Think vacation homes are just for wealthy retirees?
Think again. Whether it's on Florida's frothy beaches, Arizona's arid fairways or the rolling mountainsides in Colorado or North Carolina, the Great Recession has inadvertently made second homes a real possibility for at least some people. And they are often younger and less affluent than popular perceptions might suggest.
But even though prices are low and pickings are plentiful, consumers need to be aware of the risks and costs of buying a second home.
First, know some background. After plunging during the real estate bust, vacation homes are starting to find buyers again. It's not like the heady days of easy mortgages and booming construction, but statistically significant nonetheless.
A second wind"Sales of vacation homes were up 7.9 percent (in 2009), to 553,000, from very low levels in 2008," according to the National Association of Realtors' 2010 Investment and Vacation Home Buyers Survey, which looked at 2009 statistics. "In 2005 and 2006, more than 1 million sales occurred for vacation homes annually."
It isn't just retirees who are buying. The median age of vacation property buyers was 46 in 2009, according to the NAR. And while 39 percent of vacation-home buyers had household income over $100,000, the median overall was $87,200.
If you are retired or planning retirement, you should note that prices are rising. "The median vacation home price increased by 12.7 percent compared with 2008," according to the NAR survey. That brought the median to $169,000, although that's well below 2005's peak of $204,000.
Roughly half of vacation home sales are in the Sunbelt, where the housing crisis is severe but the winters are still quite gentle.
Consider Florida, long a favorite of retirees. According to the Florida Realtors, prices on existing condos are down by about 24 percent just in the last year, dropping to $81,600. Yet, sales of existing condo units are up over 22 percent for the same period, suggesting some savvy buyers see an opportunity.
Do your homeworkExperts caution that vacation homes carry risks to unprepared buyers. For one thing, even a rock-bottom price can decline, particularly in areas where banks are yet to liquidate significant numbers of foreclosures.
Secondly, many condo communities in areas like Miami, a popular second-home market, are hamstrung by high foreclosures, which can become a costly headache for other members of the homeowners association.
Nolo.com, a publisher of legal guides, says vacation-home buyers need to start with a basic question: Can they really afford it? The closing price is just the beginning. Over the long haul, other expenses like property taxes, insurance, maintenance and security have to be covered.
The reality is that "many second-home owners complain that the house cost more than they'd ever imagined," according to Nolo.com.
The numbers may make more sense if you find a co-purchaser, but that can be a complicated decision. "You'll want to start by determining whether co-ownership with a particular person is likely to work," the guide says. "Then draft a written agreement to spell out how ongoing costs will be split, and deal with other potential sources of contention -- such as what happens if one of you wants out after a few years or if one of you dies."
Finally, buyers who hope to make the numbers work by renting their vacation home out during part of the year will want to first study the IRS guidelines on doing so. A good place to start is IRS Publication 527, "Residential Rental Property (Including Rental of Vacation Homes)."