miami Beach. After careful consideration, I’ve decided to buy a vacation rental and focus my attention on one area: Panama City Beach, Florida. Let’s examine why.
Weekend Trip With My Mom
So, I’ve never been to Destin or to Panama City Beach before. So, I decided to visit the area. My mom decided to come with me. After meeting up with my mom, we drove nearly six hours to get to Destin.
Prior to making the trip, I had arranged to meet with a Realtor. I met with the realtor and he showed us four condos in Okaloosa Island. Out of the 4 condos, the two best ones that I liked were priced at about $520,000 and $475,000. They both had great views and there were pros and cons to each unit. Each was a 3 bedroom 2 bathroom condo around 1300-1400 square feet.
For clarity, the goal was never to make a purchase. I just wanted to see what a condo would actually feel like. There’s only so much you can get from looking at a picture or even video of the unit online. It’s definitely important to actually visit a unit to get the appropriate feel.
We only had a weekend. So, we drove down on a Friday, looked at properties on a Saturday and drove back home on a Sunday. It was very efficient, and also very productive.
I Didn’t Like Destin
I know that the Destin area is a popular vacation spot, but I actually didn’t like it. I’m defining the Destin area as Destin, Miramar Beach, Okaloosa Island, Fort Walton Beach, etc. It’s really unfair to judge a city after only one day, but this is more first impression than anything.
Fort Walton Beach was very congested. There was only one main road and it was constantly backed up. I would be very frustrated if I had to travel on that road often. Okaloosa Island was much less busy and felt more private. I could see myself living on Okaloosa Island. I wasn’t impressed with how the outside of the condo’s looked, but once you got inside, the condos there were adequate.
Overall, I’m glad I went.
We stayed at the Sundestin Beach Resort, which was rated as a 4-star hotel on Hotwire. I wanted to stay someplace nice because my mom was with me and I also wanted to experience a vacation rental myself. So, we actually booked a studio. It overlooked the pool (not the beach), so I was very happy with our accommodations. I just didn’t like how everything felt congested on that one road.
Panama City Beach Fluke
While I was doing research on Destin, I came across Panama City Beach. According to rented.com, Panama City Beach was the number one rated vacation spot in 2018. So, as you can imagine, I was torn between both cities.
I had only arranged to see a Realtor in Destin. I didn’t arrange to see one in Panama City Beach. Quite honestly, I didn’t realize it was so close – only 40 minutes drive. Anyway, I asked the realtor if he had a referral, as I only had that one day to check things out. Well, after he tried 3 separate realtors, the gentleman I was working with said he didn’t have any because it was so last minute.
So, my plan was just to drive to Panama City Beach anyway just to check out the area. During the drive there, I randomly called two realtors to see if they could fit me in their schedule. The first guy blew me off, but the second one was able to meet. We met with him at his office, and he was able to show us one unit in one of the biggest condos around.
Survey Says!
All I can say is, I LOVED IT!!! It was love at first sight. It was EXACTLY what I imagined I would own. The views were spectacular. It was a corner unit, so that was a plus. The size was closer to 1500 square feet, etc. And the price was around $420,000!!! So, if I was in a position to buy, I would get a bigger condo, with better views and cheaper price in Panama City Beach than the two I liked in Okaloosa Island.
Obviously, when I’m ready to go shopping for a condo, I’ll be doing much more research and seeing many more properties. But, the feeling I had with this condo is exactly the same I had when I bought my first house three years ago. I told the realtor that, if I ending up using him (after more diligent consideration than randomly picking someone online), he is going to have a hard time because I would be judging every future unit against the one he showed me. He was ready for the challenge.
So What Now?
Now, I don’t have to spend my time trying to decide which area to invest in or whether I should buy a second home or vacation rental. The weekend trip to Panama City Beach and Destin was so successful, that I’ve actually decided to buy a vacation rental as my next property in Panama City Beach, Florida.
If it wasn’t clear, I’m having a very emotional reaction to these condos, as if I was buying another primary home to live in. I do recognize that I am buying an investment and thus I should not disregard a condo because it doesn’t meet my definition of a dream condo.
Truth be told, while the main focus of this vacation rental will be investment oriented, it’s important to get something I like myself because I may very well use that condo from time to time as a vacation spot myself.
Finally, I’ve asked the realtor to send me income projections for that unit, and I will try to compare the potential income I could receive against the cost of owning the property using a full-time property management company. No matter how much I like it, I have no intention of buying a property that costs me money every month. If the numbers don’t work, I’ll move on.
Because I’ve now decided to go forward with this purchase. The next thing for me to do is save that hefty down payment and potential closing costs. I’m still several months away before I am even in a position to buy anything. But, having my goal narrowed will be very helpful. As of right now, I still plan on maintaining my current contributions to my taxable account. But I’m exploring withdrawing from an old 401K to help me afford the financing. This may be instead of or in addition to withdrawing from my dividend portfolio, which is something I never thought I would consider doing before retirement. But, if I did, it’s not like I was taking the money to go buy a car.
Conclusion
Purchasing an investment Condo for $420,000 is both exciting and scary. Whenever I’m ready to buy, hopefully, I find something cheaper. But, either way, it’s going to be scary. I’m concerned about hurricanes. Specifically, I’m concerned that if a hurricane hits, the unit might be uninhabitable for a while. This would force me to pay that mortgage all on my own.
I’m also concerned about rising sea levels and the thought that in 20 years, my condo would be worthless.
Regarding financing, I can be approved for a $400,000 loan according to a mortgage broker. Obviously, the cheaper the Condo, the less money I need for down payment and so I’m going to try to spend as little money as possible, but within reason of my desires to own a beachfront condo.
I’m very excited right now, but I will be doing a lot of soul searching, and researching to see whether this is the right move for me. I might even consult a financial and tax adviser before making such a hefty purchase. After all, I want to ensure that I am making an informed decision and not just an emotional one.
What do you think of this post? Let me know by commenting below.
Panama City Beach is a great choice. I say that because it’s my home town. And, my neighbor owns the Century 21 office, Ryan Realty. Being close to Pier Park is on the list of wants of condo renters.
I’m not a realtor, but I try to keep up with the real estate market here. So, please feel free to reach out.
Thanks Kevin.
I’ve decided to focus on PCB. I just don’t know if I should buy as a second home or investment property.
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I find it funny that I found this story. I am in the middle of converting my retirement stock portfolio into mostly dividend stocks and did a search on “dividend portfolio” and ended up here. We live in New Orleans and purchased our first beach property in the panhandle in 2008. That was near the bottom of the market. Interestingly, we came to the opposite conclusion from you. We choose Destin, more specifically, Miramar Beach over Panama City Beach. We now own 4 beach properties, a 3 bedroom and two 2 bedroom units in Miramar Beach and a 3 bedroom unit on 30a in Blue Mountain Beach. We manage our own properties and my basic purchase criteria is with 20% down and a 15 yr mortgage, it must be capable of generating positive cashflow from year one. So far, that has been possible but the prices have begun to escalate again so we have backed out of future purchases in the market.
Thanks for this Mike and I’m glad it’s possible. I’m really hoping that this pays off for me. It’s sort of a gamble but I do believe I can do well over the long term.
15 years is the sweet spot for me because that’s when I want to retire. I don’t think I can afford to pay off this condo in 15 years just yet but I believe over time I’ll pay it off sooner than the 30 years. If this works out I might follow in your footsteps and get more units on the beach although I would definitely look for a 2/2 next time.
Good luck with your unit! There are definitely trials in owning beach property in the panhandle. The major one of course, is hurricanes. I always horde cash and put off any repairs possible and furnishing replacements until after hurricane season is over! The other point that some people don’t think about is “loss of use” insurance coverage. Again, hurricanes are the most obvious situations that can cause loss of use but we had a water leak next door that came through to our unit during the night. We received a call at 5 AM from a guest telling us there was about an inch of water in our unit! The loss of use coverage covered out cost of moving the present guest and the one for the following week to another property.
Again, I hope it works out for you. We love the panhandle!
Hi Mike,
I’m going through trials right now with the beach property and don’t even completely own it yet.
I did consider loss of income insurance but I don’t know if loss of use insurance is the same thing. When I called to inquire about the specifics of loss of income insurance I was disappointed to find out it wasn’t what I thought it was.
Basically, what the insurance does is refund me or otherwise cover the amount of money I would have made but for didn’t because the reservations were cancelled because of a hurricane, etc. that’s all well and good but what I really wanted insurance for was to cover me in case I can’t rent out the unit for like 3-6 months because the damage is so bad that it’s gonna take them that long to repair.
In other words, it’s one thing to show cancelled reservations and be insured by that, it’s quite another when I have no reservations in the first place but can’t get any because of a qualified reason. Maybe that’s the loss of use insurance you are taking about.
I would LOVE to pick your brain and get your recommendations for insurance company, property management company, or a cleaning crew if I choose to manage it myself or things I might not have thought about haven’t not owned a beach front property before.
It’s great to get advice from someone who isn’t trying to make money off of me (like a realtor or mortgage broker) even though you’re just a random guy online. If your down for that, leave me your number in the comment section. I won’t post it but I’ll give you a call. I’m stuck at the airport for the next 5 hours (ya I missed my flight) so I’m available. If you would rather not, totally understandable and no worries.
Thanks for your input so far.
Glen,
Sorry I didn’t get back to you earlier. We had some errands to run.
I have no problem talking with you, my wife also. She is the marketing brains , I just do the back office work and handle repairs, contractors ,etc. We will help you anyway we can.
I should say up front Panama City Beach is a slightly different market from Destin/Miramar Beach. They attract 2 different groups of people. There is some overlap but there are distinct differences also. One of the big differences is that Walton County has really cracked down on drinking on the beach. The word is out to the college crowd so we don’t get as many rowdy groups for spring break as Panama City Beach. We get spring break rentals but they are more of the high school and elementary school family groups. Summer rentals are pretty much interchangeable between the two areas, everything fills up unless you have a really bad condo or overprice it!
We can’t help you a lot with support in Panama City Beach; cleaning, rental agency, handyman, etc. We have never done business there so we have no contacts. WE can talk about the insurance because there are a few tricks to that.
Please feel free to give us a call or text anytime. We are up until 10 or later every night.
PS: I saw your later post on the HOA dues. That is REALLY low! Ours run from about $750/mo for the 2 bedroom units to over $1000/mo for a 3 bedroom unit in a small building.
Thanks mike. I just left you a message. Looking forward to catching up with you.
It is new to me that Destin is not that good. I would want to take my mom there as well and plan to move out soon to buy a beach house as her retirement home. If ever, we would like a realtor to help us out on looking for one
Just don’t rush into anything and good luck if you decide to make a purchase.
Oh, thanks for sharing! Had no idea about Destin.
Me either, but it seemed cool (notwithstanding the traffic situation).