What kind of nuts are we talking about, Jodi? Macadamia nuts? Brazil nuts? Definitely not peanuts, as you won’t find any vacation homes worth their salt going for that. Sure, the second home market is super hot, but let’s not get too carried away — slow growth is sustainable growth, and that’s what many economists are seeing in the vacation home market.
What I do like about Jodi Helmer’s piece in the Huffington Post is the four essential pieces of advice for vacation home shoppers (although I don’t necessarily agree with the fourth):
1) Location is king
2) Make sure its a viable rental
3) Make sure you see the real bottom line (maintenance and taxes) before signing on it
4) Before you make a bid, sleep on it
The fourth piece of advice is kind of problematic because, just like buying any property, someone else might want it more than you and if you follow Jodi’s rule and always sleep on it, well, you can lose out.
With rates falling as they have over the past few years, a lot of people refinanced their homes and investment properties. And yet, rates keep falling to historic lows. Does it make sense to refinance again?
I recently spoke to Marcus McCue, Senior Vice President of Guardian Mortgage Company
about my own situation with an investment property I was considering refinancing.
Candy: I have this investment property that is currently at 6.5% that I financed a few years ago. Should I be thinking about refinancing it?
Marcus: Absolutely! A borrower with excellent credit and the minimum down payment on an investment property (at least 20%), would be at a rate of 4.00% with no points right now. On a balance of $150,000, this would create a monthly interest savings of over $300. An investor who puts down 25% will get the very best rate of 3.625%
Candy: Is there a rate where I wouldn’t consider refinancing?
Marcus: Naturally there are fees and other factors that figure into this. Using our 4.00% rate, I would say that anyone at 4.750% or greater should investigate refinance options, if they plan to retain the property for at least two years. If you think you’ll sell it sooner, it is probably not worth the upfront costs.
Candy: Would I get a better rate if I got a 15-year instead of a 30-year mortgage?
Marcus: With rates this low, a lot of residential real estate investors are finding that they can pay off their loans in half the time at around the same monthly payment which is great news if the purpose of the investment is to be debt-free on the property in 10-15 years. Cash- flow investors, on the other hand, are using these rates as a way to generate greater monthly income from their properties and are generally refinancing for 30-years. In terms of rates for 15-year vs. 30-year, there is not a significant rate difference if there is only 20% equity. However, for investors with 25% equity or more, the rate on a 15-year loan would be about 0.50% lower than the 30-year.
Candy: Besides rates, what else should I think about if I want to refinance?
Marcus: Obviously, your current credit situation matters. Some of our customers don’t qualify for a refinance because they’ve had economic hits over the past couple of years. They may have faithfully paid their mortgages, but new changes at Fannie Mae mean underwriters must now consider the “probability of future serious delinquency” rather than defaults. Investment properties are inherently riskier than homes. To off-set this perceived risk; the underwriters will require “compensating factors” like additional equity, cash reserves equal to six-months of all property PITI payments and lower debt-to-income ratios.
Candy: Do you think rates will fall lower?
Marcus: The Fed has been making moves to purchase more mortgage-backed securities with the implementation of QE3. This would typically cause rates to trend lower. However, the government recently increased a component of mortgage rates – the guarantee or “G-Fee” that is assessed by Freddie Mac and Fannie Mae. This increase has off-set the downward pressure on rates created by QE3. For this reason, most experts in our industry are not expecting any significant decrease in the coming months.
Candy: What should residential real estate investors do if they are considering refinancing?
Marcus: The best thing to do is sit down with an experienced loan officer and go over your particular situation. It doesn’t cost anything to find out if you would benefit from these historic low rates.
If you have additional questions about refinancing, feel free to contact Marcus McCue at 972-248-4663, firstname.lastname@example.org or on Facebook.
We’ll have to wait and see what becomes of it, because some French politicians are claiming the tax is unconstitutional, the story claims.
France has always been a popular second home destination for the jet setting crowd, but with steep increases in rental taxes and capital gains on vacation home sales, will a chic apartment on the Rhine remain a la mode?
We’re not talking about chump change, either. If the tax increase goes through, foreign second home owners could see almost double the levies against their properties:
Tax on rental income would rise from 20 per cent to 35.5 per cent, and capital gains tax on property sales would rise from 19 per cent to 34.5 per cent. The extra in each case is being labelled a “social charge”.
What do you think? Does this effectively prohibit foreign vacation home ownership? What will this do to the second home market in France?
Those of us in real estate know that when the housing market plummets, vacation places plummet the most. Second homes are most often discretionary purchases you wait on until you feel flush with cash.
Well, get ready. Realtors say second-home buyers are returning to the store, shopping from Cape Cod to Lake Tahoe. As I told you, nationwide vacation home sales rose 7% in 2011 to 502,000 homes, according to the National Association of Realtors. They made up 11% of total sales in 2011, more than they did in 2010. And NAR’s spokesman Walter Molony, who I hope to see in Denver next week at NAREE, expects continued momentum.
“We’ve heard positive reports from Las Vegas, Telluride, Col., Lake Tahoe, Naples, Fla., and some areas of California,” he told Investor’s Daily. “We’ve been seeing a little bit of unleashing of pent-up demand.”
Well yes, that plus bargain prices.
But while the number of transactions is increasing, vacation home prices are still not generally appreciating. The healthiest segment of the market is, surprise surprise, upper-end properties: the luxury market.
Neal Hanks, an Asheville, N.C. agent says he is seeing significant increases in sales of homes in excess of $500,000 in the Blue Ridge Mountains.
I hear the Florida market is even tightening up. No Girls Gone Wild, but firming. The recent death of my brother-in-law has me poking into the Naples market, where they own two homes. In nearby Sarasota, Manatee and Charlotte counties, inventory is just 4.7 months, the lowest since 2005.
In Southwest Florida, broker associate Jennifer Calenda of Michael Saunders & Co., a luxury regional real estate firm affiliated with Ebby Halliday through Luxury Portfolio, says dollar volume sales are up. Prices are not going up, but people are buying about $100,000 over where they were — so folks looking at a $300,000 condo might spring for $400,000. Are people really feeling more flush, more confident, or just sick of depriving themselves?
Some feel people are getting back on their feet, paying off debt, and I think I read that American’s debt levels were decreasing. David Southworth, founder and CEO of Southworth Development, which specializes in upscale vacation-resort communities, says demand is coming back as people get on their feet.
“During the past year, investors have been swooping into the market to take advantage of bargain home prices,” said NAR Chief Economist Lawrence Yun . “Rising rental income easily beat cash sitting in banks as an added inducement.”
The median vacation-home price was $121,300, down 19.1 percent from $150,000 in 2010.
The typical vacation-home buyer was 50 years old, had a median household income of $88,600 and purchased a property that was a median distance of 305 miles from the primary residence; 35 percent of vacation homes were within 100 miles and 37 percent were more than 500 miles. Buyers plan to own their recreational property for a median of 10 years.
Eighty-two percent of vacation-home buyers said the primary reason for buying was to use the property themselves for vacations, or as a family retreat. Thirty percent plan to use the property as a primary residence in the future, while only 22 percent plan to rent to others.
Forty-two percent of vacation homes purchased last year were in the South, 30 percent in the West, 15 percent in the Northeast and 12 percent in the Midwest; Only 1 percent were located outside of the U.S.
They’re not all back. Southworth recently bought some communities on the cheap after the real estate bubble burst: Creighton Farms in Virginia horse country and most recently Willowbend in Cape Cod. Willowbend is doing the best, because of 8 million in metro Boston who can drive there. Most second home owners prefer to drive to their vacation homes, on average about 4 hours, but most often one or two.
Next week, I’ll hear more about Longcove at Cedar Creek Lake east of Dallas: 45 minutes east of Dallas.
The segment doing the best is the high end of the vacation market, this according to Brent Herrington, senior vice president of luxury developer DMB Associates.
“Inventory is much scarcer in the most desirable locations,” he said. “Prices are firming … we’re getting back to a world of multiple offers.”
Those amazing deals in the tops spots of the Hamptons, Martha’s Vineyard, Aspen and Vail peaked in hit in 2010-11. If you didn’t do it then, or are not quite in that league, look for the secondary markets — beachfront but not the name-drop locations.
After a few decades of recession, Palm Springs is becoming a hot second home market, beating out Santa Fe, say some realtors. And the developers are there to give buyers what they want: sun and out here, golf.
“We find our buyers appreciate all the things that Palm Springs and Indian Wells has to offer – the relaxed, resort atmosphere, no traffic concerns, friendly service, warm winters, incredible views and an abundance of outdoor activities, “ says Bill Bone, CEO and Founder of Sunrise Company, developer of Toscana, a golf community development in Indian Wells.
There is golf of course but also hiking, biking, farmer’s markets, as well as great shopping, dining, entertainment, the arts and medical facilities.
“Members have so much fun here, they call it “Camp Toscana”, says Bone. “We are very pleased with our sales results this year: have been 34 homes sold at Toscana, more than $59,000,000 in total sales.”
Palm Springs is within close proximity to sooo many Cali locales – less than 2 hours from LA, Laguna, San Diego, Palm Springs is brimming with mid century architecture, history and development.
“It appeals to people who really value properties of that era, and the new boutique hotels and restaurants keep things fun and interesting,” say Palm Springs agents Mark Godson and James Dalton Utsey. “The evolution of our downtown strip continues with the Fashion Plaza being rebuilt as a pedestrian friendly shopping and gathering place.”
Like many areas in California, Palm Springs was not spared during the housing bust, but values are beginning to inch up. Don’t have to worry about hurricanes here. Look carefully there are deals to be found.
Many consumers buy thinking they can rent out the home for cash flow and potential income, and they can. Vacation home rental listings are up at the website HomeAway. It had 433,000 listings in 2009, but 700,0000 listings now, says its vice president, Jon Gray.
Buyers are stirring, multiple offers are being reported, but there are no indications of appreciation. In some areas, prices are still falling. Do not be afraid to make an offer below asking: U.S. vacation home asking prices dropped 1.7% year over year in the 12 months ending in April, as overall listing prices fell 0.2%.
I do not advise buying a vacation home for pure appreciation. Just look for family enjoyment and maybe a place to rent out.
Still, some areas are seeing a tweak upwards when the distressed properties are all sold out. And demographics may be favorable for long term growth in vacation homes, with the average buyer age 50. There are 42 million people 50 to 59, right behind them are 43.5 million 40 to 49. Then there are 40.2 million people 30 to 39. These people grew up with vacation homes as common as swingsets and may follow their parents’ footsteps in buying.
Rent it, sell it, make it pay the bills for you? You may want to get up early with me tomorrow morning to participate in a way cool phone “webinar” with participation by experts in the vacation home marketplace. This is the second of two such webinars we are offering this summer. You missed the first one but don’t worry, I did too!
Learn what draws people in to rent your home, and learn great unique ways of marketing it that are so out of the box you may not even need coffee to wake up!
God, I wish I could say yes, but more likely, just maybe. Or how about, fat chance?
I checked with my wonderful CPA firm, Judd, Thomas Smith & Company, who says you may still deduct mortgage interest on a second home and also property taxes but watch it: that alternative minimum tax, a complicated Congressional invention to snag the rich that ends up now screwing the middle class, sometimes puts the brakes on mortgage interest or property tax deductions of any abode.
Which is why I die laughing at all this posturing going on in Washington — hec, many people aren’t even getting the benefit of this so called deduction. Take it away? How about you fix the stupid ATM!
If you sell the second house and make a gain, which is another fat chance in this market, any gain is not eligible for a Section 121 (capital gains) exclusion. You will pay taxes. Hey, that’s one bright side of this market, right? If you sell your primary residence $500,000 in capital gains is excluded (married couple, filing jointly) but over that, you pay the capital gains tax rate.
Just wait till they start whining about that in Washington, too.
There’s always a 1031 Exchange, which my CPA says he has not done many of, and I’d actually like to know why. I love 1031 Exchanges!
Most people get enough write-offs from their primary residences, but a second home can provide write offs, particularly if you lease it out. (The IRS only allows you a few days each year, about 10% of the time, to visit your home and maintain it. That’s precisely why you need multiple homes!) Then you pay off the home through rental payments, borrow against it, and build what I call “stealth wealth” this way.
I asked about fractional ownership, particularly because I want a fractional at Watercolor or Alys Beach sooo badly, and he said the same rules apply, but do you really want to have to deal with all those partners in ownership? I don’t know, mulling.
Meantime, this is my year to button down the financial s, do another 1031 Exchange, start another blog, and take you all with me all the way. I think real estate is a great way to diversify investments because it gives you total control.
Homeowners who owe more than $1 million on their homes are under intensified scrutiny by the IRS now. Why? Because of so much confusion over deducting the interest on those over $1 million mortgages. And you can do the math — if your mortgage is more than a million, you are likely deducting a boatload of mortgage interest so pay attention because this could mean good deduction news, something we need a whole lot more of right now. I’d say only your CPA knows for sure but that may not really be the case!
Here’s the deal — as is usual, the tax code is so dang complex everyone is confused, even the IRS themselves and those advising us, CPA’s. At issue is how much interest can be deducted, and it is based on what kind of debt the homeowner holds. I will tell you that the Alternative Minimum tax can make this a moot question for many, which is frustrating.
Tax rules distinguish between two kinds of home debt. There is home acquisition debt, which is a loan used to acquire, construct or substantially improve a qualified home, and is secured by the home. This would be your mortgage.
Then there is home equity debt, which is any other kind of loan that is also secured by the home, but used to pay off credit card debt or for general consumer spending.
The controversy centers on how this was all interpreted. Some tax advisers and agents were telling clients it was acceptable to deduct all interest on a single mortgage of up to $1.1 million. Others said no, the limit for mortgages was $1 million, but they could also deduct interest on another $100,000 (up to $100,000) in a home equity loan.
IRS said last spring acquisition loans over $1 million may also qualify as home equity indebtedness. And the taxpayer can deduct interest on the full $1.1 million, even if he has only one loan.
But throw a few re-fi’s into the mix, and the rules can get “complex”. Or second homes. If a taxpayer owns several homes, say a house in upstate New York and a condominium in New York, they may also be subject to paying New York state and city income tax if they are there for more than 180 days/year.
There’s a reason why we call this blog second shelters: tax rules generally allow deductions on a first and second home, but not a third or more. Of course, most folks pop those into limited liability partnerships, especially if they are income-producing, and the entity files a tax return that flows down to the taxpayer.
And if you are thinking ha, it’s those rich SOBs again, let them pay up… think again. Many people buy in areas where home prices are not what they are in Texas, and they have no choice but to take on huge mortgages. I am also finally reading Michael Lewis’ The Big Short, which is amazing and spells out how banks wanted to over-extend loans to consumers, many of them 100% loans on, yes, million dollar properties.
Calling all reality show producers: do I have a script for you! Take a 20,000 square foot Texas mansion built by an oil tycoon and his wife – I mean, ex-wife. OK, make that 19,337 square feet with 6 bedrooms, 6 baths, two half baths including one with a musical flushing toilet, two infinity pools, 6 living rooms, Moroccan media room, a guest house with three bedrooms, a caretakers home, Longhorn, cattle and horses and a barn (with full bar) to house them. There are even deer jumping (and getting stuck on) the fence plus rabbits, coyotes, snakes, critters, three mules, a horse, donkey, catfish and brim because the home is on the shores of Lake Grapevine. In fact, there are more than 450 feet of waterfront views of the lake from a 75 foot bluff, which is not only high for, but extremely rare in, Texas.
Now guess who’s living there: four forty-something, beautiful divorcees. Rent-free. While the house is on the market.
Call me a voyeur, but I always love to know the story behind every house I visit. Jacque Evans (no relation, unfortunately, she’s adorable) built this as her dream home with her husband of 20 some years. No expense was spared in the building or design, and Jacque picked out every stitch of fabric, every stick of furniture, and imprinted her touch on every inch. (My favorite – her bedroom, and the black toile guest house bedroom.) The home took three years to build. After her divorce, she was awarded the home. She found herself opening up to other women in her situation. When she found out some of them had no place to live, she said, why don’t you come over and live with me – I certainly have plenty of room.
(Note: Divorcee Diva Inn is full.)
“What is the point of having things – a big home, two swimming pools – if you can’t share it with people.
While it’s on the market with dynamo agent Rogers Healy, Jacque shares her home: Living in the guest house is a divorcee with one daughter. Three other women – all gorgeous, Jacque looks about 35 – are in two of the six bedrooms. At 19,000 square feet, they are almost a football field away from Jacque’s bedroom and spa bath. Another lives in the caretakers’ home.
“We are a total support system for each other — we pray, share food, clothes, try on clothes, and have fun all the time,” says Jacque. “We try to laugh every day and are actually having a blast!”
But there is stress: a few weeks ago, the Divas were out (in boots and heels) in Jaque’s pasture trying to help a deer who had jumped over and gotten stuck on a fence. Deer, they learned, are pretty heavy. Jacque managed to get the poor dear unstuck and off the fence, and he ran off into the woods.
The estate is protected by an electronic gated fence, located within a gated community in Flower Mound, north-west of Dallas, close to D/FW airport. In fact, sitting on Jacque’s patio, you would never think you are anywhere near Dallas until you see a 747 taking off in the distance. Full water views right from the foyer.
“I grew up in Lakeland, Florida, “says Jacque. “When we found this property, it reminded me of that. So rare to have a home on the water just minutes from downtown Dallas.
The home sits on 10.4 acres, and because of the cattle and horse, the new owner will get a Texas agricultural exemption on 9.4 acres. The features and extras in this home run so way over, you have to see to believe: venetian plaster everywhere, stained glass windows, custom tile, the truly Moroccan media room where Jacque hangs with her new beau, a friend from college, a huge bricked-in wine cellar, geo-thermal heating, smart house wiring, two Aga stoves, a walk-in food vault (refrigerator and freezer), exercise rooms, and quality everywhere from the walnut floors to the groin vault ceilings to my favorite: a secret office off a hidden stairway located behind a bookshelf in the study. Also, a billiard room with shoe-shine chairs, and a game room.
The Bachelor my fanny: this home would be the perfect setting for Divorce Divas. Because the guys would have to be pretty darn special to drag me out of this castle, deer or no dear!