At $162,000, the median price for a second home now tops the $153,000 for primary residences, says the National Association of Realtors. Second-home prices have gone up 27 percent in two years, compared with an 11 percent increase in all homes nationally. The hottest spots, like the Carolina and Texas coasts and Michigan’s lakes region, are near water and cities. At tony Bethany Beach, Dela., prices on choice places have quadrupled in three years, reports agent Martha Lowe of Long & Foster, who concedes she gets nervous about the sharp jump. The last time prices doubled in a year, it was tech stocks.
But real-estate pros say the boom may not go bust because 76 million baby boomers are hitting the age when they want to buy a second home and, as the saying goes, they’re not making any more land. But unwary buyers can get burned, and it takes more than SPF 15 to protect yourself. Here’s what you need to know:
Swim first, shop later. Like T shirts and taffy, vacation property costs more in season. “I personally probably wouldn’t buy right now,” says Amy Surette-Greene, a Cape Cod, Mass., agent. So shop now, but don’t buy until fall. You can take the time to hunt online at places like Escape Homes.com and Realtor.com.
It’s not a business investment. Prices may be up, but rental demand isn’t keeping pace. That means earning more than your mortgage and other carrying costs–positive cash flow–is even more of a long shot. Buy it for fun and long-term profits, and consider any rental income a nice bonus, says Lowe.
Be suspicious. Work with a local real-estate agent and ask lots of questions. Then ask more questions. Vacation properties can have hidden problems like no lake access, lousy drinking water or costly flood-insurance requirements.
Stay close to home. Unless you like waiting around airports, don’t buy too far from where you live. “If it’s too far or too expensive to reach within a few hours, you likely won’t use it enough,” says Clark Thompson, head of EscapeHomes.com.
Prepare to spend more. Mortgages on second homes can run to 1/2 percent more than rates for primary residences, so it pays to shop. Closing costs and insurance will be higher, too, though you can cut those costs if you buy in a gated community, protect your property with an alarm and hire a winter caretaker. Add the beer and burgers you’ll be buying for visiting friends, and pretty soon you’re into real money.
