Lakefront properties don’t go on sale every now and then. But when they do, they get sold real quick.
Indeed, waterfront properties play a totally different game compared to regular, residential properties. Even during downturns, the prices hold firm. Appraisals appear higher than you may expect. Even if the mortgage rates climb, the demand holds strong.
Want to find out the secrets behind such unconventional characteristics? Read along as we break it down in simple terms.
What “Appraisal Premiums” Actually Mean
If you are not approaching a waterfront property as a lifestyle purchase but as an investment, then you must understand the appraisal premiums. Real estate studies show that this premium generally ranges from 25% to 50%. The premium differs depending on the state, the lake itself and the waterfront access quality.
The interesting fact is that such premiums generally grow over time instead of shrinking. Since a high number of buyers get in competition for a limited number of properties, the price floor keeps rising. Early buyers locking in at a lower price range often find the appreciation rate to outpace local market averages as well as the broader real estate indices.
To simplify, if you buy an attractive lakefront market early enough, you can expect to build an excellent equity over time, and you don’t even need to make a single renovation for that.
Reasons Why Supply Constraints Are Getting Tighter
There are many recent trends that are deteriorating the supply crunch. Here are some of the reasons:
The remote work evolution:
The Covid-19 pandemic has changed how millions of people used to think about their accommodation and living. As remote work got a wide acceptance, people started shifting their regular accommodations and moving to somewhere beautiful. While lakefront communities used to be considered as vacation territories before, many of them have now become home of remote workers. It added to the buyer pool dramatically, while the inventory is still more or less the same.
Increasing demand for short-term rentals:
Today there are many rental platforms such as VRBO, Airbnb etc. When people go for such rental destinations, lakefront properties often stay at the top of their preference list. Thus, a well-positioned lakefront rental property can easily surpass the belonging costs. Such potential with rental income makes investors interested along with the buyers.
Environment and zoning restrictions:
Over the past 2 decades, many states have made shoreline development regulations even more strict. The aim behind that is to protect water quality and develop the ecosystem. This means you can’t just build on any underdeveloped lakefront land, there are certain conditions to meet to do so. A lower number of buildable lots means that the market has fewer new listings.
Aging homeowners hold tight:
Many families hold onto lakefront properties for year after year, considering them as generational assets. They prefer to hold these properties with their families rather than selling, a tendency caused by pride and emotions. As a result of this, the natural “turnover supply” of real estate markets gets reduced.
Where These Dynamics Play Out in The Real Markets
While this dynamic is in action all around, a strong example can be the Blue Ridge Mountain Communities of Georgia. Thanks to the combination of amazing natural beauty, four season diversity, and proximity to Atlanta city, the lakes experience consistent appreciation as buyers and investors are getting more and more interested.
To be more precise with the example, let’s consider Lake Nottely. Situated in Georgia, Lake Nottely has been drawing more and more attention from buyers who seek the combination of accessible location and lakefront lifestyle. If you are interested to find out what is currently trending and available in the area, you should browse Lake Nottely homes for sale to get a real-time outlook on the market behavior.
Markets like Lake Nottely perfectly showcase how appraisal premiums are driven. Accessible, picturesque, supply constrained lakefront properties drive consistent demand from people who have a proper idea of what they are getting: a stunning property that cannot be replicated at any cost.
How to Maximize ROI in This Environment
If you really want to maximize the ROI of your lakefront property, you must think beyond just getting the most affordable property. Rather, it’s about finding markets where the imbalance between supply and demand is more visible and where the appreciation trends indicate long-term mentionable growth.
Identify constant supply and growing demand
The best lakefront markets for you would be the ones that have limited shoreline along with a growing demand, from remote workers, vacationers, and city buyers.
Factor in rental income
A lakefront property that has a rich short-term rental history may ensure a profitable cash flow. When running your ROI numbers, ensure that seasonal rental projections are realistic and not just assumptions.
Consider water access quality
Never assume that all lakes are the same. Access to deep water, sandy shoreline, clean water quality – all of these impact your appraisal value and income potential directly.
See the long-term picture:
You can’t expect dramatic flips in a lakefront property overnight. These properties are known to offer steady and safe appreciation, which comes from the supply constraints that we have been talking about. To enjoy the most compelling return, you need to wait around 5 to 10 years.
Final Thoughts
While many people find lakefront properties to be complicated, in reality it’s quite simple if you go down to its core. Nature has offered only a limited number of shorelines, people also find it attractive to live on them. This means the supply constraint will exist and the demand will certainly persist as long as the property is an attractive one.
Supply constraint is what drives appraisal premiums. This appraisal premium is what protects your equity. When the protected equity compounds over years of appreciation and potential rental earnings, the ROI is naturally maximized.
If you have already set your mind to put your dollars for a lakefront property, ask yourself if the supply is truly limited in your desired place. The answer to this is almost always yes for lakefront properties on natural lakes. The water is going to be there, and so will be the demand.
