Lake House With Dock And Surrounded By Trees

The Pros And Cons Of Buying A Lake House

February 21, 2023 8-minute read

Author: Victoria Araj


Have you always dreamed of buying a lake house? It may sound idyllic to wake up to the sound of gently lapping water each day, but there are a few things that you should take into consideration before buying a lakefront home.

Here is our list of pros and cons to consider before opting for life on a lake.

Pros Of Buying Waterfront Property

There are many benefits to buying a house on the water. From plenty of fun activities to having a place that people love to visit, here are some of the biggest advantages to owning this kind of property.

Lakefront Property Is Generally A Good Investment

There are only so many lake homes available, and this level of scarcity combined with high demand can make lake property or lakefront real estate a wise investment. Many people choose beach or lakefront homes as second homes and are therefore thinking of it as both an investment and a getaway.

When considering the best place to buy a lake house, some locations are better than others from an investment standpoint. Be sure to have an expert inspect the location to be sure that the land is sturdy, and that the waterline is not rising. If your home is in a desired area, built well and on sustainable land, then the chances of its value increasing are high.

If you want to be near the water and have an investment that will appreciate, look for properties that are not directly on the water and those that can withstand the challenges of climate change and its impact on real estate prices.

Adding to the investment potential, you can even rent out your second home for up to 180 days per year when you’re not using it. The only rule is that if you rent out the property, you have to make personal use of the home for the greater of 14 days or 10% of the days it would otherwise be rented out at fair market value.

The IRS follows the same rental rules in determining whether the vacation home that you have qualifies for the home mortgage interest deduction.

It Feels Like Always Being On Vacation

Whether you’re considering buying a vacation home or a permanent residence, you’ll likely feel like you’re on vacation when at your waterfront abode. Without the obstacle of a long commute to outdoor recreation areas, the allure of water hobbies will be staring you in the face, right in your own backyard! You’ll likely be inclined to spend more time outdoors and reap the health benefits of clean air and more exercise.

Additionally, people in waterfront homes may experience greater levels of peace and contentment. A high-value property is typically associated with a phenomenal view. This drives people to spend more time outside – and to feel grateful. These “vacation vibes” will increase your long-term happiness and leave you feeling like you’re on a permanent vacation.

Proximity To Water Sports

Many bodies of water are associated with water sports. If you’re on a sleepy canal in Florida, you may want to purchase a kayak or stand-up paddleboard to be more active. If you’re on a lake, you may want to take up fishing or boating. Regardless of what your favorite water sports are, being on the water can give you more time to enjoy your sport and stay healthy.

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Cons Of Buying Waterfront Property

Of course, lakefront homeownership does not come without its challenges. Here are a few of the biggest setbacks that we see.

Wear-And-Tear Expenses

When you live on the water, there’s very little blocking your home from the elements. The humidity from the water may break down the materials your home is made of, and people tracking in sand and water often may cause damage to the interior.

Additionally, a house within proximity to a body of water is more exposed to storms, mist and natural disasters. If you’re purchasing a property, be sure to have your inspector keep a keen eye out for the wear and tear that comes with lakefront properties.

You’ll likely have to put more work into maintaining a waterfront property than one that’s inland too. It’s important to note that this will likely mean additional expenses and time that you’ll have to dedicate to home maintenance and upkeep. For example, you might have docks or retaining walls on your waterfront realty that need regular maintenance.

Higher Insurance And Other Costs

When purchasing a house on a lake, it’s important to keep in mind that there will be unique costs associated with your home. For example, some lakefront properties have specific requirements for flood insurance. There may be organizations that not only restrict what you can do with your property, but also require that you pay a fee each year. Because lakefront homes are typically not found in concentrated urban areas, utility expenses can often add up quickly.

Additionally, insurance is typically much higher for lakefront properties because of the risk of injury to residents or the home. Local laws or even a lender may mandate the type of coverage you need. Regardless, you can’t go wrong with flood insurance. The best-case scenario is that you’re never seriously inconvenienced. If you have the option to opt out of flood insurance, that peaceful energy you’ve been chasing can be easily clouded by the anxiety of impending financial catastrophe.

There are two types of flood insurance:

  • FEMA backed National Flood Insurance Program (NFIP): With a $250,000 coverage limit, NFIP is only available to certain qualified communities. Something to keep in mind is that NFIP won’t cover expenses incurred from staying in short-term housing until your home is safe to live in again. It also won’t cover property damage that is not attached to your home, including boat decks, hot tubs, septic systems and so on.
  • Private insurance: By law, private insurance must provide coverage as broad as NFIP. Private insurance allows you to insure beyond the NFIP’s $250,000 coverage limit. If rebuilding your dream lake home will cost more, private flood insurance may be the way to go.

Lack Of Privacy

Although your lakefront home may feel like a great outdoors retreat, you may want to anticipate more visitors when you move there. Usually, the local, state or federal government will own the lake itself, designating the lake as public land. Recreational users beyond the neighborhood will want to access the water as well, so you may see more visitors to your waterfront neighborhood than you did when living inland. This may cause issues with parking, privacy and even the use of your personal property.

Leasing Land

Don’t be surprised if the house you’re interested in comes with a lease. Power companies as well as municipal and federal entities such as the U.S. Army Corp of Engineers, and other players may own the lake itself, which means they may lease the shoreline land that lake houses are built on.

When you buy a house, you may inherit the remaining term of a 100-year lease of the land itself. If the lease is nearing the end of its term, you may want to do some research on how lease renegotiation went for other homes in the area. The rental agreement is likely to rise exponentially to account for inflation and market value. Even if you have plenty of time left on the lease, be aware that future buyers and their real estate agents will have this in mind.

The upside to buying a home on leased land is that you won’t have to pay any property taxes. Be sure to compare the costs of the property taxes versus the cost of the land lease, as both can vary widely.

Mortgage lenders may require that a certain amount of time remain on the land lease. In these circumstances, a Home Loan Expert is a great resource for gathering additional information about land leasing.

The Bottom Line: Finding Your Dream Lakefront Home

Even with a high resale value, lakefront properties leave a lot of considerations to mull over. If you’re OK with paying a bit more in insurance and other expenses, and are moving into a home that can weather the elements, then you’re off to a great start. If your home has great views, is built well and is not predicted to take a hit from climate change, then your property will likely appreciate over time and is a sound investment.

Before applying for a mortgage, you should be clear on how you want to classify the property. If you plan to live in the lake home the majority of the year, you would classify the property as a primary residence. If you plan to use the home as a vacation spot, that makes it your secondary residence. If you plan to rent it out, it could be classified as an investment property, depending on the length of the rental and the ratio of personal use to rental time.

If you’re ready to get approved or learn more about purchasing a second property, Rocket Mortgage® has the resources to help you.

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Victoria Araj

Victoria Araj is a Section Editor for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.