Lost among the news about the current sub-prime mortgage meltdown is the housing market for second homes. Though the news media is focusing on the problems people are having with their first homes, there is plenty of news not being reported about vacation homes.
Vacation homes are those secondary houses people own at the shore, lake, or other favorite vacation spot. Most are small residences though some owners have lavish estates rivaling their primary home in size and in value. You’ve seen these homes spring up along prime waterfront property over the past two or three decades — houses which dwarf the cottages which once dotted most communities.
If you are already familiar with a particular vacation market, you probably have witnessed a recent trend: plenty of homes are for sale and those that are selling are going for a heavy discount. One of the most stressed markets offering fantastic deals is Miami where a spate overbuilding has forced prices down in a hurry.
For people wanting to come away with a great deal there are some things to consider:
Take Your Time — Finding a vacation home for a very low price isn’t difficult to do. But, pouncing on the first property that comes along can show that you are being too hasty.
Because you’re in a buyer’s market you’ll want to determine a few things first:
- Are you familiar with the area where you want to buy?
- If purchasing a condo, how many units are vacant? There could be a reason why your unit is going for a song — the association managing it could be bankrupt.
- How often do you plan on visiting your second home? Do you plan to rent it out? Would you do better simply renting a home every year instead?
- What are some of the related fees to managing the property — i.e., garbage removal, landscaping, outside maintenance, etc.?
- Based on the information available, will your second home appreciate in value? You may have no plans on selling, thinking that your children will enjoy your home when you are gone. Don’t count on that — they may not be interested in maintaining the property later on.
Financing Your Purchase — many second home buyers tap the equity in their first home to buy their second home. But, you may not want to put your first home at risk by purchasing a vacation home. Consider:
- Will you be able to find financing for a vacation home?
- What rates are being charged? Some lenders avoid second home financing while others specialize in financing vacation homes. Will you have to pay a premium rate in order to finance a second home?
Insurance costs can be a deal breaker especially for homes along the ocean. When Florida and New Orleans were ravaged in 2004 and 2005 by a series of hurricanes, insurance companies jacked up their rates, sometimes three- or four-fold to cover their risks. Can you afford to pay $4000 in homeowners insurance annually on your beach property?
The good news is that many second home markets are likely to be depressed for the next few years, taking the pressure off of you to make a fast decision. Look around, shop around and you’ll come up with a deal that is fantastic and one you can live with for many years.
Helpful article? Leave us a quick comment below.
And please give this article a rating and/or share it within your social networks.