A second home appeals to many people these days. Part of the appeal is status. It is a sign of financial success. I’ve seen polls indicating that a second home is the ultimate sign of success to a majority of people. Another reason is that a second home traditionally has been a good investment. Most indications signs are that this trend will continue. It also is likely that this recession created a good buying opportunity.
The main reason for the surge of second homes is the Baby Boom generation. They are the largest generation ever and are entering their fifties. It is the time of life when those with the money buy second homes. The National Association of Realtors estimates that the second home market has sales of about $50 billion annually. NAR says that over 400,000 second homes are sold annually, about 7% of the housing market, and up from about 296,000 in 1996. Most analysts expect the growth in second homes to continue as the Boomers age.
If a second home interests you, now is a good time to take a serious look at buying one. The recession and Sept. 11 caused a pause in the sales and steady appreciation of vacation homes. You might want to buy during this pause.
There are several reasons to buy a second home. Some buy the homes while still working with the idea that they eventually will retire full time to the second home ? if they still enjoy the area. That’s a good way to test your retirement plan. Others buy second homes because they have the time, money, and desire to split the year between two locations. They might want to go to a warmer climate or to a ski resort for part of the winter.
Another reason to buy a second home is as an investment. You can rent the property for income. Or you can buy with the expectation that the price will appreciate faster than will other investments. Your goal, then, is eventually to sell the second home. The profits might pay off your current mortgage or add a nice sum to your retirement fund.
Real estate analysts estimate that the second home market is evenly divided between investors and those who use the homes.
The first, and perhaps the only, rule of buying a second home is to buy where people want to go. Multi-million dollar mansions in the Hamptons and ranches in Jackson Hole get most of the publicity. But the vast majority of second homes are condos or small homes near beaches, skiing, and other resorts. The bulk of these second homes are not elaborate. Their value is in being near lakes, oceans, skiing, or resorts. Naturally, those homes closest to the local attractions are the most desirable and appreciate the most. An oceanfront home is generally more desirable than one that is two or three blocks inland.
Another rule: Look for amenities in the community and surrounding area. The more amenities, the more desirable a community usually is. Look for golf courses, athletic facilities, tennis courts, a clubhouse, and pool.
If you are buying in an established community, your job is easier. It’s fairly easy to tell if the community is popular and well maintained. You also can check the history of price increases for the various dues and fees imposed on owners.
When the community is being built, the research is more difficult. You need to check the developer’s other projects to see if they were completed on time and as promised. On occasion, a developer will have trouble and won’t finish all the amenities or they won’t be the standard promised.
You also have to be sure that the amenities will be large enough for the final size of the community. People don’t want to wait 45 minutes to get a table at the clubhouse dining room or have to work the system to get a tee time. You also might want to consider how long the construction will continue. If you buy into a large development, you get a discount by buying early. But you might have construction traffic rolling past your home for a couple of years.
Be sure to learn about all the taxes imposed in an area. One good source of taxes in each state is www.retirementliving.com. Also check the taxes and fees imposed by the locality in which you are looking.
There’s no doubt second home sales slowed in the last year. We haven’t seen steep price declines similar to those that many areas saw in the late 1980s and early 1990s. The softness in the second home market started as the economy cooled and before Sept. 11. One possible change is that when the recovery comes buyers will put a higher premium on properties that are within reasonable car rides of large numbers of people and will put discounts on those that primarily are accessed through air travel.
Demographics favor the vacation and second home market and will do so for some time. You might want to consider a purchase before a newly-growing economy pushes prices higher.