After Sandy, Do You Still Want a Beach House?

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 cleanup.

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 flood.

– 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 time.

– 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 MortgageMarvel.com.

– 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.