Great Article on Second Home Ownership
Second homes: Should you choose coast or mountains?
There's more to choosing a spot for your vacation home than deciding between waves or ski slopes. The financial payoff is affected by everything from price appreciation and maintenance costs to insurance.
By Debora Vrana
High-style prefabs cut second-home costs
'Dream homes' vary by generation
Goodbye, condo mania
It seems even vacation homes have been caught up in the housing frenzy of the last few years.
Sales were up 16% last year alone and second homes now account for four out of every 10 residences sold in the U.S., according to the National Association of Realtors.
Helping drive this market are baby boomers, who often have the income and time for a second home. They tend to see these homes as investments and have been known to buy more than one.
For the rest of us, choosing even one location can be difficult.
As with any investment, it's important to consider the potential costs and payoffs. Home price appreciation, maintenance and insurance expenses are just some of the weighty issues. There's also the fun factor -- will you be more apt to use a home in the mountains or is the beach your ultimate getaway?
Only you can answer that question, but we took a look at both popular vacation locales to get a sense of the economic side of the equation.
Resale values of second homes
It's impossible to track every seaside and mountain community, but a look at median home-value appreciation since 1990 for some of America's most popular vacation spots found some surprising differences. Compiled for MSN by data firm NeighborhoodScout.com, the numbers seem to indicate that with regard to resale values, the mountains are the more lucrative vacation-home location.
City
Price increase (1990-present)
Locale
Tahoe City, Calif.
257%
Mountain
Breckenridge, Colo.
238%
Mountain
Kiawah Island, S.C.
209%
Coast
Cape Cod, Mass.
200%
Coast
Deer Valley, Utah
199%
Mountain
Key West, Fla.
179%
Coast
Salt Lake City, Utah
167%
Mountain
Asheville, N.C.
151%
Mountain
Mariposa, (Yosemite) Calif.
148%
Mountain
Big Sky, Montana
148%
Mountain
See the full list of 20 mountain and seaside communities we compared here.
Of the ten mountain communities we looked at, only one (Stowe, Vt.) had appreciated less than 100% and seven had appreciated 148% or greater since 1990.
That's not to suggest that a mountain cabin plunked down in the middle of nowhere will have a high resale value. Vacation communities near large metropolitan cities where residential prices have soared and salaries are already high have seen the biggest jumps. Tahoe City, Calif., where you get both water and mountains, is just hours from San Francisco and Sacramento, Calif., and has seen one of the biggest increases in the country. The area features two-bedroom homes with no Lake Tahoe view from the $500,000s to lakeside villas -- one is currently on the market for $36.5 million.
Related Resources
'Dream homes' vary by generation
High-style prefabs cut second-home costs
8 cheap places you'd want to live
On Money: Make your vacation home pay for itself
5 hot outdoor-kitchen tips
Goodbye, condo mania
Cape Cod, Mass., which serves New Yorkers as well as Bostonians, has also seen huge increases in demand from big-city buyers looking for a getaway in nature.
Realtors who sell in both mountain and seaside communities say it's no surprise vacation-home prices have gone up significantly.
"Our buyers (in Lake Tahoe) are from all over the map; obviously we draw on the Bay Area and Sacramento communities because it is easily drivable. We have the lake, golf, skiing and we have a beautiful four-season climate," said Elfie Akers, a real estate agent with Century 21 Mountain Properties at Lake Tahoe. "Like many areas, we've benefited from the low interest rates, but many of our buyers are cash buyers."
Insurance, maintenance costs
The mountains also usually come out ahead when comparing insurance costs, according to an official at Bloomington, Ill.-based State Farm Insurance. While insurance rates must be approved by individual states and vary throughout different regions, coastal regions tend to have higher insurance costs because risk of destruction from natural disasters such as hurricanes is greater, says Kip Diggs, spokesman with State Farm.
"Let's face it, you're going to pay more in areas where there is greater risk," he says.
For example, you'd spend the following to insure a $250,000 home, according to Diggs:
• $603 in the mountains of Asheville, N.C.
• $1,025 per year in Lake Tahoe; and
• $1,904 in Kissimmee, Fla.
Maintenance is also a major consideration, considering that most people buy property nearly 200 miles away from where they live.
That cozy beach house comes with the need to repaint frequently due to salt air and water damage. Salt wind also is hard on cars. And of course, if you live in hurricane country, the potential damage extends to the structure of the home, with the ultimate risk of losing the house altogether.
But a mountain cabin can also have drawbacks, including porcupines chewing your wood, and damage to roofs and pipes from storms and blizzards.
Not too surprisingly, the maintenance costs often are tied to how heavily the home is used. A typical single-family home in America costs an estimated $600 per year to maintain, says Stephen Melman, director of economic services at the National Association of Home Builders. "But I think second homes may be less costly, because they aren't a primary residence," he says, adding there was no data comparing coastal versus mountain regions.
Renting out your dream home
Vacation homes purchased primarily for the buyers' enjoyment accounted for more than one million home sales in 2005 -- up more than 16% than the year before. But sales of investment homes, bought primarily to rent out on a permanent basis, rose nearly the same amount.
This may be one area where the beach still has the edge over mountain homes -- for now.
David Goldschmidt, co-founder of GreatFamilyRentals.com, an online site matching vacation homeowners and renters, says overall there is more rental interest for beach properties. "However, interest in mountain properties is increasing, as people see they can enjoy them year-round," he says.
Marty Hinton, who runs Deep Wood Vacation Home Rentals in the Allegheny Mountains of Pennsylvania, says vacationing in the mountains continues to be popular.
"You vacation with nature," Hinton said. "It's also a lot cooler in the summer."
If you're considering renting out your place as a way to afford a second home, it's worth doing the math ahead of time to understand what occupancy rates will support your plans. According to some experts, renting it out 15-17 weeks per year is essential for making your home really pay for itself. Expensive homes may require even more (read more on MSN Money). And of course, keep in mind that with more people coming in and out, your maintenance costs will increase and you'll have special tax considerations (read more about the tax benefits and consequences of second homes at the IRS site).
When to buy
In general, says David Lereah, NAR's chief economist, the outlook for vacation homes is bright. "Vacation-home sales will remain strong for the foreseeable future given the fact that baby boomers are favorably positioned in terms of affordability, as well as being at the stage in life when people are most interested in making that kind of a lifestyle purchase."
But while long-term growth is expected to stay strong, some of the most popular markets are already seeing a slowdown, just as in the market for primary residences.
In the Berkshires, a popular vacation-home market in Massachusetts, median prices for single-family vacation homes rose 47.3% from 2001-2005. So far this year, prices are only up 3.6%, according to DataQuick Information Systems.
At Cape Cod, where prices rose dramatically in the past decade, prices are flat this year, DataQuick found. And in a taste of what may be coming for all vacation properties, prices in Pismo Beach, Calif., dropped 1.3%.
It's worth remembering that as a luxury, second homes are more vulnerable to downturns than primary residences. Consider watching for markets that are already glutted with homes and take a wait-and-see attitude to see if prices come down. At the least, Goldschmidt recommends vacationing at locations you're considering several times before buying.
Skiing or surfing?
All in all, home-price increases and lower insurance and maintenance costs can have little to do with where people ultimately buy vacation homes. Sometimes the most important question can be whether skiing, snorkeling, sailing or hiking is your preferred activity.
"It's really a personal choice," agreed Keith Bradley, the chairman of the Resort and Second Home Real Estate Forum with the National Association of Realtors, who owns property at Cape Cod, Mass. "I love the sea and I love the mountains."
According to a recent NAR survey:
• 57% of buyers bought to be near beach, lake or water sports;
• 38% chose locations that would allow for boating (which can include mountain lakes, of course);
• 21% chose properties near golf courses;
• 18% wanted to be near a theme park;
• 17% bought to be near winter sports, such as skiing; and
• 32% purchased property near hunting or fishing.
Wendy Jackson, an Atlanta mother, who with her husband, owns two dream vacation rental homes in Florida, says the beach is perfect for their family.
"You roll out the door and it's a wonderful adventure at the beach every day," she says, noting she has had no trouble renting out the properties herself. "We don't need to have anything planned; the kids just love digging holes and playing in the water."
Jackson recommends thinking carefully about how you spend your time and not just about resale value.
"It's important to love where you buy," she said. "It's where you are going to go on vacation twice a year so you might as well like it."
There's more to choosing a spot for your vacation home than deciding between waves or ski slopes. The financial payoff is affected by everything from price appreciation and maintenance costs to insurance.
By Debora Vrana
High-style prefabs cut second-home costs
'Dream homes' vary by generation
Goodbye, condo mania
It seems even vacation homes have been caught up in the housing frenzy of the last few years.
Sales were up 16% last year alone and second homes now account for four out of every 10 residences sold in the U.S., according to the National Association of Realtors.
Helping drive this market are baby boomers, who often have the income and time for a second home. They tend to see these homes as investments and have been known to buy more than one.
For the rest of us, choosing even one location can be difficult.
As with any investment, it's important to consider the potential costs and payoffs. Home price appreciation, maintenance and insurance expenses are just some of the weighty issues. There's also the fun factor -- will you be more apt to use a home in the mountains or is the beach your ultimate getaway?
Only you can answer that question, but we took a look at both popular vacation locales to get a sense of the economic side of the equation.
Resale values of second homes
It's impossible to track every seaside and mountain community, but a look at median home-value appreciation since 1990 for some of America's most popular vacation spots found some surprising differences. Compiled for MSN by data firm NeighborhoodScout.com, the numbers seem to indicate that with regard to resale values, the mountains are the more lucrative vacation-home location.
City
Price increase (1990-present)
Locale
Tahoe City, Calif.
257%
Mountain
Breckenridge, Colo.
238%
Mountain
Kiawah Island, S.C.
209%
Coast
Cape Cod, Mass.
200%
Coast
Deer Valley, Utah
199%
Mountain
Key West, Fla.
179%
Coast
Salt Lake City, Utah
167%
Mountain
Asheville, N.C.
151%
Mountain
Mariposa, (Yosemite) Calif.
148%
Mountain
Big Sky, Montana
148%
Mountain
See the full list of 20 mountain and seaside communities we compared here.
Of the ten mountain communities we looked at, only one (Stowe, Vt.) had appreciated less than 100% and seven had appreciated 148% or greater since 1990.
That's not to suggest that a mountain cabin plunked down in the middle of nowhere will have a high resale value. Vacation communities near large metropolitan cities where residential prices have soared and salaries are already high have seen the biggest jumps. Tahoe City, Calif., where you get both water and mountains, is just hours from San Francisco and Sacramento, Calif., and has seen one of the biggest increases in the country. The area features two-bedroom homes with no Lake Tahoe view from the $500,000s to lakeside villas -- one is currently on the market for $36.5 million.
Related Resources
'Dream homes' vary by generation
High-style prefabs cut second-home costs
8 cheap places you'd want to live
On Money: Make your vacation home pay for itself
5 hot outdoor-kitchen tips
Goodbye, condo mania
Cape Cod, Mass., which serves New Yorkers as well as Bostonians, has also seen huge increases in demand from big-city buyers looking for a getaway in nature.
Realtors who sell in both mountain and seaside communities say it's no surprise vacation-home prices have gone up significantly.
"Our buyers (in Lake Tahoe) are from all over the map; obviously we draw on the Bay Area and Sacramento communities because it is easily drivable. We have the lake, golf, skiing and we have a beautiful four-season climate," said Elfie Akers, a real estate agent with Century 21 Mountain Properties at Lake Tahoe. "Like many areas, we've benefited from the low interest rates, but many of our buyers are cash buyers."
Insurance, maintenance costs
The mountains also usually come out ahead when comparing insurance costs, according to an official at Bloomington, Ill.-based State Farm Insurance. While insurance rates must be approved by individual states and vary throughout different regions, coastal regions tend to have higher insurance costs because risk of destruction from natural disasters such as hurricanes is greater, says Kip Diggs, spokesman with State Farm.
"Let's face it, you're going to pay more in areas where there is greater risk," he says.
For example, you'd spend the following to insure a $250,000 home, according to Diggs:
• $603 in the mountains of Asheville, N.C.
• $1,025 per year in Lake Tahoe; and
• $1,904 in Kissimmee, Fla.
Maintenance is also a major consideration, considering that most people buy property nearly 200 miles away from where they live.
That cozy beach house comes with the need to repaint frequently due to salt air and water damage. Salt wind also is hard on cars. And of course, if you live in hurricane country, the potential damage extends to the structure of the home, with the ultimate risk of losing the house altogether.
But a mountain cabin can also have drawbacks, including porcupines chewing your wood, and damage to roofs and pipes from storms and blizzards.
Not too surprisingly, the maintenance costs often are tied to how heavily the home is used. A typical single-family home in America costs an estimated $600 per year to maintain, says Stephen Melman, director of economic services at the National Association of Home Builders. "But I think second homes may be less costly, because they aren't a primary residence," he says, adding there was no data comparing coastal versus mountain regions.
Renting out your dream home
Vacation homes purchased primarily for the buyers' enjoyment accounted for more than one million home sales in 2005 -- up more than 16% than the year before. But sales of investment homes, bought primarily to rent out on a permanent basis, rose nearly the same amount.
This may be one area where the beach still has the edge over mountain homes -- for now.
David Goldschmidt, co-founder of GreatFamilyRentals.com, an online site matching vacation homeowners and renters, says overall there is more rental interest for beach properties. "However, interest in mountain properties is increasing, as people see they can enjoy them year-round," he says.
Marty Hinton, who runs Deep Wood Vacation Home Rentals in the Allegheny Mountains of Pennsylvania, says vacationing in the mountains continues to be popular.
"You vacation with nature," Hinton said. "It's also a lot cooler in the summer."
If you're considering renting out your place as a way to afford a second home, it's worth doing the math ahead of time to understand what occupancy rates will support your plans. According to some experts, renting it out 15-17 weeks per year is essential for making your home really pay for itself. Expensive homes may require even more (read more on MSN Money). And of course, keep in mind that with more people coming in and out, your maintenance costs will increase and you'll have special tax considerations (read more about the tax benefits and consequences of second homes at the IRS site).
When to buy
In general, says David Lereah, NAR's chief economist, the outlook for vacation homes is bright. "Vacation-home sales will remain strong for the foreseeable future given the fact that baby boomers are favorably positioned in terms of affordability, as well as being at the stage in life when people are most interested in making that kind of a lifestyle purchase."
But while long-term growth is expected to stay strong, some of the most popular markets are already seeing a slowdown, just as in the market for primary residences.
In the Berkshires, a popular vacation-home market in Massachusetts, median prices for single-family vacation homes rose 47.3% from 2001-2005. So far this year, prices are only up 3.6%, according to DataQuick Information Systems.
At Cape Cod, where prices rose dramatically in the past decade, prices are flat this year, DataQuick found. And in a taste of what may be coming for all vacation properties, prices in Pismo Beach, Calif., dropped 1.3%.
It's worth remembering that as a luxury, second homes are more vulnerable to downturns than primary residences. Consider watching for markets that are already glutted with homes and take a wait-and-see attitude to see if prices come down. At the least, Goldschmidt recommends vacationing at locations you're considering several times before buying.
Skiing or surfing?
All in all, home-price increases and lower insurance and maintenance costs can have little to do with where people ultimately buy vacation homes. Sometimes the most important question can be whether skiing, snorkeling, sailing or hiking is your preferred activity.
"It's really a personal choice," agreed Keith Bradley, the chairman of the Resort and Second Home Real Estate Forum with the National Association of Realtors, who owns property at Cape Cod, Mass. "I love the sea and I love the mountains."
According to a recent NAR survey:
• 57% of buyers bought to be near beach, lake or water sports;
• 38% chose locations that would allow for boating (which can include mountain lakes, of course);
• 21% chose properties near golf courses;
• 18% wanted to be near a theme park;
• 17% bought to be near winter sports, such as skiing; and
• 32% purchased property near hunting or fishing.
Wendy Jackson, an Atlanta mother, who with her husband, owns two dream vacation rental homes in Florida, says the beach is perfect for their family.
"You roll out the door and it's a wonderful adventure at the beach every day," she says, noting she has had no trouble renting out the properties herself. "We don't need to have anything planned; the kids just love digging holes and playing in the water."
Jackson recommends thinking carefully about how you spend your time and not just about resale value.
"It's important to love where you buy," she said. "It's where you are going to go on vacation twice a year so you might as well like it."
