|Eight Tips On Buying A Vacation Home
By Christine Karpinski
Apr 10, 2008, 13:37 PST
If you have been daydreaming about a cabin in the mountains, perhaps, or a charming cottage near the sea. Maybe you even have the property picked out. You know you can swing it financially, but you're not quite sure you're ready to take the plunge. Is this the right time to buy real estate ... really? Vacation property expert Christine Karpinski says absolutely yes?and backs up her answer by citing the results of a new report by the National Association of Realtors®.
Eight Tips On Buying A Vacation Home
- Many speculators are out of the market, so the playing field is a bit more stable. Vacation home/investment home sales accounted for 40 percent of all existing and new residential transactions. That means part of the equation has fallen?and that part is investment home sales.
"Investment home sales are actually down 28.9 percent since 2005," she notes. "That's good news for vacation home shoppers. Why? Because speculators tend to drive up prices and muddy the water. If you're buying a second home for your personal use, you don't want to compete with speculators. You want to take your time and make a thoughtful purchase you can feel good about."
- Home prices have dropped slightly. Interestingly, according to NAR, in 2006 the median price of a vacation home was down 2 percent from the previous year?falling from $204,000 to $200,000.
"The significance of this drop is not that you can pick up a bargain, but that the market is normalizing," says Karpinski. "I think it's always best for buyers to have a clear, realistic picture of what a home is worth. I've always viewed real estate as a solid, blue-chip long-term investment, and that means going into a purchase with the right expectations."
- Sure, you must be financially comfortable to buy a vacation home?but you don't have to be wealthy. The NAR study found that the typical vacation property buyer in 2006 enjoyed a median household income of $102,200. While this is up significantly from the previous year's median income of $82,800, it still falls solidly in the "middle class" range.
"The perception that you have to be rich to own a vacation home has fallen by the wayside," says Karpinski. "Even if you can't comfortably afford two mortgages, it's not difficult at all to offset the cost of your vacation home. Just rent it out part-time and you're set. As I point out in my books, if you rent out your home only seventeen weeks out of the year, you can still break even."
- No need to put off your purchase until you're older. People are buying vacation homes at younger ages than ever. "The typical vacation home buyer in 2006 was only forty-four years old, according to the NAR survey," says Karpinski. "In 2005, the median age was fifty-two. That is a significant change, and it's interesting to speculate on why more people are exhibiting this 'seize the day' mindset. I do think children of Baby Boomers are more inclined to live for the moment, so maybe that has something to do with it. Or maybe it's a result of the 'nesting' phenomenon Faith Popcorn predicted back in the '80s."
- Remember that real estate is almost always a good investment. Here's another possible reason why the age of vacation homebuyers has dropped: maybe people in this age bracket view real estate as an alternative to the stock market. Although the NAR report doesn't frame it that way?indeed, it points out that 79 percent of buyers want to use their home "for vacation or as a family retreat" and only 34 percent say it's to "diversify investments"?Karpinski says people in the forty-something generation don't have a lot of faith in Wall Street.
"Look at the stock market's track record over the last decade or so?it's all over the map," points out Karpinski. "I think people of my generation have been burned by bad investments. NAR reports that 25 percent of vacation home buyers paid for their properties with cash. I think that makes a pretty significant statement about what people feel is a 'safe' place for their money."
- Don't feel that you have to buy close to home. The NAR survey found that the typical vacation home buyer purchased a property that was a median of 215 miles from his or her primary residence. (In 2005 the typical vacation home buyer purchased a property that was a median of 197 miles from his primary residence; however, 47 percent of vacation homes were less than 100 miles and 43 percent were 500 miles or more.)
"Last year's median distance represents a good three-and-a-half-hour drive," notes Karpinski. "This makes sense given the younger ages of buyers; they're not intimidated by a long drive like older buyers would be. But I think it's also indicative of the fact that the whole vacation home 'lifestyle' is becoming more mainstream. Globalization has made a 'mobile' life seem normal. You may be traveling overseas for work, you're connected to the rest of the world via the Internet ... so driving four, five, even six hours to get to your second home seems reasonable."
- Don't assume you have to dig deep and buy in pricey primary vacation markets. NAR reports that 2006 brought with it a definite shift away from more expensive markets (Florida, Nevada, Arizona) and into more affordable locations (Georgia, Tennessee, the Carolinas). Obviously, houses will cost less in these areas, which means more buying opportunities for less affluent individuals. And if you're worried that you won't be able to rent out homes in these secondary markets, Karpinski says you can relax.
"I personally own several vacation homes in the South, where 38 percent of all vacation homes were purchased in 2006, and I have no trouble keeping them rented," she says. "Buy where you want to buy. Do the right things and the renters will come."
- If you don't want to rent out your vacation home, you're in good company. (But don't be surprised when you change your mind.) Of course, all this talk of renting out vacation homes assumes you're even interested in going that route?and if you're like most people who answered NAR's survey, that's the last thing on your mind. Only 18 percent identified "to rent to others" as a reason for purchasing their vacation home. But according to Karpinski, you might change your mind later.
"I've found that there's usually a honeymoon period of two to five years between the time people buy a vacation home and the time they decide to rent it to others," says Karpinski. "But I've also found that when people do decide to start renting it out, they are delighted to discover how easy it is and how profitable it can be."