Lessons from the Pros

Real Estate

Second Home Purchasing Prospects are Bright

Experts are saying the one thing that might be a bright light in the housing market is the vacation/second home/rental market.

At a party last weekend, my husband and I were asked about the real estate market (my husband is a broker) and what our thoughts were on long-term vacation rentals. One couple weighed in that they were having a great experience with their long-term vacation rental. After the party, I thought, that would make a great article.

NAR (National Association of Realtors) analyzed the data from the U.S. Census Bureau and it indicated the following: There are 7.9 million vacation homes owned in the U.S., 41.6 million investment properties and 74.8 million owner-occupied homes.

With vacation homes being a little over 6% of the market, you wouldn’t think they could have much impact. However, the percentage is expected to grow for the following reasons: 40.7 million people in the U.S. are between the ages of 50-59. This is the dominant group for purchasing vacation and/or second homes. Then there is an additional 43.8 million people in the 40-49 age group that are getting ready to move into the dominant group. There is also a backlog of people who have been waiting for the right time to buy.

That is a lot of purchase power out there. With interest rates at all time lows, it has many people thinking about entering the vacation and/or second home market. Some are even looking at getting ahead of the retirement game. “An interesting trend is showing that people are planning to eventually occupy their vacation homes,” says Jennifer Dubois, director of Realtor.com. Jennifer goes on to say that, “Thirty-four percent say they plan to use the property as a primary home in the future. So it’s almost like they are buying their retirement home now.”

Back in 2010, the NAR said that 34% of vacation home buyers were planning to use the property as a primary home in the future as well as 10% of buyers of investment properties.

There is also the element of buying the home and using it as a rental or seasonal rental. 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:

  1. Location – you know the old saying in real estate – it’s all “Location, Location, Location.” Well, that is even truer for vacation homes. Keep in mind that there is a balance here – find 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 are popular retirement destinations as well as the snow bird area.
  2. Find a deal – According to the NAR, more distressed homes are purchased at a discount by second home buyers than primary residences. So here is my shameless pitch for the Professional Real Estate Investor class – we teach you techniques on how to find these distressed properties – spend the money to get an education to help you get a great deal. It could be a win-win for you.
  3. Running 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.
  4. 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.
  5. 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.

Great Fortune,

– Diana Hill dhill@tradingacademy.com

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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