Second Homes: A Flavor for Every Taste
As you scour the Internet and the travel publications year after year in search of a vacation rental, do you ever wish you owned a getaway of your own? Thousands of people do, and whether you're looking for a place that's exclusively your own, or contemplating renting your second home to help make ownership more affordable, you can choose from a world of properties of every type, size and location.
Second Home Market offers Buying Opportunities
If you're considering the purchase of a second home, now's a great time to see what the market has to offer. According to the National Association of Realtors® (NAR), the pace of investment and vacation home sales softened a bit in 2006, still representing a respectable 36 percent of all residential sales, but off four percentage points compared to 2005.
Sales of vacation homes actually rose last year, while sales of properties purchased purely for investment fell, primarily due to the exit of speculators from the real estate market. That's good news if you're looking for a property at a fair price, seeking a respectable return on your investment over time, and plan to make it available for your own use, either full or part-time, now or in the future.
The Who, Why and Where of Vacation Home Purchases
According to a NAR survey, typical buyer of a vacation home in 2006 was 44 years old, with a median household income of $102,200. When it comes to deciding how far a getaway would be, 42 percent purchased vacation homes closer than 100 miles from their primary residence, 32 percent were 500 miles or further. Sales of vacation homes are predicted to remain strong, as significant numbers of potential buyers reach prime buying age for these properties.
The 2006 National Association of Realtors® Profile of Second-Home Owners survey asked current owners what they desired most in a vacation home. Not surprisingly, a connection to nature and the pursuit of an active lifestyle were typical responses; 66 percent wish to be near water, nearly 40 percent with access to recreational activities, 38 percent in proximity to vacation or resort areas and over 30 percent near mountains and other natural attractions.
When giving their reasons for the purchase of a vacation home, a large majority (nearly 80 percent) planned to use the home for vacation or as a family retreat, followed by the desire to diversify their investment portfolio; for use as their primary residence in the future; for the tax benefits; use by a family member, friend or relative; simply because they had extra funds available. Renting to others trailed the respondents list of reasons, at 18 percent.
When describing the location of their vacation home, 29 percent were situated in rural areas, 24 percent in resorts, 22 percent in a suburb and 10 percent in a city or urban area. Detached single-family homes accounted for 67 percent of the total, 21 percent condos, 8 percent town homes, and 4 percent "other".
Buyers of vacation homes tend to be in it for the long term, planning to keep their homes a median 10 years; the largest number of owners responding to the survey, 38 percent, expect to own their vacation home for 11 years or more.
How does your mental picture of the perfect vacation home fit these survey results?
Investment Home Buyers Paint a Different Picture
According to the NAR survey, buyers of homes purchased solely for investment last year were somewhat younger and less affluent than vacation home buyers, with a median age of 39 and a median household income of $90,250. As you might expect, their investment property was close to their primary residence, a median distance of 22 miles.
The reported reasons for purchasing a home for investment purposes differed somewhat as well; 46 percent sought rental income; 43 percent wished to diversify their investment portfolio; 23 percent primarily for the tax benefits; followed by use for vacations or a family retreat; as a place to put extra cash to work, for use by a family member, friend or relative. Eventually using the property as a primary residence trailed the list, at 12 percent.
Buyers responding to the NAR survey reported that over 37 percent of investment homes are in a suburb, 22 percent a rural area, 18 percent urban or central city, and 7 percent in a resort area. Detached single-family homes made up 63 percent of the total, 26 percent condos, 6 percent townhouses, and 5 percent "other".
According to the survey, buyers of homes for investment purposes plan to keep them for a median period of five years; 33 percent plan to hold them for six years or more, and 12 percent plan to sell within a year of purchase.
Let the Search Begin!
Once you've settled on a potential location, start looking for your getaway. Search the Internet, classified ads in the local newspapers and talk to the locals. We highly recommend working with a real estate professional in your area of interest. A professional Realtor makes it their business to listen to your needs, help ensure that you are buying at the right price and may know of properties that are just about to come onto the market.
Before you make an offer on a property, it's also a great idea to visit the destination and return on the typical day and time you expect to visit. You'll get a much more realistic idea about travel time, and potentially save yourself a lot of frustration. If you're thinking about making your getaway your primary residence in the future, now's the time to take a realistic look at how access and mobility issues in the future could affect your enjoyment of a particular property.
As with a primary residence, there are financing programs designed to suit many income levels and financial goals. Consult your financial advisor and a lending professional to find a financing option that meets your needs. If you've built sufficient equity in your current home, it can be a potential source of funding for your vacation getaway - consult your financial advisor and a mortgage professional for advice.
Should you Rent Your Second Home?
Many buyers of second homes consider renting for all or part of a year to help defray expenses and perhaps even produce a profit. Renting is an option, here are some aspects of being a full or part-time landlord that may help you decide. Note that you should always obtain competent legal, financial and tax advice before you proceed.
Estimate Rental Income – Include a realistic estimate of the number of weeks the property will be likely to be rented. Calculate monthly costs such as mortgage, insurance, taxes, advertising, maintenance and projected repairs. A real estate professional can help you estimate the income potential of your property.
Look at Tax Consequences – Ask a tax professional about what how projected rental income will affect your net financial picture.
Research the Rules & Regs – Consult your legal advisor to determine whether local laws, deed covenants, homeowner association regulations or other restrictions affect your ability to rent the property.
Consider Hiring a Property Manager – If you are unwilling or unable to take a hands-on approach to the considerable effort involved in renting and maintaining your getaway, consider using the services of a property manager, especially if you're purchasing a vacation property that isn't near your primary home. Your real estate professional can be helpful in identifying a reputable property manager.
A Final Word about Renting
If you purchase a second home in a seasonal recreation area, keep in mind that rental demand for your getaway is likely to be highest during the same period that you'd like to be there.