If you’re thinking about investing in a beach rental it might be a good idea to pick a beach in a highly sought after location like Ocean City, Maryland. Ranked #13 on TripAdvisor Top 25 Beaches list for 2022, Ocean City is described as having lots to see and do on the boardwalk with a lovely beach by TripAdvisor reviewers.
The beach is certainly a major selling point with 10 miles of beautifully maintained sand and a boardwalk that spans 3 miles with a variety of amusements. In fact, the Travel Channel called the OC boardwalk “one of America’s best” and USA Today named it one of the nation's best boardwalks for food. Its proximity to Philly and the D.C. area only adds to its appeal for visitors who live in close proximity making it a smart location for investors to consider.
Buying Real Estate in Ocean City
This past March inventory rose substantially to the relief of fatigued buyers. Although, as the market returns to seasonal norms, interest rates have begun to rise making it important for buyers to be really clear about what exactly their budget can get them. In order to get an accurate idea of how much a vacation rental property in Ocean City will cost it’s helpful to know the additional expenses you will take on.
A 3 bedroom rental property in Ocean City can typically bring in about $35,000 to $45,000 during the summer months! However, investors need to be aware of the additional expenses that they will be responsible for. See below for a list of expenses to keep in mind.
Real Estate Property Tax
Property taxes are standard with any real estate purchase. However, short term rentals in Ocean City, MD require that buyers split real estate taxes between the State of Maryland, Worcester County, and the town of Ocean City. Tax rates are based on the Worcester County tax assessment value which is recalculated every three years based on sales data comparable to the property. Take a look at the breakdown of how each tax is calculated below.
Room and Sales Tax
Rentals in Ocean City may be subject to a 4.5% room tax payable to Worcester County and a 6% sales tax payable to the State of Maryland. You may be able to roll your room and sales fees into your tenants rental rates. It’s worth hiring a tax accountant who can provide some guidance on the best investment strategy for you.
The standard rental license fee is $141 which includes $25 for a noise control permit. This license is good from May 1st through April 31st of the next calendar year.
A partial year rental license is available at a reduced rate if you want to begin renting mid year. A partial license is helpful if you want to start booking early in the year for the summer months. This is also a great way to increase your exposure online.
A R-1 District Rental License in Ocean City, MD is a newer licensing requirement. R-1 districts in Ocean City are single family home communities and areas. Be sure to review the districts that have additional restrictions for short term rentals.
The R-1 District Rental License fee is $191 for one year, which is from May 1st to April 31st the following calendar year. The $191 fee covers $166 for the rental license and $25 for the noise control permit. Click the link to review information regarding licensing applications on the Town of Ocean City, MD's website.
Lead Based Paint Certification
If your rental property was built on or before July 1978 you may need to get a lead based paint certification from the State of Maryland. You'll need to hire a qualified professional to inspect the property and issue a lead free report.
Expect to spend about $300 per unit. Fortunately, this is a one time fee and the certification does not expire. Keep in mind inspection fees will vary on the size of the unit and the scope of work performed.
Condo Association and Homeowners Association Fees
If you're buying a condo in Ocean City, MD or a property with a Homeowners Association you may have additional expenses to add to your association dues. Be sure to review the rules and regulations of the condo association or the homeowners association related to short term rentals.
Associations in Ocean City normally do allow short term rentals. However, it’s important to evaluate these types of situations when searching for the right vacation rental property in Ocean City, MD.
Payment Processing for Online Bookings
Advertising your property on booking platforms is a great way to maximize the exposure for your property. Advertising with online bookings websites like VRBO, HomeAway, AirBnB, Booking.com, and TripAdvisor will require a subscription or booking fee. Take a look at some of these booking sites to get an idea of what it will cost.
Vacation Rental Management Fees
Hiring a vacation rental management company is a great way to outsource a lot of the work that comes along with managing a short-term rental. The management company you choose will directly impact your success so it’s critical to know how each company will advertise your property.
Some vacation rental companies utilize their own websites to market properties while others use booking sites. If the latter is the case then there will be additional fees added to the overall rental management charge. Typically rental management companies charge 10%-35% for various management services.
Cleaning Fees + Toiletries & Linens
If you plan to bring in a cleaning service to help you prepare for the next guest during the turn over this is another fee to keep in mind. Short term cleaning services are a little more expensive compared to standard home cleaning services. However, the fee will all depend on the services you want your cleaner to perform and the type of property being cleaned. Although some owners opt to clean properties themselves this is not always a realistic option if you do not live close to your property.
Providing toiletries and linens is a thoughtful gesture to create a comfortable vacation experience for your guests. Items like: spare toothbrushes, tubes of toothpaste, bars of soap, toilet paper, bottles of shampoo and conditioner, paper towels, and dish soap can increase the chances that your guest will rebook and leave a great review.
Linens are also a critical component in how comfortable your guests feel. It’s a good practice to catch sales throughout the year in order to have a large supply of linens. This item tends to wear and tear quickly due to frequent laundering.
Utilities + Water & Sewer
Utility bills are typically standard and covered by the property owner. Even so, there’s always options to help you save some money on these necessities. Air conditioning and heating costs can be regulated by installing a thermostat like Nest. It allows you to control the thermostat from your smartphone making it easy to manage your heat and a/c when no one is in the unit.
Luckily, electricity costs tend to be much cheaper in the off season since most guests are looking to stay in the summer months. Typical summer electric bill can run between $100-$250 for an averaged sized condo. In the winter this bill can dip to $50 depending on usage and property size.
Providing WiFi and cable access is another way to make your guests feel at home. Instead of cable, utilizing streaming subscriptions like Netflix, Hulu, and HBO Go may be a better option.
Finally, water and sewer bills are fairly inexpensive. You’ll be expected to pay a flat rate per fixture in your home or condo and a Bay Restoration fee of $5 per month. Expect to pay quarterly.
Benefits of Owning a Vacation Rental in Ocean City
Fortunately, there are some perks that go along with owning a vacation rental property in Ocean City, MD. Teaming up with a vacation rental program can help you save money on things like:
Cleaning services and maintenance
Condo association or homeowner association dues
Commission to rental agency and/or online vacation rental marketing services
Research vacation rental programs in Ocean City, MD to find one that matches your needs.
Another benefit you may not have considered 1031 exchanges. A 1031 exchange takes place when an investor sells a property and reinvests the proceeds from the sale into the purchase of a new property. This allows capital gain taxes to be deferred. 1031 exchanges are common in real estate investing and you don't need to be a big time flipper to benefit from it. Also look into the Opportunity Zone in OC.
Finally, the most obvious benefit is having the ability to control when you rent your property and when you use it yourself! If you love the beach then owning a beach property affords you the opportunity to enjoy the beach lifestyle. Plan your bookings around prime holiday weeks and weekends to maximize your earnings. September and October are good months for owners to take advantage of a beach stay without cutting into your rental income for the season.
Reach out to Stacy to talk more about the possibility of buying an investment beach property in Maryland, or any of the Delaware beaches: firstname.lastname@example.org or 443.465.0954.