Home PROPERTY
by Margot Carmichael Lester
Alys Beach
for the
Holidays
A second house may be a good investment, even if you only use it a few times a year.
If
Jack Gardner
you’ve ever dreamed about buying a second home, your time may have come. And the experts agree.“In these uncertain economic times, I expect real estate prices to fall,” says Kim Kiyosaki, investing guru and author of Rich Woman: A Book on Investing for Women. “Now might be a good time to start looking.” But before you whip out the real estate pages, there’s a lot of homework that needs to be done.
Financial Considerations First step: Talk to your accountant. “Look at cash flow versus financing, tax implications, potential rental income and upkeep,” says Joe Phillips, a registered investment adviser with Second Look Financial in Phoenix. You also should consider how much money you can realistically offer and how much time, if any, you will be spending at the home. Also, think twice before you cash in your retirement account. “When retirement funds are used to purchase a second home, the property shouldn’t be used personally by the account holder or their direct family members,” he says. • 103 •
PROPERTY
Strictly Business If you’re considering the property as an income producer, investigate appreciation of real estate sales and rentals in the area. “Get in writing from the seller what the rental history is and how much revenue it generates in various seasons,” says David Brooks of Bloomfield, NJ, who bought a second home on Cape
Cod, MA, five years ago. “Find out what other property owners are charging for rentals, and also what they’re getting. It’s fine to charge $5,000 a week in the peak season, but what if that gets you only two or three weeks of rentals? You want to know that ahead of time.” Family Matters For a family vacation home, the prime consideration is location. “Make sure your second home is relatively easy to access from your primary residence so you’ll make regular use of it,” says Don Killoren, co-general manager of the Homestead Preserve, a resort home community in Hot Springs, VA. “Also, make sure it provides access to the amenities you desire and that [your neighbors will be] like-minded people.” Be warned that things can get a little sticky if you’re hoping to generate some income from your family’s getaway. Once word gets out that you’ve got a
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May 2008
vacation home, “you’ll quickly find yourself flooded with requests from friends and relatives hoping to visit,” says Karen Terrell, vice president of sales and marketing for Alys Beach, a resort community just west of Panama City, FL. “Be sure you’re thinking ahead.” It pays to develop a friends-andfamily policy upfront. “When the house is empty in the off-season, we simply give the keys to them and ask only that they pay the cleaning service,” Brooks says. “If they want the house reserved for them in a shoulder season, they get a deep discount. If they want the house reserved for them in peak season, they get a healthy Homestead Preserve discount. But we use the revenue to help pay our mortgage and can’t go around giving them prime summer weeks without getting something for it.” Local Experts Regardless of how you’ll use your second home, a management company is a must-have. Fees vary widely, but a good property manager is worth every penny. “Get a reliable team to watch your place, because strange things happen,” says Robbie Hardy, a Chapel Hill, NC, resident who owned a condo in Park City, UT. “In a cold, snowy area, you would not want to be hundreds of miles away with no one to call if the pipes burst. So we retained a company to do snow removal from our deck and go into the house every week to check all the pipes, etc.” From frozen pipes to opportunistic family members, a second home may sound like a lot to take on. But with real estate prices dropping and interest rates holding fairly steady, it’s worth considering. “If you can afford it comfortably, go for it,” says Ken Baris, president of Jordan Baris Inc. Realtors in West Orange, NJ. “If you don’t like it after a few years, there’s a strong chance you will have appreciation and a good investment to sell at a profit.”
home-buyers’
checklist: The Institute for Building and Home Safety suggests home-buyers look beyond amenities when considering a purchase. Second homes for many are a potential retirement location or something the estate plans to pass down to future generations, says IBHS spokesperson Wendy Rose. Making sure it can stand up to the hazards nature throws at it—and ensuring it has been wellmaintained—are equally important. √ Is the house near a woodland area? √ Is the house within 50 miles of the coast? √ Is the house within sight of a river or lake? √ Is the house in an earthquake zone? √ In what year was the house built? √ What materials were used to build the house? √ What is the condition of the roof? √ Do the floors appear level and feel solid when you walk through the house? √ Will the appliances be sold along with the house? √ Does the house have a history of plumbing problems, such as sewer backups or deteriorating pipes?
Homestead Preserve
In other words, you can rent it out, but, for tax reasons, you can’t vacation there. Finally, you have to determine how you’ll use the second home. Is it an investment? A getaway? Perhaps a little of both?