Finding Second Home Bargains
Eugene L. Meyer
In much of
The housing market reflects a paradox of the Great Recession:
While some baby boomers are struggling to prevent their primary residences from sliding into foreclosure, others are realizing their dream of purchasing a vacation getaway. Many people "still have a lot of money that sits on the sidelines waiting," says
However, boomers without disposable income should steer clear of the second home market, even if they believe they can get financing, advises
Conversely, for the fortunate who are flush with cash, have high credit scores, and possess sufficient disposable income to make down payments of 20 or 30 percent, now may be the time to jump into the market. Sharply reduced prices and the lowest interest rates in decades have combined to create a buyer's market. Moreover, with the stock market in the doldrums, some boomers are finding that purchasing a second home can be a worthwhile long-term investment.
After incurring some significant start-up costs, including interior decorating and the purchase of a flat screen TV, the Karnses now rent out the property when they are not using it themselves as a vacation home. "We feel like we've kind of landed in our dream come true," Marleen says.
What is unclear is how many couples have the ability to capitalize on the market as the Karnses have. In 2009, the typical second home buyer was 46 years old with a median household income of
1. Can the property generate enough rental income to cover carrying costs (mortgage plus maintenance, insurance, utilities, and property taxes)?
2. Will the rates you charge, especially for the most expensive properties, attract a pool of renters that is both sufficiently large and sustainable (particularly during economic downturns)?
3. If you intend to use the second home more than you will rent it, do you have the means to carry two mortgages and to pay associated costs?
These three criteria did not deter
"I didn't buy it as an income property, but as a retirement home," she explains. "I have always wanted a home on the ocean and knew that if I waited any longer, I wouldn't be able to afford it. My plan is to pay off the mortgage in 15 years -- by the time I retire. Renting it just helps pay some of the expenses. Plus, having it as a business, I get to claim my losses on my taxes. Maybe my accountant would have said, 'You are crazy!' But, I love being there!"
Some boomers, who bought second homes at their peak price, now find themselves alarmingly underwater on their mortgages, which means they owe more than the property is worth. For these owners, Karpinski recommends renting to cover expenses and waiting out the market to give the properties a chance to appreciate.
New buyers, however, "can purchase a vacation home and have it break even from rental revenue . . . because the prices of properties are lower," she says. "If in 2005, you bought for
That "absolutely compelling lifestyle" is what attracted
For many prospective second home owners, "the difficult part is financing," says
Saunders still sees real estate as a good long-term investment. Those who dream of a second home should consider this, Saunders says: "If you look at return on investment from 2000 to 2009, even though real estate has lost a lot of that [price] run-up we saw, it was still a better investment than the Dow,
- Finding Second Home Bargains
- America's 10 Slowest Appreciating Housing Markets
- The Costs of Retiring with a Mortgage
- Prepaying a Mortgage: When Does It Maske Sense
- Shorter-Term Mortgages Make Sense for Some
- Thinking About Refinancing? Get Moving
- 10 Historic Places to Retire
- Do You Live in a High-Debt City?
- How to Get a Government-Backed, Zero-Down-Payment Mortgage
- Housing Demand Evaporates As Stimulus Ends
- Home Prices Likely to Slide After Sales Plummet
- 9 Reasons to Choose a New Home Over a Resale
- What will happen to the housing market?
- Pay Off Investment Property or Pay Off Primary Residence?
- 9 Smart Ways to Come Up with Down-Payment Cash
- More Federal Help for Struggling Homeowners
- Home Builders Not Driving Economic Recovery
- Packing for a Move Is an Art Unto Itself
- An Expert Looks at the Future Of Real Estate
- How Financial Reform Affects Home Buyers
- 10 Best Places to Reinvent Your Life in Retirement
- Housing Market Takes Another Step Backwards
- When Buying Distressed Property Know All Liabilities That Come With It
- 3 Ways to Invest in the Real Estate Rally
- Will the REITs Rally Continue?
- Home Prices Improve But May Soon Begin Sliding
- Home Sales Rebound From Record-Low Levels
- Downward Pressure on Home Prices Mounts
- Dirt-Cheap Mortgage Rates: Here for How Long?
- 6 Reasons the Housing Market Hasn't Recovered
- Distressed Home Sales to Sandbag Housing Revival
- Home Sales Poised to Drop in Coming Months
- Did You Miss Out on 2010 Home Buyer Tax Credits? It May Not Matter
- New Home Sales Plummet to Record Low
- The Housing Market's Unexpected Drop
- Builders Break Ground on Fewer Homes
- Home Builders Grow Gloomy As Tax Credit Ends
- Housing Market Predictions Change with Lousy Housing Sales Numbers
- Homebuyer Tax Credit Deadline May Be Extended
- Home Repossessions Hit New Record High
- Applications Point to Slow Summer Housing Season
- Bank of America Program to Forgive Loan Principal for Some Borrowers
- Home Prices Have Further to Fall: Here's Why
- 10 Cities for Retirement Property Steals
- What Home Sales Jump Means for Economic Recovery
- Why Housing is Headed for Second-Half Headaches
- Mortgage Rates Are at Historic Low, but LIBOR Is Rising
- Unloading a Timeshare No Simple Task
- Loan Modification Nightmare Continues As More Americans Pay Their Mortgage Late
- How to Identify Ideal Vacation Rental Property
- 7 Ways to Avoid a Crummy Real Estate Agent
- Rules To Improve Credit History and Raise Credit Score
- Confused About New World of Mortgage Finance? You're Not Alone
- Underwater on Mortgage But Too Much Skin in Game to Walk Away
- 7 Reasons to Downsize in Retirement
- Investment Property Costs: Add These Real Estate Expenses to Your Budget
- Don't Make These Real Estate Investing Mistakes
- Don't Make These Real Estate Investing Mistakes (Part 2)
- 12 Hidden Costs of Homeownership
- Don't Sign Over Title Until Your Name's Off the Mortgage
- Quitclaim Deed Not a Way to Get Mortgage Modification
- Nine Ways to Make Your Home More Appealing to Buyers
- Loan Modification Angst
- Obama Housing Rescue Tackles Unemployment & Underwater Loans
- How Much House Can I Afford? Calculating Home Affordability
- Home Sales Flat Before Spring Buying Season
- More Homeowners Pursue Remodeling Projects
- America's Most Underwater Housing Markets
- Energy-Efficient Updates Help Homeowners Save Cash
- Home Buying Checklist: What Savvy Home Buyers Need to Know
- Social Networking for Realtors Mortgage Lenders Buyers and Sellers
- Home Affordable Program Failing Homeowners
- Rate of Home Price Declines Slows, But More Drops May Be Ahead
- The Future of Home-Price Appreciation
- What Tanking Home Sales Mean for Economic Recovery
- Home Foreclosures Approach Peak Range
Real Estate - Finding Second Home Bargains
(c) 2010 U.S. News & World Report