Waterfront Rentals: How to Calculate ROI for Canals vs. Oceans vs. Rivers

Guest post written by: Mitchell G. David

Houses near water are often valued significantly higher than inland homes. But not all water views give you the same bang for your buck.

Want to park your boat right at home? Get a house on a canal. Looking to rent to beach lovers? An ocean house might be perfect. River homes look nice but only make big rental money in certain seasons.

So, which type of waterfront rental home makes the most money?

In this article, we’ll calculate the ROI for canal, ocean, and river houses to help you pick the right one.

What is ROI in Waterfront Real Estate?

Making money from beach houses and lakeside rentals sounds fun. But when you put money into real estate, you want to know what you'll get back. That's what return on investment (ROI) tells you. It's a simple way to figure out if buying a property is a good idea.

The basic formula for ROI is:

ROI = (Money you make / Money you spent) × 100

The bigger your ROI, the better your investment is doing. But remember: where the property is, what kind of property it is, and how much you spend on it can change your ROI a lot.

Don’t purchase a rental property before calculating its potential cash flow.

Canals vs. Oceans vs. Rivers: Which Offers the Best ROI?

There are pros and cons to owning any type of waterfront home. Whether you choose to look at properties on a canal, river, or beachfront will depend on a number of factors.

Canals

If you want a cheaper waterfront home that you can rent out, think about getting a canal home.

Pros

• Purchase prices are lower compared to oceanfront properties.

• Water levels are stable, reducing flood risks.

• Boat access attracts boating and fishing enthusiasts.

Cons

• Scenic views are limited compared to oceanfront homes.

• Higher maintenance costs stack up due to dredging and upkeep.

Best U.S. Locations for Canal Rentals

• Maryland (Ocean City): Homes near the canal in Ocean City, MD, offer nice water views and easy access to the bay.

• Florida (Cape Coral, Fort Lauderdale): This cape is popular among people who want to live in a boating area.

• Texas (Arlington, Houston area): Historically, there’s great home appreciation in these canal neighborhoods.

Rivers

If there’s no canal in your desired investment area, think about getting a house by a river instead.

Pros

• People who love nature and older folks really like these spots.

• They typically cost less than beach houses.

• They are popular for fishing and kayaking.

Cons

• You might not get as many renters in some seasons.

• Rivers can flood, which means paying more for insurance.

• These houses don't tend to appreciate as fast as beach houses do.

Best U.S. Cities for Riverfront Investment

• Austin, TX: Lots of people want to live and stay here.

• Portland, OR: People come here to enjoy nature.

• Chattanooga, TN: You can buy river houses here without spending too much, and more tourists are coming every year.

Oceans

Popular tourist areas close to the ocean, like Virginia Beach, can be some of the best places to purchase an investment home you want to rent out. They can bring in significant rental income, but they also come with risks.

Pros

• Lots of people want to stay there on vacation, so you'll make good money renting it out.

• These houses get more expensive over time.

Cons

• Big storms and hurricanes can mess up your house.

• The ocean water and salt can damage the house, increasing insurance (and potentially repair) costs.

Oceanfront Airbnb Income Potential

In Virginia Beach, short-term rentals tend to generate significantly higher income than the average vacation rental or Airbnb. Other popular ocean investment areas include Florida and California.

Our top real estate agents created this free guide to calculating rental property income.

Step-by-Step Guide to Calculating ROI for a Waterfront Rental

Want to buy a waterfront home as an investment? Before you do, determine if you’ll make a decent ROI. Here's how to figure out if a canal, ocean, or river property will make you money.

Step 1: Determine Purchase Price & Investment Costs

Check how much the house costs. Houses near water usually cost more than regular houses, so look at what similar houses in the area sell for.

Include additional costs like:

• Money for purchasing paperwork, house and bulkhead/dock inspections, and bank fees

• Fixing up the house (repairs, making the yard look nice, or protecting it from floods)

• Property taxes, which are often higher near water

Step 2: Estimate Rental Income

You can rent out your house in two ways – short-term rentals or long-term rentals.

Short stays let you charge more per night, and you can make lots of money when it's busy season. But during the off-season, you might not have many renters.

Long-term rentals are nice because you know exactly how much money you'll get each month. The rent might be lower, but at least it's steady.

To determine a good rental price, take a look at similar rentals in the same location. Check what other people charge for rent in your area before you decide.

Step 3: Calculate Operating Expenses

Now, let's talk about regular costs. If someone else takes care of your property, you'll need to pay them. You'll also need insurance – and flood insurance is a must for waterfront homes! Regular maintenance, cleaning, and supplies for your guests should be added to this calculation.

Don't forget to save a cushion for repair costs. Water and weather can damage docks and cause other problems. You might need to pay for utilities and HOA fees, too.

Don’t miss a thing – download our free rental property cash flow calculator here.

Step 4: Count Net Operating Income (NOI)

Want to know if your rental property makes good money? That's where NOI comes in. It shows how much money you make from your property after paying for things like repairs and cleaning, but before paying your mortgage and taxes.

The formula for NOI is simple using the calculations from steps 2 & 3:

NOI = Money from Rent (for a year) − Money Spent on Property (for a year)

Let's say you get $36,000 in rent in a year and spend $12,000 on your property. Your NOI would be:

NOI = 36,000 − 12,000 = 24,000

The bigger your NOI, the more money your property makes.

Step 5: Apply the ROI Formula

Once you know your NOI, you can figure out your ROI.

Here's how to find your ROI:

ROI = (NOI / Total Money Spent) × 100

Let's say you spent $300,000 on a waterfront property and your NOI is $24,000. Your ROI would be:

ROI = (24,000 / 300,000) × 100 = 8%

The Bottom Line

In the end, a decent ROI depends on your goals for your rental property. Short-term rentals are generally considered successful with a 10-12% return on investment. For homes that you rent out for longer periods, 6-8% can work well.

Different waterfront properties can cost different amounts to take care of. For example, homes on canals might cost less to fix up than homes right on the ocean. And homes by rivers might have cheaper insurance, but they might flood more often. Consider all the pros and cons before deciding if you want to invest in a riverfront, oceanfront, or canal house.

Choose wisely, and your waterfront property can become a profitable asset.