This is Part 2 in a 3-Part Series. You can view the 1st Part here.
By Sara G. Stephens
Galveston Island is Disneyland for adults. That’s how Steve Mataro sees it. Co-owner of DSW Homes, Mataro counts off a number of reasons why Galveston is perfect for both the first- and second-home markets. “The Beach and bay lifestyle, along with golf on the west end, is magical and as peaceful as you could imagine,” he says. “And the east end has the history of a time gone by with all the architectural beauty of true craftsmanship.” Downtown Galveston is full of shops of all kinds that make for a perfect stroll with friends and family, Mataro adds. “Each time you visit, you will always find something special that keeps you coming back.” Additionally, the “diamond of the island,” the seawall, is the action-packed heart of Galveston. “The new $60 million Pleasure Pier, the best eateries of all kinds, grand hotels, and beach to play on from end to end,” Mataro says. “Let’s not forget the amazing Moody Gardens, as well as Schlitterbahn Water Park. The list goes on and on.” This growing set of amenities is sculpting Galveston into the perfect place to retire, set up a weekend/summer getaway home, and/or rent to tourists who are flocking to the island for a whole lot of R&R (rest and recreation).
Galveston is one of the least expensive places to buy beachfront property in the US, according to Thomas Schwenk, a realtor at Galveston-based The House Company, making it an attractive location for second-home buyers. A diverse housing stock, commercially bright future, and proximity to an economically solid Houston add to the area’s appeal. Traditional homes are enjoying an especially strong draw, as their central locations offer residents more recreational options than their down-island counterparts.
As we all know, location is everything. For a total beach experience, Schwenk recommends the area west of 61st Street, Pirates Beach and Jamaica Beach. For fishing and bay living, Lafitte’s Cove would be a good area to investigate. Schwenk adds that many people are moving into the neighborhoods in town because of their proximity to the beach, as well as nightlife and all the great Galveston restaurants and galleries. “Each neighborhood has its own vibe,” Schwenk explains. “Midtown with its beach bungalows, San Jac with its raised cottages, Silk Stocking and East End with their Victorian beauties.”
Building a Second Home
The advantage to building your second home from the ground up is obvious: you get everything you want exactly how you want it. Price is usually the key factor. “In a general sense, a very nice new home with great amenities can be built in the range of $130 to $175.00 per square foot,” says Beau Rawlins of Galveston-based Rawlins Residential Builders (RRB). “An 1,800 square foot, 3-bedroom, 2-bath home on pilings near the beach would run about $250,000.”
DSW has just finished building two new homes on Galveston’s west end. The build-out time was right at 60 days for each home. The first was built for a family who moved to the island to take a job at UTMB. The house is a 2,800-square-foot, two-story residence on a camel lot. It cost $125 per square foot to build. The second house was built as a second vacation home. It spans 1,650 square feet, also on a camel lot, and also cost $125 per square foot to build. Mataro says he sees the market picking up fast, with more and more homes being built. “A family or investor can walk into a newly built home with a good deal of equity in it from day one,” Mataro says. “It tells you what a great opportunity Galveston is today.”
Buying an Existing Home
On the other hand, RRB’s Rawlins is a 6th generation BOI (born on the island) who favors buying an existing home. “I would always look to buy a quaint cottage behind the seawall that is close to the beach,” Rawlins says. “I would save money, put my own personality into renovating, and always have a great place to be just close enough to the beach and the heart of downtown.”
In Galveston, prices for traditional homes range widely, depending on whether the house is beachfront, waterfront, or in town. For example, beach communities and Tiki Island generally carry a higher price tag per square foot than in-town homes, Schwenk advises. “They are generally much newer homes with incredible enhancements and fixtures,” he says, adding that, “A well-maintained historic home in one of our districts, however, can command in the neighborhood of $150 a square foot.” (see the first installment in our Galveston Island Second Homes series in the August issue of Houston Family Magazine).
Rawlins also sees a broad price range for traditional homes, starting at $50,000 cottages to $2.5 million dollar beachfront mansions. He says that in-town cottages can easily be purchased fully renovated for around $90,000.00. “Beachfront will always be the most expensive, followed by bay/waterfront, beach accessible, and then inland,” Rawlins says, adding that the south side of the island is generally more valuable.
Galveston’s vacant homes are selling for great prices, according to Rawlins, who suggests a home buyer can get an existing home in a great neighborhood for 30% less than building a new home.
Renting Your Second Home
The natural inclination for second-home buyers is to rent out their second homes while unoccupied. The rental income can indeed help defray the costs of ownership. A traditional home generally sleeps more than a traditional hotel room, with more people sharing in the cost, Schwenk explains, generating more revenue than a traditional rental.
But there are costs to consider, too, including a 15% hotel occupancy tax, which is now paid for rentals exceeding 30 days. Cleaning service, laundry, and general maintenance must also be factored into the equation. Rawlins suggests that second-home owners interested in this option meet with a Galveston-based realtor to help manage the rentals. This, of course, introduces another cost for the homeowner. “A property manager takes a fee to run background checks, make sure the property is maintained, check guests in and out, and handle booking, if desired,” Schwenk explains.
“Be prepared to have highs and lows,” Rawlins cautions, adding that, “Rentals have been great over the last several years. With all the additional things like the addition of the Pleasure Pier, it will only get better.”
Property insurance is higher in Galveston, due to mandatory Texas Windstorm and Flood policies setting higher rates in coastal areas. Homes that sit behind the seawall at 17 feet above sea level enjoy cheaper flood insurance. “Buying behind the seawall in an “A” zone elevation will always help in lowering the cost to buy on the Island,” Rawlins advises.
Some buyers want it all. They want the warmth of a traditional Galveston lifestyle with the benefits of a sparkling new home. These buyers should seek out a Traditional Neighborhood District (TND) like Evia, the first major development behind the Galveston Seawall in 20 years. With a mission to bring back “the basics of life and simple neighborhood living,” Evia is a masterplanned community where the opportunity to reconnect with neighbors is facilitated at every turn. Families can walk or ride bikes to events, stroll along lakefronts and tree-lined streets, or just enjoy a cold drink on the front porch.
The community offers a number of residential options, from town cottages to quaint bungalows, village lots and builder homes. The Evia website (www.evia.com) lets you browse available properties and view a landscape map for available lots. Lot owners have the option of choosing their own architect and builder or selecting one from Evia’s list of suggested professionals. The development offers a variety of floor plans. Currently, two homes are being featured at 1 Caroline Street and 2 Caroline Street.
Here’s a list of some of the features and amenities offered by Evia, as detailed in the company’s website:
- Three interconnected lakes feeding freshwater wetlands serve as the focal point for this pedestrian-friendly community, offering trails and scenic views.
- A variety of home and town cottage designs are available, reflecting the rich architectural heritage of Galveston Island and the Texas Gulf Coast.
- Homes are built on slab or traditional pier-and-beam foundations due to the elevation of the property—no need for elevated homes on stilts.
- Homes are designed to face the streets and green spaces with generous front porches, while garages are deemphasized by placing them at the rear of the residence.
- The Village Center will be a place to meet and greet your neighbors. Kick your shoes off in the grass of the Village Green while enjoying a concert or a picnic.
- Parks and Green spaces are interspersed throughout Evia.
Whatever your ultimate goal in purchasing a second home, it’s important to stay level-headed. Common sense can be easily overshadowed by illusions of grandeur, profit, and romance. Here are a few friendly tips to keep you on course toward a good investment decision:
1. Don’t rush into a decision. Research the market and any developers thoroughly.
2. Determine how you will use the second home (retirement, rental, investment, etc.) before you make a purchase decision, keeping in mind how far the house is from your primary residence, upkeep, and maintenance. Know that how you use the home can affect the terms of your loan.
3. Set realistic expectations about revenue potential. Research what the market will yield for rentals, and keep in mind that flipping a vacation home for profit generally demands a long-term outlook (longer than 1 to 2 years).
4. Try the area on for size. Rent a house in the location you’re considering. Rent one in another area you hadn’t considered, and then another. There are many neighborhoods to choose from in Galveston, each with its own personality. Some may have quirks that for you may dwarf any benefits. For another buyer those same quirks may be part of the neighborhood’s charm, and only further endear them to it.
5. Understand taxes. There might be tax implications if your second home is rented out as a vacation rental. “Married couples might want to see if one of them can make the second home their homestead,” Schwenk says. Bottom line, it’s best to consult with a tax professional to make the most out of your investment.
6. Enjoy your home and the knowledge that, as a Galveston homeowner, you’ve invested in a beautiful piece of Texas history that is sure to provide years of enjoyment well into the future.