Second Homes in Galveston: For Fun and Fortune

What you should know about buying a condo in Galveston

By Sara G. Stephens

This is Part 3 in a 3-Part Series. You can view the 1st part here and the 2nd part here.

If you want to buy a second home on land that is at a premium and therefore cost-prohibitive, a condominium may be just the ticket. Typically, land is at its highest premium in a city’s downtown locations. Galveston is unique in that land is most valuable both downtown and on the beachfront, which each location appealing to very distinct markets.

Beachfront: The attraction to beachfront properties is understandable. Homeowners enjoy easy access to the Gulf, and this proximity boosts the property’s rental potential. Several island developments cater to this mainstay market, with some properties being in particularly high demand. The Palisade Palms, Diamond Beach, and some of the lower-end Casa Del Mar and The Victorian are among these sites, according to Lee DeForke, Jr., a native Galvestonian (BOI) and a member of the Galveston Board of Realtors, the Houston Board of Realtors, and the MLS (www.leedeforkejr.com). All of these properties are either directly on the beach or directly across the street from the beach.

The big differentiator between developments in Galveston is whether they allow vacation rentals. DeForke strongly advises potential buyers to talk to a realtor to verify this stipulation in any development they’re considering before making offers, as all of the island’s properties are making transitions. “Some [developments] didn’t used to allow vacation or short-term rentals, and are now being pressured by their own HOA to change that policy,” DeForke says, explaining that renting a vacant unit is a good way to supplement HOA fees and the insurance associated with some of the higher-end units.

Diamond Beach, Casa Del Mar, and The Victorian do permit vacation and short-term rentals, with the latter two staying “well over 80% occupied with vacation rentals,” DeForke says. “These your-antibiotics.com are close enough to various services, like restaurants, large stores, sandwich shops, smoothie shops, so families don’t have to walk very far.”

Besides location and the option to rent units, amenities are the purchasing factor most often considered by condo shoppers. The most desirable properties are ones with pools and activities and easiest access to beach. “Palisade Palms is literally steps to the beach and sand,” DeForke remarks, “and Diamond Beach has its own lazy river.”

Downtown: Galveston’s downtown area has quite a few condo developments. They appeal more to people who enjoy the downtown lifestyle, restaurants, events, and shops. “There is an issue with parking,” DeForke says, “but there is also a desire for folks that want to come down for art walks and all other events in the downtown area to have their own private condo.” DeForke says he doesn’t see many downtown lofts that are vacation rentals, but rather perceives more permanent tenants in these properties.

What to Expect
Galveston is a unique place, so it stands to reason that buying a condo on the island prompts special consideration. Here are some things to think about as you start to eye that special condo-based home away from home on Galveston Island:

Neighbors: Condos are about community living. When you buy into a space, you’re buying into your neighbors’, too. These days, DeForke says, it seems more snowbirds are flocking to Galveston for seasonal living, taking advantage of pricing on the Gulf Coast so they can enjoy Galveston’s milder winters, then return to their colder-environment homes during the summers.

Management services: Condo living means someone else takes care of the plumbing problems or roof maintenance for you. Some Galveston condos offer their own property rental management services. And most real estate offices on the island also offer management services for vacation rentals. The website vrbo.com (Vacation Rentals By Owner) is another property rental management and promotion tool used by many of the island’s condo owners in the business of renting their unoccupied units.

Price: While condominiums generally range widely in price, the lower price range is often within the budget of second-home buyers who may find single-family houses unaffordable. At this low end, a prospective condo buyer can find units available for as little as $40,000. Higher-end units tend to carry a price tag of around $200,000. “The prices stay within a relative range with each other in each condo development,” DeForke explains, “so within a lower-end property, the highest-end unit will only be around $75,000 or so, while in the higher-end properties, the highest-end units can reach $1 million.”

Market sensitivity: Because condominiums are more sensitive to trends in the real estate market than single-family homes, if the market takes a downturn, these properties are usually the first to suffer and the last to recover. DeForke has seen the Galveston market take a hit at a time when several developments were being constructed simultaneously. The developments were in competition with each other, and the lower-end condos were hit drastically. “The Victorian and Casa Del Mar prices dropped, but we are seeing those prices go up again, and the number of available units is slimming,” he says.

Amenities: Most condominium developments offer a range of amenities in the common areas, meaning owners may have access to a swimming pool, gym or tennis courts that they would not be able to afford on their own. Galveston properties offer compelling amenities that vary from one development to another. The newer condos include upscale gyms, game rooms, gaming arcades with pool tables and poker tables, and some even sport in-house theatres, where owners can watch their own movies or flicks they rent from the property’s collection.

Condo Hotels: A relatively new real estate option for second-home buyers is the purchase of units in condominium hotels. Also known as condotels, they offer a full-service, luxury vacation spot, and a long-term appreciating asset. A unit owner can use the services of the hotel management company to rent out his unit (in exchange for a portion of the revenue) when he’s not in residence. Two such Galveston properties are the Casa Del Mar and The Victorian. “In the financing world, they’re considered condo hotels, because they are not bought on traditional loans,” DeForke explains. “You generally have to go through individual banks or purchase cash. People can’t sell these loans on the secondary market.” With this type of property owners have a choice of buying and renting out units in the condo association pool, or buying and renting out units on their own. If they choose to go through the condo association, the property is considered a condo hotel. These units are available for public use, rather than restricted to private use. “If you want to come down for a weekend and you don’t want to go to Holiday Inn, you can go to Casa Del Mar and rent a room,” DeForke continues. “You’ll be renting a room that’s in the condo pool of rentals.” Typical monthly fees for units in the rental pool include FF&E (Furniture, Fixtures and Equipment) reserve and resort fee(s). According to Wikipedia, “If the condo hotel is used for non-primary residence or residential rental, owners may be able to accelerate the depreciation on their condo hotel unit from 39 years, down to 27.5, 15, 7, and even 5 years. Condo hotel tax laws determine this, and affect individuals on a case-by-case basis, as each potential buyer’s tax situation is different.”

In Galveston, the annual seasons are defined not only by the weather, but also by the “vacationer climate.” Obviously, the summer months are peak vacation seasons, from March through September. But the island brims with activities year-round, attracting visitors during many other months. Bike Week, Mardi Gras, Dickens on the Strand, and Octoberfest are just a few examples of annual events that draw big crowds to Galveston. These seasons are important to understand, not only for purposes of evaluating rental opportunities, but also for grasping the vibe of the city. As a lifelong island resident, and owner of multiple residential properties (including a long-term rental with a waiting list), DeForke knows and appreciates these seasons intimately. “I just finished playing tennis,” he says with open enthusiasm. “The weather is perfect, and after Labor Day the people of Galveston consider the island theirs again.”