Time to Buy Vacation Home

Dreaming of buying a second home? Now might be the perfect time

By: Jolene Anderson
Journal Newspapers
02/06/2007

Now may be the perfect time to consider buying a vacation home. Whether the motive is increasing your real estate investment portfolio or purchasing a dream retreat in advance of retirement, this may be the time to begin the search for a second home. While many more buyers will be competing for the same properties in the spring and summer when the weather improves, late winter can be a great time to begin the search for a second home property.

Since the favorable tax laws went into effect in 1998 that essentially did away with the capital gains for sellers who wish to trade down to a smaller residence, more buyers are seeking to purchase a second home for future retirement. The rationale for many 45 to 55-year-old buyers is to buy now while prices are relatively low.

The National Association of Realtors released a survey that showed 83 percent of vacation home buyers used real estate agents. The typical buyer searched seven weeks to find their second home and looked at six properties. Eighty-three percent financed with a mortgage and made a median down payment of 22 percent. Although 45 percent used savings for a down payment, 29 percent used equity from a previous home.

Other interesting statistics published by the National Association of Realtors revealed one out of three single family, condo and new homes were second home sales. The last two years have been records for second home sales. Another recent survey indicated there are 6.6 million vacation homes and 37.2 million investment units in the United States compared with 72.1 million owner-occupied homes. (Source: www.realtor.org).

Whether you're longing for a personal retreat to escape from the city such as cabin in the mountains, a home by the beach or on a golf course, vacation homes are very appealing to many baby boomers. With the largest purchasing power in America and many looking to retire in the next 10 years, the demand for vacation homes from this group is predicted to remain strong for several years.

Once a home has been selected, many buyers are searching for a way to realize income from their property. While some may elect to rent their vacation property through a property management firm that is familiar with the local area where the property is located, others choose to rent through one of the online services available. Clearly, there are more options available now for renting and managing vacation homes with the growing demand for vacation rentals and the services available through the Internet.

Christine Karpinski, author of How to Rent Vacation Properties by Owner: the Complete Guide to a Savvy Financial and Emotional Investment, and Profit from your Vacation Home Dream (both books available on Amazon.com), and director of Owner Community for HomeAway, Inc. provides some valuable insight for strategic planning.

Karpinski began her research 10 years ago by talking to a lot of owners who currently owned vacation homes. This research led to her teaching seminars on how to rent vacation homes. According to Karpinski, because most of the tenants are homeowners themselves, renting vacation homes is much easier than managing long term rentals.

The average weekly rate is $1,656 and from a survey conducted through CyberRentals.com, it was determined that the average property is rented out 20 weeks or more per year. That means that the average vacation home brings in more than $33,000 in rental revenue each year.

For those who wish to purchase vacation homes for future retirement, Karpinski offers a few words of wisdom: "Buy with your wallet, not with your heart," she said. "Spend time up front doing your research. Avoid making hasty decisions. Don't look for the ultimate today. Buy what you can afford now. If all you can afford is a condo in the destination where you are looking to buy your vacation home, start small and buy a condominium there. Have a fall back strategy. In 10 years when you retire, can you afford a large mortgage?"

A keen observer of trends, Karpinski noted that plans can change in a few years. Many people who buy vacation homes now thinking they will live in the home once they reach retirement age, may change their mind about living in the home once their grown children begin having children of their own. The desire to be close to their grandchildren alters their plan to actually move in the vacation home, which leads them to consider renting the property.

Vacation homeowners who self-manage say they do so for two reasons: Bottom line revenues and having complete control.

Eighty-four percent surveyed say it's not difficult to self-manage, even from afar. One-third of those surveyed live more than a six-hour drive from their vacation rental home. They rated difficulty levels on all aspects of renting their properties, the most difficult part was managing the cleaning and maintenance, but only 20 percent found this to be a problem.

Interest rates are low and winter is traditionally slower for sales of vacation homes in the Pacific Northwest. This is a great time to begin shopping to see what properties are available and which communities offer the lifestyle or value you desire.

©Journal Newspapers 2007