If you want to look at a market that makes residential real estate even in say, Detroit look good, look at second homes. Last year, the median price of a vacation home in the U.S. fell 11%. Compare that to what the National Association of Realtors tells us the ordinary primary residence did — fell 5 percent. This according to the group’s annual Investment and Vacation Home Buyers Survey, or almost 2000 buyers. That’s a pretty small sampling, actually. Exact figures on the number of second homeowners in this country are hard to find because no one, not even the NAR, tabulates them. (Even the Census Bureau got confused when it noted so many empty homes in Florida -duh!) Wade Shealy over at 3rdHome.com estimates there are 50 million vacation homes in the world, and ten million in the US alone. That’s lake homes, ski homes, beach condos. Still, some Realtors say the bargains are so plentiful right now, buyers are scooping up deals for $100,000 and under. And even more, people who lease their primary home are looking to buy a second home, which makes perfect sense if you live in a high-cost urban area such as New York or San Francisco.
In fact, I know contemporaries in Dallas right now who plan to do the same: lease in Dallas and make a country home their primary.
Financial experts tell us to be cautious: every home has financial implications over and above the mortgage such as taxes, maintenance, and insurance. If you have a financial reversal — job loss or illness, what would happen to your second home, particularly in a market where vacation homes are not selling overnight?
You can lease it, of course. Be prepared to dish out a management fee and suffer extra wear and tear on the home and furniture. And oh yes — I hope the scent of curry doesn’t bother you! But hey, leasing pays the bills. According to HomeAway.com, that online candy shop for vacation home rentals, 48% of vacation home owners rent out their homes to cover 75% of their mortgage.
The better the location, and lower the price, the faster the home will lease. Take a place like Carmel, CA: the week of Concours in Pebble Beach, there are zero homes available in Carmel to lease. Vacation renters want the same things you do from a second home: location — near a fun activity such as water, ski mountains, a lake or event. If ski, the closer the home is to the lifts (ski-in, ski-out), the better. Water properties should not be ten miles from the beach! You can stick near the recession-proof markets, such as Aspen and Destin, but keep in mind that, as one Martha’s Vineyard agent recently told me, rich people can afford to hang onto their second homes for longer because they have deeper pockets.
Another thing to consider when you buy: would your property appeal to foreign renters? Foreigners are buying up larger swaths of U.S. real estate as our prices plummet. It never ceases to amaze me how foreigners flock to Orlando as a destination, whereas I’d take the Gulf coast any day. Real estate is soft in Maine but the Canadians lease beach cottages there years in advance.
Proximity: most people want to drive to their second homes and think a two hour drive is just fine, thank you. Our four hour trek to the Hill Country makes me cringe, but then we get on the road and the time flies. My rule of thumb: if you are not a multi-millionaire, anything over four hours that requires air lift should be a fractional. You just are not going to use it that often.
A trend I am seeing: baby boomers buying vacation homes or sites now to use as a primary home later, post retiement. If you have a lot of equity in your home, you can sell it and use the equity to have two homes. That depends, of course, on your market and the economy.
Finally, never fall for “love at first sight”. That is, do not go somewhere, fall in love with the location, and buy on the spot. Visit the area a minimum of three times in various seasons before you sign on the dotted.