Lessons from the Pros

Real Estate

Buying a Second Home

At a party this past weekend, my husband and I were asked about the real estate market and our thoughts about long term vacation rentals.  One couple weighed in that they were having a great experience with their long term vacation rental.  I thought this would make a great article.

Free Trading WorkshopAccording to the National Association of Realtors, the median age of vacation home buyers decreased from 55 years old in 2004 to 43 years old in 2015. Buyers are taking the plunge into the vacation rental business at an earlier age and this allows for more years to enjoy the benefits of owning a second home.

According to HomeAway, only 7 percent of vacation home buyers in 2004 said the primary reason for their investment was to rent to travelers, whereas most people were purchasing second homes exclusively for personal use. Today, 23 percent of buyers say the number one reason they purchased their second home was to start a vacation rental business.

According to HomeAway, a whopping 89 percent of newly purchased vacation homes will be rented out within the first year. This statistic shows that the growing popularity of vacation rentals is making a big impact on buyers’ investment intentions.

T.J. Mahony, CEO of www.flipkey.com (online vacation rental marketplace) stated, “Of the folks who have a vacation home, the average person will leave it vacant about 90% of the year, so they have a beautiful piece of property and nine out of ten days there is nobody in it.  There is obviously a large opportunity there.” The average vacation rental earned $26,000 a year according to Flipkey’s clients.

Here are a few tips if you’re going this route:

  • Location – you know the old saying in real estate is “Location. Location. Location.” Well that is even truer for vacation homes.  Keep in mind there is a balance here – buy a second home in a place you want to be and will want to be in the future that is also attractive to others for rental purposes. For example, here in Southern California, Palm Springs or Palm Desert is a popular retirement destination as well as snow bird area.
  • Find a deal – According to the NAR, more distressed homes are purchased at a discount by second home buyers than primary residences. Run the numbers – Know what you can afford and what the property will rent for. There are a lot of variables that need to be considered when buying a second home.
  • Guests in your home – Flipkey did a survey of its membership and found that 94% had either never had an incident or just a single minor one of something bad happening to their property.
  • Tax Advice – You’ll need to speak to a tax professional to guide you because this type of property makes your taxes more complicated. It will also influence how much time you can personally use the property.

“Even if purchases are delayed due to economic circumstances, the underlying long-term demand – the desire for purchasing second homes—remains because people in their 30’s and 40’s will reach the prime age for buying and will drive the second-home market in coming decades as conditions permit.” Says Lawrence Yun, Chief Economist for the NAR.

There are many websites you can list your property on. One of my favorites is Airbnb.com.

Great Fortune

Diana Hill


DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.

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