Vacation Home Shoppers: A·"Glass-HaIf·FuD"

Approach By Christine Karpinski

Christine Karpinski's books, seminars and website have been guiding vacation home buyers for some time. The excerpts in this article will provide some ideas for

you to use when working with your second-home buyers.

About the

Author

ou' ve been thinking about buy­ing a vacation home for some time now, but the dismal condi­

tion ofthe real estate market has squelched yourenthusiasm.This summer's subprime mortgage collapse, and the barrage of media negativity that's followed, have acted like a chilly downpour on your fantasies of sunshine and sandcastles.

Yes, it's true that home sales are the slowest in five years (according to one

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Christine Karpinski is the author of How !

y doom and gloom atticle from CNN.com) and yes, mortgage rates are on the rise. Still, things are rat'ely as bad as they seem, and vacation home shoppers should take a "glass half-full" approach to today' s sluggish real estate market.

The fact that home sales are slow right now is actually agood thing, because you can get your vacation home for a lower price. Rising mortgage rates needn't be a deal breaker, either, Ifyou can find one you can live with, renting your vacation home will help you offset that cost.

Besides, a vacation home is not ashort­term investment, like a fixer-upperyou're planning to renovate and flip. It's a pur­chase that's meant to pay long-term divi­dends offun and great memories, so don't let economic factors beyond your con­trol scare you away from your dream.

Because there is a buyer's market in real estate right now, there's less pres­sure on you to make a quick decision. You never want to rush into any purchase of this size and the slow market allows you to slow down, do your research, and re­fine your plan. The last thing you want is to end up in an area where you can't

Good Supply There are lots of properties to pick

from. The subprime mortgage collapse has resulted in plenty offoreclosures and distressed sellers. There are a lot of lend­ers out there more than willing to rid themselves of the foreclosed homes that have fallen into their possession, not to mention homeowners desperate to rid themselves of inflated mortgage rates. Purchasing one of these homes doesn't mean you're a vulture who sweeps into buy someone' s loved but no longer af­fordable property. It just means you know a good deal when you see one.

Keep an eye on the local papers or connect with a local real estate agent who will watch the market for you in the area in which you want to buy for possible opportunities. You mightjustseeadeal too good to pass up.

Patience, as always, is a virtue. Be­cause a vacation home purchase is a long-term investment, your focus shouldn't be on what the real estate market is doing right now. Your con­cern will be what the price of your home is down the line, years from now.

to Rent Vacation Properties by Owner, 2nd ! Edition; The Complete Guide to Buy, Man- \ age, Furnish, Rent, Maintain and Adver·Itise Your Vacation Rental Investment, and :

rent your property or where the market is overcrowded. The fact tbat there are plenty of properties on the market right

The biggest advantage of investing in real estate is that it almost always appre­ciates-sometimes quite quickly-al­

IProfit from Your Vacation Home Dream: i The Complete Guide to a Savvy Financial I

OJ' and Emotional Investment. Her books, i

now, and a shortage ofbuyers, gives you the luxury of time.

lowing you to buy a property that you couldn't afford otherwise. If you buy smart, you can build up a good deal of

I combined with her seminars, media ap- : I pearances, and Web site (HowToRent \ i ByOwner.com), have helped thousands of

I ,people purchase and manage their vaca­ !

tion homes, Today she serves as director i , of Owner Community for HomeAway, Inc. i i (HomeAway.com). ---l '-----_.._-_...-_._--_._-_._-- .._.­

A FEW INSIGHTS Here are a few insights to consider

before you abandon your vacation home dream.

equity in just a few years, Yes, at first you may have to rent out your property for most of the year just to break even. And it probably won't be acashcow, so

44 The REAL ESTATE PROFESSIONAL NovemberlDecember 2007

S~c"Jld Homes that the average vacation home brings in more than $33,000 in rental revenue each year. According to survey results, 67.15 percent said that the cost savings is the primary reason that they rent by owner. Interestingly, 37 percent said they do it because they like the sense of con·· tro!' They feel they can take better care of their property than anyone else and like to know who is renting their homes."

Buy with your wallet, not your heart. Make sure you're buying asmart invest­ment. This is especially difficult for vacation homebuyers because we're risk­takers who tend to let ouremotions drive our decisions. It's easy to get caught up in the moment and sign on the dotted line when you see that gorgeous beach home or perfect ski resort.

Why do you think so many people own timeshares? Because they let their ex­citement about the romantic side of ownership override the voice of reason that insists upon due diligence. You want the purchase of your vacation home to be a safe investment, and the buyer's market gives you time to research your prospects-so take it!

Take Advantage of Buyer's Incentives

These days, many developers and sell­ers are offering incentives to make their

IMoving? ·1'

properties stand out from the crowd and move them more quickly. For example, to attract buyers to their properties, de­velopers are offering all sorts of incen­tives to purchase new construction, in­cluding free upgrades like granite countertops, travertine tile, stainless ap­pliances, free furniture packages, and the like. And the buyer's market has sellers motivated as well. Many are offering in­centives such as closing costs paid for by the seller and cash back for upgrades.

You can get a lot more bang for your buck than you could when the housing economy was booming. When you're relaxing in your nicely appointed vaca­tion home-or writing about your luxu­rious kitchen on HomeAway.com or some other website meant to attract rent­ers - you'll be glad you bought in a buyer's market.

Research the Area Where are you thinking of buying? Is

ita new, emerging area? Or is itan older, more developed area? If you are look­ing to purchase in an area that's well de­veloped, such as The Outer Banks of North Carolina, you have less to worry about interms ofgetting your money back down the road.

The supply is still low in these areas so historically they indeed hold their

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value. But in an emerging market such as Southeast Florida, you should exer­cise caution to be sure that there are not too many new developments such that the inventory exceeds demand. You'll also want to stay away from flavor-of­the-month-type places. Those places are popular right now, but may not be in a year or so.

Financing Considerations Learn from the subprime mortgage di­

saster. Those low rates on adjustable-rate mortgages can be tempting, but everyone should take a valuable lesson away from the recentsubprime collapse. The last thing any homeowner wants is a ballooning mortgage rate that they can't afford. So, even if that cheaper one-year ARM is perfect for you, be realistic. If it happened to the poor soul who lost the vacation home you're thinking of buying for asong, well, it could happen to you, too.

You know that payment is going to go up eventually, and, as we've seen, if it goes up when you aren't ready, you'll be in for adevastating surpl1se. You might be saying, "I'll just sell when the rates rise," but so might thousands of others. You might be stuck with a property that's difficult to sell and you cannot afford. And if you're thinking ofjust refinanc­ing at the end of the "teaser" term, there is no way of telling where the mortgage rates wi II be when your teaser rate caps out. Just be sure to do the research tofind the right mortgage for you - the time you spend doing a thorough search will payoff in the long run.

TIME TO MAKE THE LEAP Vacation homes are still a good long­

term investment despite where the market might be right now. The fact that you always have the option to rent provides you with a great strategy for making vacation home ownership work for you. You don't have to berich. And you don't ha ve to wai t for the perfect economy to buy. There's probably no such thing. In fact, buying a vacation home is a lot like having a baby. If you wait for the per­fect moment in time, the cradle will al­ways be empty. Sometimes youjust have to make the leap.

- Christine Karpinski

II

don't set your expectations too high. But be patient. As your equity builds and rental fees increase over the years, you can rent it less often and still stay ahead financial!y. Know that your property will eventually become profitable. In the meantime, you have a wonderful place to spend your future vacations - with no reservations required.

Keep Short·Term Rental Option Open

Avoid areas with short-term rental bans. The best way to protect yourself from market fluctuation is to leave your options open to rent your property on a nightly or weekly basis when you are not using it. Somecomplexes, towns, orcities have areas where covenants or laws re­strict renting on a short-term basis. So, do the proper research before you buy. Ifyou stay away from purchasing in these areas, then you're leaving your options open to turn your vacation home into an income-producing asset.

States with restrictions on short-term rentals include California, Florida, Maine, Pennsylvania, Hawaii, Oregon, Nevada, New Mexico, Arizona, and New York. Do your homework before buying avacation property in any of these locations, even if you think you aren't interesting in renting. Circumstances change and people change their minds.

A Sound Investment Your vacation property can pay for

itself. If you don't think you can afford a vacation home, consider this: If you rent out only seventeen weeks ofthe year, your new vacation home may pay for itself. When your monthly mortgage payment is less than equal to one peak week rental, twelve weeks of rental will cover your mortgage payments for the entire year. Other costs, including bills for your phone, power, cable, and asso­ciation dues, may be paid out of your earnings from approximately five off­week rentals.

Surveys conducted through Home Away, Inc., reveal that the average weekly rate is $1,656, and that the av­erage property is rented ou.t twenty weeks or more per year. These fIgures suggest

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