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10 Steps to the
Perfect 2nd Home • Vacation
Homes Gain Footing as Investments • Why
Vacation Homes are Still Hot! • Section
1031 Exchanges - General Info • VACATION
HOMEPAGE
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VACATION HOMES ARE HOT
Home equity to burn, favorable tax laws, and record-low mortgage
rates are all converging at an opportune time to make buying your
vacation home a dream come true.
That's especially true if you are among the growing bulge of
aging baby boomers, many of whom have been burned by other investments
and are looking for a less risky way to spend disposable income
and their leisure time.
"Vacations homes are a lot more fun to use than stock certificates
and because the cost of living is a lot more expensive than it
was 10 or 15 years ago, it's a good idea to get a head start on
retirement," said Clark Thompson, CEO of Orinda, CA-based
Escape Homes.
But before you prop up your feet on your chalet's veranda, bask
in a beach-front view, or settle in to call up the concierge,
be aware that buying a getaway home isn't quite like buying your
primary residence.
Residential real estate transaction fundamentals apply, but why
you buy, where you live and how you approach the vacation home
venture requires additional considerations.
Seconds Anyone?
Before the economy officially slipped into a recession, the longest
economic expansion on record helped fuel steady increases in second
home sales, largely because more and more consumers could afford
them.
Often purchased as vacation or retirement homes, second homes
clocked an estimated 415,000 sales in 2000, up 10 percent from
the 377,000 purchased in 1999, which yielded a 9.3 percent increase
from 1997, according to "Second Homes/Recreational Property
(Revised June, 2001)" by the National Association of Realtors.
The year 2000 estimate is up 40 percent from the 296,000 second
homes sold in 1995.
The economic expansion created extraordinary equity growth in
primary residences and bullish stock market returns. Also, the
Taxpayers Relief Act of 1997 allowed already equity- and income-rich
home owners keep, tax free, up to a half million dollars in gains
from the sale of a home.
NAR's Home Wealth Effect Survey" revealed during the association's
Chicago convention earlier this year that the typical homeowner
had $50,000 in home equity -- $100,000 for households earning
more than $75,000. Older, baby boomers aged 50 or older have still
more money on the house -- $80,000. In some California and New
England areas and other locations home-earned equity is three,
four times as much and higher.
Using home equity wealth to buy a second home is the second most
common use of home equity -- behind using equity to buy a move-up
home, NAR says.
"It's really the middle income where the bulk of the baby
boomers are showing a demographic demand that's very strong and
for them it's designed to diversify a totally stock-based portfolio
with other forms of more secure investments," said Walt Molony
an NAR spokesman.
"In the past, vacations homes didn't appreciate very quickly,
but that's changed. Many of the most desirable locations are fully
developed. Mid-Atlantic coastal prices have doubled in the past
four years," Molony added.
In many cases, vacation home owners get the same mortgage interest
tax write-off they get for their first home and there's even some
tax-free income available, provided the vacation home isn't rented
for more than 14 days in any calendar year. About half of all
second homes are investment properties, the rest are used for
fun, NAR says.
"There's also 'serial home selling'," says Alamo, CA-based
real estate investor John T. Reed.
"Now that you can sell your home and take $500,000 tax free,
all you have to do is be in the residence for two years (out of
the last five)," said Reed, also publisher of the Real Estate
Investors Monthly, a trade magazine for real estate investors.
Since the September 11 terrorists' attacks, more buyers are also
seeking vacation homes deemed more secure in small, secluded,
sanctuary-like communities, away from the troubles of the world.
Historically, however, vacation home buyers most often are simply
after the good life they've earned -- an A-frame on the slopes,
a cottage on the beach, a cabin by the lake -- a place to get
away from it all. The house may become a retirement home, an inheritance
for the kids or even a status symbol.
"You can impress people. You have appreciation to brag about
and you can prove how successful and affluent you are," said
Reed.
Location, Location, Location
The location decision is always a personal one, but that tends
to lead many vacation buyers to California, Florida, Texas, New
York and Pennsylvania, the most common vacation home areas, according
to NAR.
No matter what state or country they choose, when it comes to
type of community, buyers most often seek lakeside, beach front,
mountain and other resort communities, says Molony.
As well as the trend toward more secure locales, a growing number
of vacation home buyers are also buying into metropolitan urban
areas, which are also becoming trendy spots for time-share vacation
purchases.
"We have two in San Francisco, one in New Orleans and one
in New York City, the Manhattan Club," said Carl G. Berry,
principal with Resort Development and Advisors a San Francisco-based
resort developer.
"In terms of urban time sharing it's in cities that have
a cultural, sports, shopping and dining base. You have downtown
apartments and condos and the point is when you go to the symphony
or ballet and you don't want to drive home, you spend the night
and leave the next morning. The difference with urban time shares
is that you can stay one night at a time. You can buy a week,
but you use it one day at a time," said Berry, also past
chairman of the Washington, D.C.-based American Resort Development
Associations.
Wherever you look for a vacation home or time share, location
is also important to value.
If you aren't choosing a new home in a resort or development
where prices can be relatively fixed, shop for a second home much
in the same way you shop for your first home. For value, buy the
cheapest home in the best block or buy into the cheapest neighborhood
in the best community.
Also look for appreciation potential, typically found in areas
where demand eventually will exceed supply. Avoid heavily marketed,
but unproven areas. You want property with future marketability
for you or your heirs.
Location is also important in terms of your home's proximity
to the activities you want to enjoy -- shopping, night life, recreation,
culture, and others.
The best vacation homes are also those within easy traveling
distance of your primary residence. If it's too far or too expensive
to reach within a few hours, you likely won't use it enough to
justify the cost as an owner-occupied vacation home.
Whatever you do, don't sell yourself short by telling yourself
if you buy it you'll use it. Instead, rent a condo or home in
the area for a season first. See how often you actually manage
to get to your vacation home.
"Three hours has been the traveling time limit, but I think
that might change given the Sept. 11 aspect. In any event, it's
not so much the drive, as it is a direct, non-stop flight so you
can get on a plane and be there. There's a lot to be said for
a non-stop flight," said Thompson.
Equal Housing Opportunity. Copyright © 2006. All rights reserved.The
information that is provided is deemed reliable, however no guarantee
is warranted. The laws governing Florida prohibit such representation.
NOTE: Florida Real Estate laws require that we make full disclosure
at this time; the office of Picket Fence Realty, Simon Conway
and Jon White, collectively, or as individuals, have no representation
to you as a buyer. However, our office prefers to work as a transaction
broker (at no cost to the buyer). A final decision can be made
at the time of our first encounter regarding agency. All prices
are subject to change without notice. Figures provided are for
comparison only.
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