How To Buy A Second Home
Oh, you wild-and-crazy baby boomers, you. Here you go again, sending marketers (and everyone else who’s Anyone With Something to Sell) hot on your trail — and leaving economists and trend forecasters skeptical and scratching their heads.
Yes, you’ve now officially worked your generational charm — or should we say, wreaked your generational havoc — on the real estate sector. The survey-ers have surveyed you, the study-ers have studied you, and the researchers have researched you up and down, and when it comes to your impact on the second-home market, the verdict is in: No one, it seems, can put a finger on exactly where you stand.
A 2006 report from the National Association of Realtors (NAR) declared that one out of every four of you owns more than one property, and that one in 10 of you plans to buy additional real estate in the next year. The report also revealed that second-home sales accounted for 40 percent of all residential transactions in 2005. (The data for 2006 won’t be out until March, but early projections suggest that second-home sales will be down from 40 percent to 30 percent of total market share. But Walter Molony at the NAR says that loss can mostly be attributed to fewer “investment” properties, not to second homes used by owners for vacationing).
Then, in November — and just as this issue was going to press — a report by Radian Group and the Mortgage Bankers Association decreed that early baby boomers were no more likely, proportionally, to own a second home than were previous generations. But the report did acknowledge that the massive numbers of boomers (the 78 million of you born between 1946 and 1964 make up about 33 percent of all U.S. households) add up to overall figures that are, in fact, higher than in previous generations. A gajillionth report by Architectural Digest and Sotheby’s International Realty Affiliates prompted local experts like Donald Pearson, chairman of Kurfiss Sotheby’s International Realty in Bucks County, to stand by findings that the second-home market is alive and well in our area.
So what does this all mean for you? David Hehman, co-chairman and CEO of the popular online vacation-home marketplace EscapeHomes.com, summed it up best: “The second-home market is still going strong,” he says. “Sure, some of those investors are gone, but the most important difference is that the rapid appreciation we saw over the past five years has come to a sort of pause — so now it’s more of a buyers’ market, and a time when you don’t have to act with lightning-fast speed. You can actually take the time to go after what you want.”
And you Philly boomers aren’t any ordinary boomers, anyway: All evidence — anecdotal and otherwise — points to the fact that despite the mixed messages and crossed signals, you, dear PhillyMag reader, remain hungry for your second (and in some cases, third or fourth) home. And you’re not just looking at the Shore, like Mom and Dad did. You’re scouting properties from Jackson Hole, Wyoming, to Jacksonville, Florida, and from New York down to Nicaragua (really!).
So to help you take advantage of this buyer’s market and get the most out of your quest for second-home ownership, we spoke to experts — from brokers to happy homeowners — in the Philly area and in popular second-home locales, to get the insider scoop on what you need to know before buying your second home.
TAKE A TRIAL RUN?
Maybe you visited friends at their home in Aspen and fell in love with it. Or perhaps you house-sat in Boca last Christmas and got the itch for your own condo-by-the-sea. Whatever locale is tugging at your heartstrings, remember that short-term vacationing is a completely different experience from owning: The tranquility you may have loved in, say, the Adirondacks for a week last June may feel isolating for longer than that; conversely, a home in South Beach may seem like just the excitement your otherwise straitlaced world needs — until you remember how much you actually value downtime. The beauty of renting for a year or a season before buying your own place, says Gary DePersia, a senior vice president at New York’s prestigious Corcoran Realty Group who handles the Hamptons market, is that you may discover a hidden gem in the next town over that you never would have known existed during just a short visit. “Of course,” DePersia says, “there are some people whose personalities are simply not suited for renting” — they don’t want to live in someone else’s home or use someone else’s stuff for an extended period of time, and they’d much rather just pull the trigger on their own place. Still, you wouldn’t buy a car without test-driving it; can you really see yourself buying a home without trying out the experience first?
Another option: Start small. “Out here in Jackson, we see a lot of people start out in a smaller home, then upgrade to the kind of place they may eventually like to retire to full-time,” says Dave Spackman, of Jackson, Wyoming’s Sotheby’s International Realty Office — a popular agency among Philly families looking to get in on the limited residential property in the Jackson area. Starting small, he says, lets you get to know an area well and upgrade to the Big Momma only when your financial situation is really ready for it.
CONSIDER A CONDO
You may harbor dreams of owning a ranch in the Wild West, but a condo may actually be a more suitable answer to your City Slickers fantasy: They require less maintenance and are often situated around amenities like pools, health clubs and a concierge. For older couples, elevators can be a huge selling point. Luxury hotel chains like the Ritz-Carlton and Four Seasons have seen their residential properties sell out within weeks in destinations like Wyoming and Florida. The bottom line is that with well-maintained condo communities, you can show up at your destination and get right down to relaxing — without worrying about shoveling the driveway or defrosting the fridge.
But the four-star services of a condo community do come with trade-offs: privacy, for one. Plus, warns Spackman, condos aren’t always friendly to kids and pets or large groups. Of course, there are middle grounds: New McMansion-filled developments are sprouting up all over the country around golf courses. “My husband and I love knowing that we can eat dinner at the clubhouse, or have spa services right in our own home,” St. Davids resident Karin Taylor-Weisberg says of the Old Palm community in Florida. (Flip back to page TK for photos of Taylor-Weisberg’s home.) “You can even have your food delivered to your home, just like you would if you were ordering room service at a hotel.”
CHECK THE CALENDAR
This year is a better time to buy than was, say, 2005. “A few years ago, the demand outweighed the supply,” Hehman says. “But now we’re seeing more inventory.” That means you don’t have to buy at peak times, like the summer, to get in on the action. “Sellers are most bullish during the summer,” says Spackman. So if you wait until the lull of October or November, you’re more likely to catch sellers after they’ve been somewhat worn down and are more eager to simply unload their property — or at least to negotiate. “The downside, of course, is that you may miss out on some great homes,” Spackman says. But all of that money saved sure makes for a nice consolation prize.
FACTOR IN FURNITURE
It can feel creepy to move into a furnished home — like you’re slipping into someone else’s life or lifestyle. But furnishing a second home — especially from the distance of your first home, or only during sporadic visits — can be costly and stressful. “The beauty of an older home vs. a new one is that eight out of 10 older homes in resort areas are sold with their furniture,” says Buchanan. “On average, starting with the existing furniture is going to save you about $10,000 to $20,000 — plus the cost of movers.” And, adds DePersia, “You can always gradually swap out and update your furniture” — you’re not stuck with it forever, but it definitely helps make things easier when you’re buying a secondary home that you won’t be near year-round to furnish.
GET THE FULL PRICE PICTURE
Furniture isn’t the only major fee you’ll incur on top of the cost of your home: Find out, as you would with your primary home, what kinds of insurance, inspections and upgrades your second home may require. And remember that many states charge transfer fees. “In New Jersey, you’ll pay a one percent mansion tax on any property of $1 million or more,” says Bill Buchanan, of Newtown Square’s RE/MAX Preferred Realty. If that $10,000 is money you’d rather keep in your pocket, emphasize to your broker that you’re willing to go right up to but not above the $1 million mark.
And don’t forget about property taxes, advises DePersia. “Taxes vary wildly, historically, from one town to the next. If you’ll only be using your home for one season out of each year — and therefore not really reaping the benefit of your taxes — you may want to consider the next town over.” For Kristine Ferrari, owner of Genes in Wayne, who with her husband, Kixx soccer player Peter Pappas, has a family home in Granada, Nicaragua, concerns that would have mattered back in Philly weren’t an issue. “My biggest piece of advice would be to know your needs — for us, where the school system ranked was far less crucial than the proximity to the airport,” she says. So if you, too, won’t be relying on public services while on vacation, it’s definitely worth considering whether or not you’ll benefit from your property taxes — or whether you should move down the block or around the corner.
And don’t forget to budget for maintenance — you’ll need someone to mow your lawn, check your pipes, and generally look out for your place while you’re away.
BUDGET FOR TRAVEL
TIME — AND COSTS
“We’ve found pretty consistently that two hours is the average amount of time people are willing to drive to their second home,” says Buchanan. But once flying enters the equation — and thanks to the BlackBerry, e-mail and wireless Internet, it’s now more of an option for families who used to need to be closer to their businesses in Philly — you’ll want to find out more about the closest airport. “A lot of people use their second home as a gathering place for their family,” says Maire Rosol, of Lewis, Wolcott and Dornbush Realty in Park City, Utah, who’s worked with Philly clients like Children’s Hospital CEO Steve Altschuler and his wife, Robin. “So you’ll want something that’s fairly close to a major airport.” Whether it’s gas or frequent flier miles you’ll be spending, travel costs add up and should be factored into your overall budget. Another travel consideration: weekend traffic. The closer you are to a major metropolitan city, the more likely you’ll have to deal with weekend visitors. “Out here in Jackson, we’re not a suburb of anything,” says Spackman. “We’re truly a destination.”
For a whole set of owners, a second home is simply another way to diversify investment portfolios: There are those who hold onto, and perhaps occasionally use, a home just until its value has gone up and they can turn a profit; and there are others who rent their homes out, sporadically or permanently, as a means of steadily augmenting income. “What owning their first home was to the middle class 30 or 40 years ago is what having a second home is today — it’s just a natural, expected part of an investment portfolio,” Buchanan says. The beauty of renting your second home out, of course, is that it allows you to buy a more expensive home: Monthly rental payments from your tenants will help cover your costs until you reach a point in life when you’re financially secure enough to not need renters at all. “We see a lot of vacation-home owners who rent their place out until their kids finish college and the burden of tuition is lifted,” Buchanan says.
But buying a second home as an investment or with the intent to rent comes with challenges: Mortgage rates are higher for homes that are investments. And technically, the IRS insists that homeowners can be in a house they intend to rent no more than 14 days out of the year. (That said, brokers tend to downplay the likelihood of the IRS knocking on your door to see who’s really sleeping in your beds. Still, you should be sure to ask your agent about all state and federal laws for landlords.)
“I always tell my clients to think about how they can add value to their home,” says DePersia. And while that advice makes just as much sense for primary-home buyers, certain features have been proven over time to increase the value of resort-area homes. Specifically: In beach areas, buy as close to the water as possible; if you’re investing money in renovations, focus on the kitchen, master suites and bathrooms. “From $2 million to $20 million homes, we’re seeing larger kitchens with family rooms attached to them,” says DePersia. People are also increasingly seeking out master suites with spacious bathrooms, extensive closet space, and extra-large baths in the rest of the house. “Even the guest bathrooms should have at least two sinks,” says Spackman. “And don’t go with Jack-and-Jill bathrooms — they tend to hurt the resell value, because they lack privacy and make guests feel uncomfortable.”
Because second homes are most often used for unwinding, entertaining and escaping, brokers and builders are increasingly seeing the payoff in investing in outdoor kitchens, spa-like pool areas and finished basements. “No one used to care about the basement,” says DePersia. Now, however, people realize that depending on the size of the home, a finished basement can offer several thousand extra square feet that can be used for hosting, for a media room, for a workout room or for the playroom. “We’re seeing people build staircases from their living room down into the basement, and making multi-level family rooms where everyone can hang out together,” DePersia says.
Other brokers emphasized that vacation homes are a far cry from rustic cabins in the woods: “We’re seeing more sophisticated lighting, an emphasis on green elements like recycled timbers, and a variation on the ‘great rooms’ of the ’80s,” says Rosol — now, these large rooms have angles, pockets and sections thoughtfully defined by the way they’ll be used: an open TV area, nooks for reading, and more.
BOND WITH YOUR BROKER
Naturally, brokers would emphasize to us the importance of being loyal to one agent instead of seeking out eight different ones in hopes of getting the best deal out there. But in the case of secondary homes, a strong buyer-broker relationship really is more than realty psychobabble: You’ll need someone to be on the prowl for you while you’re back at your primary residence, and you’ll want someone who knows your new secondary turf even better than you do. “Think about it: Do you really want to work with someone who’s only lived in the area for six months?” Rosol says. “Ask your broker what his background and certifications are.”
Brokers know you’ll probably do your own searching, online or in newspapers and through friends, but if you see a listing somewhere that your broker hasn’t told you about, “Ask him about it instead of responding to the ad and starting a relationship with a new broker,” says DePersia. Your broker can look into it on your behalf, and may have known about the property — but had a good reason for not showing it to you himself. “That continuous relationship will pay off in the end,” DePersia says. Even David Hehman, whose livelihood essentially relies on buyers using the Web as a tool, stresses the value of local brokers: “We can’t emphasize enough how important it is to work with someone who knows the area, knows who to contact to get you exactly what you want, and can negotiate on your behalf.”
ABOVE ALL ELSE, LISTEN
TO YOUR HEART
For second homeowners who plan to use their home, and possibly make it their primary residence later in life, as many do, the single most important factor to consider may seem like the most obvious — but it has a tendency to get lost in discussions over everything else on this list. So take time to step back from the financial figuring, the tax talk, the logistics and the planning, and really think about how you and your family will use your second home. If you’re ocean people, don’t settle for a lake; if you love hiking and biking and being in the great outdoors, don’t opt for the busy high-rise. And if you know you need an active social life no matter how much you might like to think you treasure your solitude, go after the city pied-à-terre your heart desires. “Real estate is an emotional product,” Hehman says. “The more you know what you want, the more likely you’ll be to get it.” And for all the financial planning buyers do, Buchanan admits that the price point for second homes isn’t as definitive as it is with primary homes. People are thinking about the future, about retirement and about generations of their family enjoying the home.
“When people buy second homes, they’re buying their dreams,” says Rosol. In other words, listen to your brain — and to all of the details listed here. But before you sign any deal, make sure you’re leading with your heart.