Posted on: Friday, July 16, 2004
Vacation homes not for everyone
By Kristen Gerencher
CBS MarketWatch
SAN FRANCISCO — With summer's arrival, many people will feel the familiar tug of a question they face every year: Does it make sense to buy a home in the place they vacation?
Be it the beach, the lake or the mountains, vacationers may ask whether it's time to put down roots in their favorite getaway spot, or if it's more prudent to keep paying for hotels and rentals year in and year out.
The answer lies in how they view a host of financial and lifestyle considerations, including how much time they want to spend in their chosen paradise and how important rental income is to them, real estate experts said.
"We're finding that most people are definitely buying for recreational interest first and foremost," said David Hehman, chief executive of EscapeHomes.com. "But it's very common that they will rent it out when they're not using it to defray the cost of ownership."
To be sure, a vacation home is an emotional purchase that should be approached cautiously, Hehman said.
"It's not for you if you can't get the enjoyment out of it, or if it's going to be a financial stretch," he said. "If it's got to be too far away from you, difficult to get to, if you have kids that have soccer games every weekend and you were planning to make it there, you have to match your use pattern up with reality."
Of course, the decision to own is easier for those who can tap the equity in their primary residence, or who fully expect to continue going to the same destination every year, said John Zubretsky, regional president of Century 21 Access America in Weathersfield, Conn.
Those set on a location are wise to buy so they can treat their vacation property like a piggy bank or alternative investment, said Tom Kelly, co-author of "How a Second Home Can Be Your Best Investment."
"We only get so much vacation time," Kelly said. "Why not buy something you can use, that you can rent, that's probably going to appreciate over time?"
Kelly advised prospective buyers to figure out how much they would need for a down payment, how much they could rent the property for during the premium weeks of the year and whether the cash flow would be positive over time.
Even so, people often overestimate the amount of time they'll have to use it for themselves, he said. "Most of the time, the average individual isn't going to get to the getaway as much as they think."
Tax breaks can make owning a vacation home more affordable, depending how often it's used versus rented out, said Laura Washington, associate editor of Consumer Reports Money Adviser, a newsletter.
That's why owners need to keep good records of the days they occupy a second home and the days they rent it out, she said.
Last year, Americans bought and sold an estimated 445,000 second homes, up from 359,000 in 2001, according to the National Association of Realtors. The United States is home to about 6.63 million vacation dwellings, projected to grow by an average of 125,000 new units per year in the next decade.
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Buying a home away from home
Things to consider before buying a vacation home:
• Rent in the area where you are considering buying for several years before committing to a purchase.
• Estimate how much time you and your extended family will use your vacation property.
• Research your potential for rental income.
