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To buy or not to buy that vacation home
All eyes are on the residential housing market, and its inevitable slowdown. There is a surplus of un-bought homes just sitting on the market, and many are recognizing that we are slowly coming up on a buyer’s market.
As potential buyers have more and more property to choose from, some people are wondering about the possibility of owning a second home – or vacation property. But during this uncertain time, buying another property holds many risks, especially the risk of not getting your money’s worth.
An August 21, 2006 article by Sarah Max of Money Magazine, “Before you buy that vacation home,” looks into some things you should think about before buying a second property in a slowing market.
“‘A lot of people go on vacation, look at real estate fliers and suddenly decide they want to buy a house,’ says David Hehman, CEO of Escapehomes.com. On the other hand, you know from your primary home's market that real estate is not the no-brainer investment it once was. And so you wonder: Are you letting your heart run away from your head? Should you even be considering a vacation home? Probably not, unless you can accept that you're no longer going to get rich quick by buying a second home.”
Between 2001 and 2006, the median home price in the top vacation rental cities rose over 120 percent. That is a lot of price appreciation in a relatively short amount of time. But now, things could change, and there are many different things to take into consideration before you sign on the dotted line.
The first thing you should know is that you shouldn’t buy a vacation home to invest, since you could end up losing money during the re-sale, and not gaining a cent.
“And second-home prices are even more vulnerable to a downturn - nobody needs a second home. For a prime example of how quickly markets can turn, consider Naples, Fla., which showed a nearly 40 percent appreciation between the fourth quarters of 2004 and 2005. Yet between June 2005 and June 2006, sales volume dropped 48 percent, according to the Florida Association of Realtors. And median prices, meanwhile, fell 8 percent.”
The most important thing to know right now is that you should not be expecting to make money on your purchase, and that would just be an added benefit of spending quality time with your family and beach-front cottage. Keeping this mindset throughout the process will help you from becoming disappointed in the long run.
“It's not all grim news. The moral of this market: If you are going to buy, do it for love, not money. Do it because it's a place you adore and will want to use for years to come. That way, even if prices dip - or plummet - you will be able to enjoy it while you wait out the fluctuations.”
Finally, when you are thinking about buying a vacation home, look at all aspects of the financial commitment you will have to make, and be sure that it is worth it.
“The next thing to figure out is whether you'll spend enough time at the house to justify the expense. Come up with a back-of- the-envelope estimate by adding up annual expenses and dividing that sum by the total nights you'll spend there. Don't be surprised if you find it's cheaper to stay at a five-star resort.”
If you keep your expectations locked in reality and do not let the euphoria of a vacation block your common sense, you should be able to come up with a logical and informed decision as to whether owning a vacation home is right for you.