Buying a playhouse
isn't a game. Economic
market conditions
shifted in vacation home
buyers' favor in some
regions of the country
last year, just as the
traditional winter
weather season took
still more heat out of
the second home and
resort markets. But that
doesn't mean vacation
home buying is a breeze.
Just ask some
late-to-market
speculators who lost
their shirts as the last
boom faded. Other
investors saw their cash
flow become cash slow as
speculators fled. Still
others made buying
mistakes that put their
second shot at the
American Dream,
physically out of reach.
Buying a vacation
home as an investment or
rental property requires
the same careful
forethought necessary
for any investment as
well as professional
assistance where
warranted.
"Read up on the
subject so you'll know
what to expect. Doing
plenty of research and
making an educated
decision will keep your
vacation home dream from
turning into a
nightmare," says
Christine Karpinski,
director of Owner
Community for
HomeAway.com, an online
vacation home rental
marketplace.
"Buying a vacation
home, especially one
you're going to rent
out, means embarking on
a whole new lifestyle,"
said Karpinski, also
author of "How to Rent
Vacation Properties by
Owner" (Kinney Pollack
Press, $26).
For those taking
the second plunge,
here's what to consider.
Bubbles are full of
air. One of the reasons
some markets are
favorable right now is
largely due to fleeing
speculators taking the
air out of bubble
markets where values
were artificially
inflated and the market
oversupplied. Consider
more established areas
where the shorter supply
lets properties hold
value and applies a
steady upward pressure
on prices.
Don't leave your
heart in San Francisco
if your wallet can't
afford the pain. "It's
easy to get caught up
and sign on the dotted
line when you see that
gorgeous beach home or
perfect ski resort. This
is especially difficult
for vacation homebuyers
because we're
risk-takers who tend to
use our emotions more
than our heads," said
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Karpinski.
Buy where you can
host renters. Even if
you have no intention of
renting your property
right now, you may have
to later. That means buy
in an area where you can
rent your property
should the need arise.
If you don't and you hit
an income bump in the
road, selling may be
your only options. A
growing number of
vacation property
investors are finding
community pressure
against short term
rentals. Bans on short
term rentals could turn
a planned investment
into a white elephant if
rental income was
figured in the return.
Consider renting by
owner rather than using
a property management
company. HomeAway, Inc.
surveys report the
average weekly rate
collected by vacation
property owners is
$1,656 and that rent is
collected 20 or more
weeks each year. That's
enough to generate more
than $750 in positive
monthly cash flow on a
mortgage that costs
$2,000 a month. The cash
flow doesn't include
reoccurring costs,
beyond the mortgage,
including the cost of
property management
which can put a real
bite on cash flow. The
income also doesn't take
into account the tax
benefits associated with
second home ownership.
"The Internet has
made renting by owner
much easier," says
Karpinski.
Consider property
near enough to easily
and quickly get to for
your own vacation needs
and for maintenance,
upkeep and other reasons
you may need to visit.
Otherwise travel to you
dream home could eat
into your profit.
Consider renting
your property for 17
weeks and your new
vacation home will pay
for itself (including
mortgage and other
costs) if your monthly
mortgage payment is less
than or equal to one
peak week rental, says
Karpinski. The remaining
35 weeks are gravy or
lots of getaway time.
Buy down time. Take
some of the gravy as
your own. Buy property
that will pay for itself
and then some so you
have the option of
enjoying a getaway
playhouse in a world
where woe is the norm
rather than the
exception.
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