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Homes Gain Footing as Investments • Why
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IN DEPTH: REAL ESTATE & DEVELOPMENT
From the August 2, 2002 print edition
Joe Gonzalez
Have you been thinking about buying a vacation home on a lake?
Do you want a second home away from the pressures of work? Would
you feel more comfortable investing in a second home than in stocks?
You aren't alone.
The aging of the baby boom generation and the historically strong
performance of real estate as an investment are driving up demand
for second homes, according to a recent survey by the National
Association of Realtors. Second homes, which include vacation
homes and rental investment properties, accounted for 5.5 percent
of all homes sold in 2001.
Second homes can be an attractive choice for consumers who are
exploring their investment options or thinking about retirement.
A second home can grow in value while providing a place to get
away for weekends and longer vacations. And later, the home can
become a permanent retirement residence.
Low mortgage interest rates, home appreciation and the availability
of products and services designed specifically for multiple homeownership
are additional factors driving demand for second homes.
The National Association of Realtors reports the median age of
second homebuyers was 46 in 2001; the median income was $77,000;
and the median price of a second home was $162,000. The median
price has increased 26.8 percent since 1999 -- an indication that
demand is driving up prices and creating a good investment for
owners.
Low mortgage interest rates play an important role when it comes
to buying a second home. They increase affordability by lowering
the monthly payment, often allowing homeowners to purchase a more
expensive home.
Appreciation in home values also is helping boost second home
sales. In the past five years, homes in the United States have
appreciated an average of 36.6 percent in value. As a result,
homeowners may be able to tap into the equity in their primary
residence to make a down payment on a second home.
Getting a mortgage for a second home is similar to the process
and costs of financing a first home.
Points of interest
If you are considering buying a second home or a vacation home,
consider the following:
Down payment. For a second home, the down payment generally ranges
between 10 and 30 percent, depending on the lender. Loan products
vary, so homeowners should shop around to find the option that
best meets their individual financial needs.
Interest rates. Interest rates for a second home may vary depending
on whether rental income will be used to qualify for the mortgage.
The interest rate will typically be one-eighth to three-eighths
of a percent higher if rental income is used to qualify for the
mortgage.
Tax benefits. Ask your tax adviser about mortgage interest and
property taxes on a second home. In some cases, the interest and
taxes are deductible. If you use funds from a home equity loan
to purchase the second home, you may realize additional tax benefits.
You also may be allowed to deduct the mortgage interest and property
taxes on a second home that is rented for part of the year.
In addition to taxes, interest rates and other financial details,
there are other factors to consider when investing in a second
home. For example, if the home will be a rental property, rental
income cannot be used to qualify for the mortgage loan.
If it's a vacation/retirement home, does it meet both your current
and future needs, and are there adequate services for seniors
available in the area? Is it close enough for visits over long
weekends? You may want to rent a home in the area before purchasing
one to make sure you're making the right choice.
As with any major purchase, it's important to do your "home"
work before you buy. Then, when you're lounging on the porch,
watching the water lap at the shoreline, you'll have peace of
mind that you've made the right choice for today and for your
future.
This column previously appeared in the San Antonio Business Journal.
Joe Gonzalez is a retail manager for Wells Fargo Home Mortgage
in San Antonio.
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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