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.
Island life.
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
Saunders, the
That "absolutely compelling lifestyle" is what attracted
In
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,
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Real Estate - Finding Second Home Bargains
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