Thinking of Buying a Vacation Home? Here's What You Should Know (Part 1)

Buying a Vacation homeThinking about buying a 2nd home for vacationing? You aren’t alone. Lower home prices and low interest rates make now an attractive time to snap up that little beach house, cabin the mountains, or condo in the city next to the Theater District. We’ll show you who’s already taking advantage of great deals on these 2nd homes, help you decide if you're ready to buy one yourself, and then explore a few cities where you can find bargains.

Sales Up

The National Association of Realtors (NAR) tracks 2nd home purchases every year, those intended for investment and those intended for vacation. According to the latest data:

  • In 2011 there was an increase in the number of investment properties purchased and a decline in the number of principal residences purchased.
  •  Investment properties purchased jumped 10% in 2011, up to 27% from 17% in 2010.
  • 41% of investment buyers purchased more than 1 property in 2011.
  • 11% of properties purchased in 2011 were vacation homes, a percentage that’s been creeping up since its low in 2008.

Who’s Buying?

Baby Boomers: This generation accounts for millions of Americans preparing to retire, and perhaps with that change, the prospect of a 2nd home becomes appealing. The NAR's analysis of U.S. Census Bureau data shows approximately 8 million vacation homes in the United States, homes that might allow boomers to escape cold climates in winter, or to spend holidays near family.

And the demand for vacation homes should stay fairly steady in this country, even beyond the boomer generation. As reported in the Business Insider,  "Even if purchases are delayed due to economic circumstances, the underlying long-term demand -- the desire for purchasing second homes -- remains because people in their 30s and 40s will reach the prime age for buying and will drive the second-home market in coming decades as conditions permit," NAR Chief Economist Lawrence Yun says.

Along with boomers though, we have to consider the millennial buyers, particularly the new class of highly successful IPO employee (think Facebook, Google, Twitter, Yelp). These buyers might look for a vacation home near ski resorts or beach fronts, something for fun and pleasure. They might also look for something for their young families to enjoy for generations to come. 

In either case, vacation homes have the potential to generate income for their owners. Over 1/3 of people surveyed by the NAR plan to use their home, eventually, as a primary residence, a place to retire. But in the meantime, over 90% said they hope to rent the vacation home out when they aren’t using it. in Buying a Vacation Home

  • Expense is a complicated consideration here: You may know how much the house costs, but how will you maintain it if it’s far away from you? And how much will it cost you to get there when you want to visit? Can you visit often enough to make it all worthwhile?
  • Getting a loan for a vacation home is different than other loans. You can’t, for instance, get an FHA loan (as those low interest loans are preserved for primary residences), and in fact should prepare to pay higher interest for a 2nd home than for your 1st one. You may also need to fork over as much as 35% down, as some banks have tightened their requirements on 2nd home loans. You may be eligible for home equity loan programs if your primary home has indeed accrued that equity. Speak to your broker or credit union for the best and most current information.
  • Choosing a location should be a careful process. Just as you would with a primary residence, you should take your time deciding where you ultimately want to purchase a vacation home. Even if you never live in that home full-time, you’re still investing in that community. It’s not enough to know you love skiing or golf and buy a home near one or the other. Make several visits to explore the weather, the amenities, and the people that surround your 2nd home if you hope to be truly happy there.

We’ll revisit this topic, offering you five great cities for a great deal on a vacation home, soon. In the meantime, if you’re interested in exploring some of the options out there, talk to a local Realtor® who can connect you all the resources a particular neighborhood offers.


Anna Marie Erwert writes from both the renter and new buyer perspective, having (finally) achieved both statuses. She focuses on national real estate trends, specializing in the San Francisco Bay Area and Pacific Northwest. Follow Anna on Twitter: @AnnaMarieErwert.

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