If thoughts of owning a second home have crossed your mind, this could be excellent time to make the leap.
After setting a record in 2006, sales of second homes dipped last year along with the real estate market overall, according to a new study by the National Association of Realtors. A greater inventory of available vacation homes, softer prices, and low mortgage rates have made this a buyer's market for second homes - the first one in many years.
According to data collected by NAR, the second-home market, including vacation homes and investment property, accounted for 33 percent of all home sales in 2007, down from 36 percent in 2006. There are 7.5 million vacation homes and 39.0 million investment units in the U.S., the organization reported.
The overall decline in sales last year was expected. Second homes are discretionary purchases that tend to get hit harder during periods of economic uncertainty. In addition, credit tightening during the second half of 2007 slowed purchases.
Nonetheless, the long-term prospect for second homes looks strong due, in part, from growing demand from baby boomers who are looking for a vacation property to enjoy now as well as a good investment down the road. Currently, 38.7 million people in the United States are ages 50 to 59, 45.3 million people are between 40 and 49 - prime years for buying a second home. Baby boomers are still in their peak-earning years. They have both the means and the desire to purchase second homes, and want to diversify their portfolio assets.
Vacation-home buyers know that homeownership offers good, long-term investment potential as well as immediate enjoyment. If you're thinking about buying a second home, here are some things to consider:
* Location is key. Consider a location that offers things that interest you and your family, whether it's a beach resort, a lake property, or someplace where you can play golf, hike, fish or ski. Your second home should also be close enough to your primary residence that you'll be able to use it often. Most second-home owners have purchased within a few hours' drive. Given soaring gas prices, this is probably more important than ever.
* Should you rent it out? Most vacation-home owners - about three-quarters - want to use their property exclusively and never rent it out, according to NAR. But buyers need to ask themselves whether they can afford all the costs of ownership without generating any income. Rental income can help offset mortgage costs and other expenses. However, renting can also create other challenges, including marketing, managing and maintaining the property.
* Property managers. If you do decide to rent out your vacation home, it is important to use a good local property manager to look after it for you. While a property manager will reduce your income, he or she can save you lots of time by doing maintenance, cleaning, repairs, and improvements, as well as collecting rent and marketing the property.
* Are views worth the money? While an ocean, lake or golf course view property will cost more, it also will likely appreciate more than a home without a view - or a view of the resort's back parking lot. Remember, the same things that attracted you to a second home in the first place will attract a future buyer should you want to sell it down the road.
* Don't let your emotions take control. Buying a second home can indeed be a good investment, but you need to know going in that not every vacation home will end up providing a strong return. There's no guarantee that a vacation home will always appreciate in value, of course. And the second-home market can be much more cyclical and at the mercy of the economy than the primarily home market.
* Do the math. There are a lot of expenses that go into owning a second home or vacation rental property, including mortgage costs, homeowner's dues, property taxes, property management, maintenance and renovation. Calculate the monthly expenses of ownership versus any rental income you might expect. Can you absorb a negative cash flow and for how long?
* Rely on a professional Realtor. With prices down and a growing inventory of homes for sale, there could not be a better time to buy a second home. However, finding the right property can be challenging. More than ever, it's important to look to an experienced, professional Realtor to help you find the vacation home of your dreams. An agent who truly understands the market you are considering and who has qualified referral contacts in most vacation home markets, can help you purchase the right home for you, one you can enjoy for many years to come.
Evelyn Walker, a 22-year real estate veteran, is manager of Coldwell Banker Residential Brokerage's Danville office, 600 San Ramon Valley Blvd.