A new report from the National Association of Realtors® reveals a record 1.07 million people bought vacation homes last year. Industry expert and author Christine Karpinski explains why now might be the perfect time to join them. So you want to buy a vacation home. You’ve 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®. “NAR just released the results of its annual Investment and Vacation Home Buyers Survey and the results were amazing,” says Karpinski, the author of How to Rent Vacation Properties by Owner, 2nd Edition: The Complete Guide to Buy, Manage, Furnish, Rent, Maintain and Advertise Your Vacation Rental Investment (Kinney Pollack Press, 2007, ISBN: 0-9748249-9-2, $26.00) and Profit from Your Vacation Home Dream: The Complete Guide to a Savvy Financial and Emotional Investment (Kaplan, 2005, ISBN: 1-4195069-1-9, $19.95).
“They signal a definite green light to anyone thinking of buying a vacation property.” The survey showed that vacation home sales rose to a record 1.07 million in 2006, an increase of 4.7 percent from the 1.02 million sales occurring in 2005.
Indeed, vacation home sales and investment home sales together accounted for 36 percent of all existing and new residential transactions – a very healthy slice of the real estate market. “It just goes to show that you can’t lump second home sales in with overall home sales,” notes Karpinski. “They really are two separate and distinct markets.
So don’t let the doom-and-gloom-sayers discourage you, and don’t let a sluggish real estate market in your area do so, either.
You’re on a whole different playing field.” Still need a bit more analysis to help you make a decision? Karpinski offers the following insights and tips: Many speculators are out of the market, so the playing field is a bit more stable. Although the aforementioned 36 percent figure is impressive, Karpinski points out that in 2005, the vacation home/investment home sales total was 40 percent. 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.” In fact, says Karpinski, once you get into the vacation home rental business, you may well discover it’s like opening a bag of chips: you can’t stop with just one.
“The NAR survey notes that 55 percent of vacation homebuyers said they were ‘likely to purchase another property within two years,'” she says. “Fifty-five percent! I think that statistic speaks for itself.
Buying vacation homes and renting them out is contagious. It’s just a good way to live, a good way to meet people, a good way to make money. So if you’ve thought it through carefully and you know you want to make this purchase – go for it!
The timing will never be better.”
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