Vacation Homes: Is Now the Time to Buy?

Vacation Homes: Is Now the Time to Buy?

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Vacation Homes: Is Now the Time to Buy?
By Patricia Kime

Deborah Rehyer of Vienna, Va. had just one requirement for buying a vacation home: It had to be waterfront.

Her search began in a region 90 minutes from her home, in Virginia's Shenandoah Valley. And her search ended on the opposite side of the state with a six-acre parcel on a tidal pond just off the Chesapeake Bay.

"Waking up in the morning is the best. I take my coffee out to the floating dock and watch the world wake up," Rehyer says of her vacation property.

Many of us visit vacation spots and wonder what life would be like to live there. Often, we pick up the real estate brochures searching for a cheap vacation home or the luxury house of our dreams.

Even as the national real estate market remains stagnant, professionals and experts say that the market for vacation homes may be the most attractive it's been in years, with prices down and interest rates low.



"If you're looking at getting a recreational home or a home where you think you want to spend most of your time in -- maybe the next portion of your life -- it's doable now. You can get in the door," says Tom Kelly, syndicated real estate newspaper columnist and co-author of "How a Second Home Can Be Your Best Investment."

The number of vacation-house purchases rose slightly in 2009, up 1 percent from 2008, according to the National Association of Realtors' 2010 Investment and Vacation Home Buyers' Survey. Although the number is still down from the vacation-home-sales heyday of 2005 and 2006, buyers are returning to the vacation-home market, the NAR says.
The typical vacation homebuyer has a median age of 46 and a median household income of $87,200. Half of all vacation home buyers in 2009 purchased their second home in the South; the typical property was a median distance of 348 miles from their primary residence, according to the NAR.

If you are among those considering buying a vacation home, think about the following before starting to expand your real estate portfolio.

Preliminary Analysis/Affordability

If you dream of owning a home away from home, start your search by determining how much home you can afford. If you haven't saved enough for a cash transaction, you'll need a mortgage, and the bank can help you determine what you can pay. Loan officers determine the amount of mortgage and type of mortgage for which you qualify based on several factors, including the amount of cash you have for a down payment, your debt-to-income ratio and your credit score. (Also see our guide: "How Much Home Can I Afford?")

Regarding the down payment, banks have gotten tight on requirements, often asking for between 20 percent and 40 percent for a down payment on a second home. Make sure you have money set aside for the down payment and closing costs.

To calculate your debt-to-income ratio, add your current monthly home payment, the projected payment of your second home and any other debt (car payments, student loans, credit cards, etc.) and compare it with your monthly gross income. Know that lenders will not give loans to those who have a debt-to-income ratio of more than 36 percent, so consider this in addressing your price range.

Also, make sure your credit score is in its best form. (Still wondering how much home you can afford? Check out AOL Real Estate's Mortgage Affordability Calculator.)

Then ask yourself the following question: Do you plan to rent out your vacation property? NAR says only one in four vacation homebuyers plan to rent out their properties to others. But one in five investment homebuyers plan to use their purchases for personal vacation use and/or as a family retreat. (Also see our guide: "Rent Out Your Home as a Vacation Property and Make Money.")

The difference between a vacation home and an investment property, according to the Internal Revenue Service, is 14 days: If you rent a house out up to 14 days a year (which you can do tax-free and still qualify for mortgage deductions on your taxes), it's a vacation home; if you rent it out and spend less than 14 days per year in it for personal use, it's an investment property. Make sure you calculate the tax ramifications when considering what you want out of a property.

Still worried about affordability? Consider shopping to buy a vacation home and asking the owners whether they are interested in owner-financing, Kelly says. "Ask what's possible. If an owner sees a terrific family that's willing to put 10 to 15 percent down and will cash them out in five years, they may be amenable."

The Fun Stuff

Beach, mountains, island getaway, rural retreat? When looking at homes, make sure it has something special – a view, proximity to main attractions, a three- or four-season resort with vacation appeal to all or waterfront. Finding a place that has one quality with universal appeal boosts one's enjoyment of a space and is good for resale. "Chances are if you like something about a place, others will too," Kelly says.

A rule of thumb for buying a vacation home is to find one within a three-hour drive of your primary residence so it's accessible on weekends. Kelly says people tend to stick with this rule, mainly because they enjoy a close corps of friends and family at their primary residence and want to stay close. Still, the NAR reports that 50 percent of vacation homebuyers in 2009 purchased a home 500 or more miles from their primary house, so don't restrict your search if you, say, live in Ohio and really want a home on North Carolina's Outer Banks.

Taxes and Oversight

A quarter of buyers who purchased a vacation home in 2009 intend to use it as a principal residence in the future, the NAR says. Many vacation homebuyers look for potential retirement homes. Owners avoid paying capital gains taxes when they sell their principal residences, so if they move into their second residences for at least two years, they can sell that house without paying capital gains.

Joy and Cliff Williams of Williamsburg, Va. took the opposite tack. They left their primary residence, an 18th-century historic home in the country that Cliff restored in the 1970s, to move into town. But they didn't want to give up their rural retreat, so they decided to rent it out as a vacation destination. Using VRBO.com by HomeAway and other websites, Cliff Williams now manages the house, Lightwood, as a side business and the Williamses have been able to keep a precious asset. "It was a leap of faith as to whether it would work, but it did, " Joy says. "We get people from as far away as Australia and Britain renting out our property."

Kelly says that Internet sites like VRBO.com and craigslist.com have eased the challenges of renting out vacation homes, so he encourages buyers sitting on the fence to keep an open mind regarding renting out their dream homes.

"I think people underestimate the number of people who are interested in renting vacation homes rather than staying in hotels," Kelly says.

They also overestimate the amount of time they'll spend at their own vacation home, he adds. But don't let that scare you. Vacation homes, he says, are a lure for family and friends. As a vacation homeowner himself, he's hosted many family gatherings in the mountains near Seattle. "You can't put a dollar sign on that stuff. Those are family memories we got," Kelly says.


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Gay Housing Project Slated for Palm Springs

By Michael Kaminer

Does architecture for older gay people differ substantively from design for hetero seniors? Certainly in execution, says Hollwich, who runs a program in aging and design at the University of Pennsylvania.

"Fighting age discrimination through architecture is the same for the LGBT community and everyone else - however, designing for the LGBT community differs in programming (all master bedrooms for the LGBT community, different socializing programs, different idea of the extended family)," he wrote. "The one point that I might want to speculate is that the LGBT community is more open for progressive design -- so this is where the power of architecture can truly unfold its potential."

On a more sobering note, the New York Times in 2007 reported that LGBT seniors face homophobia, isolation, and even abuse.

While BOOM's price structure has not been firmed up, Hollwich says the project "will have a full range of [home] sizes -- from studios to 4-bedroom houses. We aim to make it affordable for all kind of income levels. since the concept of BOOM is about integration on every level."

BOOM will break ground in 2012, Architizer says, starting with 300 residences built in eight neighborhoods, each designed by a different firm. Phase 2 of the project will add another 300 residences.

Matthias Hollwich has big plans to build an innovative gay housing development for seniors in Palm Springs, Calif., called BOOM. The 40-year-old New York architect is the ringleader of what FastCompany magazine's design blog is calling -- with some understatement -- "a wacky, $250m old folks' community for gays."

As the gay housing market mushroomed over the last decade, developers jumped on the bandwagon by hyping LGBT-oriented retirement communities. But most -- including Santa Rosa's Fountaingrove Lodge, Oregon's Rainbow Vista, and a facility in Boston's Fenway neighborhood -- tanked before laying a brick.

Will BOOM be a bust? "Most other developments just focused on quick sales," Hollwich says. "We don't. We will also have a 10-city tour where we invite people to come to workshops, work with us on the reinvention of architecture and community. Once we have a critical mass and shaped the concept of BOOM towards the needs of the future residences, then it will be for sale....It will be a big success, for the people who will live there and beyond."

BOOM is a "master-planned community,...pedestrian-oriented, culture-driven, designed to inspire residents to better themselves," according to the See photos of homes for sale in your area and across the country on AOL Real Estateproject's website. Along with Hollwich's firm, HWKN, the 100-plus acre site will feature boundary-breaking buildings by the glossy likes of Diller Scofidio + Renfro, LOT-EK, L2, Surfacedesign, and Arakawa + Gins (see computer renderings below).

Plazas and pathways will link 300 homes to an entertainment complex, with restaurants and stores, a boutique hotel, a gym with spa, and wellness facilities.

What the site doesn't mention is sexual orientation. But Hollwich himself waxes enthusiastic about FastCompany's sobriquet for BOOM as "a theme park for gay retirees."

"Yes!" he wrote in an e-mail. "We aim for a 40+ development that is inspired by the LGBT community, but open for all....At BOOM we gave the architects full freedom to unfold their creativity -- and what we got is a survey of today's most contemporary architectural thinking. We intentionally did not want to create one common language, since BOOM is all about diversity."

Does architecture for older gay people differ substantively from design for hetero seniors? Certainly in execution, says Hollwich, who runs a program in aging and design at the University of Pennsylvania.

"Fighting age discrimination through architecture is the same for the LGBT community and everyone else - however, designing for the LGBT community differs in programming (all master bedrooms for the LGBT community, different socializing programs, different idea of the extended family)," he wrote. "The one point that I might want to speculate is that the LGBT community is more open for progressive design -- so this is where the power of architecture can truly unfold its potential."

On a more sobering note, the New York Times in 2007 reported that LGBT seniors face homophobia, isolation, and even abuse.

While BOOM's price structure has not been firmed up, Hollwich says the project "will have a full range of [home] sizes -- from studios to 4-bedroom houses. We aim to make it affordable for all kind of income levels. since the concept of BOOM is about integration on every level."

BOOM will break ground in 2012, Architizer says, starting with 300 residences built in eight neighborhoods, each designed by a different firm. Phase 2 of the project will add another 300 residences.

Real Estate 2011: No Rebound, No V

By Candy Evans

What's in store for real estate in 2011? The year 2010 was a terrible one for the U.S. housing market. We started the year with high hopes that since 2009 had been so shockingly bad, 2010 could only get better. Next came the euphoria of the first-time home buyer's credit. Then came the slide: We ended the year with sinking home values in almost every U.S. market, except four: Los Angeles, San Diego, San Francisco and Washington, D.C.

Even worse: Six U.S. markets hit their lowest pricing levels since 2006: Miami, Charlotte, Atlanta, Portland Oregon, Seattle and Tampa.

So how do we look for the new year?

Now that our hangovers are in check, here's the bad news: Hardly any expert out there thinks the market is going to get better in 2011. Many think it will get worse. Enter Dr. Gloom, Gary Shilling, not to be confused with Standard and Poor's Case-Shiller report, which is also not very positive. Shilling says home prices could crater in 2011 by as much as 20 percent. Zillow has more optimism and put money on a 5 to 7 percent decrease. But the overwhelming majority opinion is, well, not that great. The Wall Street Journal surveyed 96 analysts:
Some 96 analysts surveyed made their forecasts public. Of those, 30 expect prices to fall next year, and another 30 are calling for annual home price appreciation of no more than 1 percent. The most bearish forecaster, A. Gary Shilling, president of A. Gary Shilling & Co., calls for prices to fall by 11 percent in 2011.

And when you hear that John Paulson practices what he preaches and bought two homes this year, don't get any wild ideas: he made billions betting on the sub-prime market and can afford several hundred homes. You and me, we don't have that luxury.

Sliding home prices will drag on the economy like a lead weight. Think of the consequences: lower property values, lower municipal taxes in fiscally hurting cities, more underwater homeowners who owe more than their homes are worth, more foreclosures, more shadow inventory sitting around further diluting prices.

Let's play optimistic here, and assume that, because of market-glutting home foreclosures, home prices will decline another 5 to 7 percent in 2011. What could make buyers want to buy at 2003 home prices? Steady paychecks. But with an unemployment rate of now over 9 percent, even people with jobs are afraid to rock the boat and move up, or anywhere. That's why many experts are expecting the market to bottom in 2007, and say homeowners should not expect a V-shaped recovery.

Is this trend good for anyone? Maybe the home buyers who can now slip into homes they could not begin to afford just a few years ago. We've got low interest rates, but banks have the strictest credit standards ever. Rick Sharga, a senior vice president at a company that follows national foreclosure trends, RealtyTrac, says the market won't recover until consumer confidence returns, which won't happen until consumers see real job creation.
Then there's Patrick O'Keefe, an economist, who wonders why housing supply and de­mand are not more in balance by now -- new home construction has all but stopped, but existing home prices are sinking.

There is, he says, "an almost unbridgeable gap be­tween potential buyers and sellers."

It's more like a giant clog in the system. Sellers can't sell because so many would have to take money to the closing table, and buyers either cannot afford the home or cannot get a mortgage.

So if you're looking for happy spring real estate news, you may have to wait three more years, when analysts think the market will kick back to normal.

As for new home construction, analysts are pre­dicting more than 700,000 hous­ing starts in 2011, which would be an improvement from 2010, but only half of what is actually needed to keep up with population growth. In New Jersey, for example, 13,500 housing units were started in 2010, which is better than 2009, when only 12,235 were begun. Keep in mind those are the lowest housing start numbers on record since World War II.

About the only silver lining is that this lack of construction could ultimately lead to a housing shortage down the road, which would then pump up housing prices. Gen X and Y, once they move out of their parents' home, may have to rent, or buy, which could lead to a housing shortage.

Maybe it's time to kick 'em out!