Second home buyers are a lot younger than you might expect, and they are not all affluent. Where do they want to have second homes? The beach, like Florida, which is no longer God’s waiting room but foreclosure central; Arizona, where it’s arid and there are so many foreclosed properties to choose from you can get dizzy shopping; the Colorado mountains, the rivers and ski ways of Montana, and North Carolina, a growing hotbed of second home coastal communities. Believe it or not, the bubble bursting in real estate has made owning a second home a reality for many because pricing has been slashed and dashed. And people are buying.
According to the National Association of Realtors, meeting at this moment in New Orleans, vacation home sales were up 7.9 percent (in 2009), to 553,000, from very low levels in 2008.
In 2005 and 2006, there were more than 1 million sales for vacation homes annually.
Second home owners are not all rich. The median age of vacation property buyers was 46 in 2009, according to the NAR. And while 39 percent of vacation-home buyers had household income over $100,000, the median overall was $87,200.
And this market is not hurting as much as first homes. According to the NAR, the median vacation home price increased by 12.7 percent in 2009 compared with 2008, which brought it to $169,000. That’s still well below the 2005 peak of $204,000, which is all the more reason why you want to buy now or in the very near future when prices could get even softer.
Half of vacation home sales are in the Sunbelt, because snow birds do crave sunshine.
Florida is like one giant Filene’s bargain basement. According to Florida Realtors, prices on existing condos are down by about 24 percent just in the last year, dropping to $81,600. Yet, sales of those price-chopper condo units are up over 22 percent for the same period, suggesting some savvy buyers see an opportunity when the prices decline.
Still, do your homework and check back with us here at SecondShelters for buying tips and pitfalls to avoid.
Go into any area with rock bottom prices with eyes wide open: can prices go any lower? Yes! What are the signs of instability? Are banks in the area still open? Are the shopping centers surrounding developments see-through empty? How many other foreclosures rub shoulders with the one you are eyeing? Is this the beginning of an onslaught of yet more foreclosures, or are they winding down? If there are HOA costs, the few buyers/owners will shoulder the burden of all the HOA dues. Once foreclosed upon, developers go bye-bye and run out on any fees. Then there’s the cost of insurance, which can be higher in hurricane-prone areas. And don’t think insurance rates on the Gulf coast won’t be going up after the BP oil spill, though BP had quite a clean-up tab. There’s property taxes, maintenance, and security to make sure no squatters move in when you are out.
To spread costs, consider sharing a home with another individual or family, the co-purchaser. It goes without saying to have a lawyer draft a written agreement, no matter how close you are. You should even do this with family members. Spell out how ongoing costs will be split, and deal with other potential sources of contention — breakdowns, water leaks, repairs and maintenance, as well as what happens if one of you wants out after a few years or worse — dies?
And you can always make numbers work by renting the vacation home out during part of the year will. But first, the IRS will have something to say about that: IRS Publication 527, “Residential Rental Property.” You will be entitled to visit your vacation property for a limited amount of time each year. But then, like one man told me, if we are lucky enough to have jobs, we don’t get to vacation for more than a couple weeks a year. So why not rent out that home and generate some income?