A Wall Street Alternative: 5 Timely Reasons to Invest in Vacation Property

RISMEDIA, Oct. 27, 2008-The stock market is down, and if you’re like most people, your level of investing confidence has dropped as well. Yes, only those with nerves of steel feel good about playing the market right now. And if you’re not one of those hearty souls, you’re at a bit of a loss as to what to do with your nest egg. Christine Karpinski has a suggestion: Instead of pouring your money into Wall Street, why not consider Ocean Boulevard or Mountainside Drive?

“A vacation home can be a remarkably good investment right now,” says Karpinski, director of Owner Community for HomeAway.com (an online vacation home rental marketplace) and author of How to Rent Vacation Properties by Owner, 2nd Edition: The Complete Guide to Buy, Manage, Furnish, Rent, Maintain and Advertise Your Vacation Rental Investment (Kinney Pollack Press, 2007, ISBN: 0-9748249-9-2, $26.00).

“Stock market woes have always pushed people to look for alternate investments, and real estate is a consistent stronghold,” she says. “Yes, home values are down right now but they have always rebounded. I wouldn’t recommend buying a second home with the expectation of flipping it for a quick buck, but if you hang onto it for a while-and better still, turn it into a vacation rental property-you’ll make a nice profit.”

Not incidentally, in many areas of the country, rental demand exceeds supply. The sunshine state (Florida) is a prime example. Buy a vacation home in a market like Cape Coral, Daytona, Destin, Fort Lauderdale, Indian Rocks Beach, Kissimmee, Madeira Beach, Orlando, Panama City Beach, Sanibel Island, West Palm Beach, or Windsor Hills, says Karpinski, and you can’t lose. Even if you prefer to buy elsewhere, if you adhere to proven marketing tactics, you should be able to attract enough guests to make the purchase worth your while.

So what makes buying a vacation home so attractive right now? Karpinski explains:

There are plenty of great deals to be had. Thanks to the aftermath of the real estate bubble, home prices are down right now across the board. That means in many vacation markets, you can pick up a beach condo or a mountain cabin at a decent price. And that means that if you’ve been kicking yourself for not buying a vacation home back before prices escalated beyond all reason, you’ve got a reprieve-Karpinski says that in some markets homes are back to 2000 prices.

“Housing bubble or no housing bubble, you’re not going to get bargain basement prices on, say, a cottage right on the ocean-but if you’re willing to buy a few rows back, you’ll likely find that prices have fallen substantially,” notes Karpinski. “Because houses aren’t flying off the shelf, there’s less pressure on you to make a quick decision. You can afford to take your time, do your research, and refine your plan.”

Interest rates are attractive right now. Recently, the Federal Reserve cut interest rates by half a percentage point in an effort to shore up America’s faltering economy. And rates have been reasonably low for awhile, following earlier rate cuts toward the beginning of the year. That’s good news for anyone (anyone with good credit, that is) who’s in the market for a mortgage.

“Add the lower interest rates to the lower housing prices, and it’s clear that now is the time to buy,” says Karpinski. “Of course, for the sake of our nation’s economy, we want the real estate market to pick up, but from an individual buyer’s perspective, the combination of lots of houses for sale, low prices, and falling interest rates is hard to beat.”

If you’re worried about investing in a sluggish real estate market, relax. Recent reports indicate housing is on the rebound. Last week the National Association of Realtors® reported that, “The Pending Home Sales Index (PHSI), a forward-looking indicator based on contracts signed in August, jumped 7.4%…and is 8.8 percent higher than August 2007.”

Other encouraging points made in the NAR article:

- Pending home sales are up strongly in vacation home-heavy areas like Arizona and Florida.
- The PHSI jumped 18.4% in August. It’s now 37.8% above what it was a year ago.
- Home prices are projected to increase 2 to 3% next year.

According to Lawrence Yun, NAR chief economist: “Home buyers in July were hampered by overly stringent lending criteria in the months before the government takeover of Fannie and Freddie,” he said. “August shows some unleashing of pent-up demand before the credit crisis accelerated in September.”

“If you’re anxious about your ROI, these statistics should put your mind at ease,” notes Karpinski. “But always remember to think of real estate as a long-term investment. It doesn’t really matter whether the market starts picking up steam right away. Your home will appreciate slowly over the years, and that’s all that really matters.”

You can use your rental income to offset your mortgage. (And then some!) Karpinski is a huge proponent of renting by owner (rather than using a property management company). Rent it out only seventeen weeks out of the year and your new vacation home could pay for itself. When your monthly mortgage payment is less than or equal to one peak week rental, twelve weeks of rental will cover your mortgage payments for the entire year. Other costs, including bills for your phone, power, cable, and association dues, may be paid out of your earnings from approximately five off-week rentals.

“Most owners tell me that their average weekly rate is around $1,500 to $1,600 and that their property is rented out twenty weeks or more per year,” says Karpinski. “Do the math and you’ll see that that comes out to around $30,000 or more in rental revenue each year. And here’s something interesting: While most people admit that the cost savings is the primary reason they rent by owner, they often add that the sense of control it gives them is equally important. They feel they can take better care of their property than anyone else and like to know who is renting their homes.”

It’s never been easier to market rental properties. Websites like HomeAway.com have made it easy and inexpensive for homeowners to list their properties. Plus, says Karpinski, as more and more people realize the benefits of staying in vacation homes rather than hotels, the pool of potential guests grows by leaps and bounds.

“There are lots of markets for renting vacation homes besides the usual leisure traveler,” notes Karpinski. “Business travelers are one example. If you’re a homeowner, you can approach local businesses and invite them to have clients and associates stay at your vacation home instead of at a hotel. Just make sure your house is properly equipped and you might find yourself with a self-replenishing stream of guests.”

If you’re rushing out the door to head to the bank right now, Karpinski doesn’t blame you. (She owns several vacation homes herself and knows what a fantastic investment they can be.) But she does want you to temper your enthusiasm with a word or two of caution.

“It’s not as easy to get a mortgage as it once was,” she warns. “But if you have strong credit, you can find a lender who’ll work with you. Also, don’t rush into a decision. You may be thinking, ‘Well, if I do this before the end of the year, I can get a nice tax write-off.’ That’s true. But it’s more important to take your time, make sure the property is right for you, and make sure the rent-by-owner lifestyle is right for you. It’s not for everyone-but if you know what you’re getting into, you may well decide it’s the best financial decision you could make.”

5 Reasons Why the Vacation Home Rental Market Is Holding Strong…Even in our Weak Economy

1. It’s easy for consumers to find information on vacation homes. By visiting respectable websites travelers can quickly find the vacation home that’s right for them. HomeAway’s network of vacation rentals includes over 300,000 properties all over the world, making it possible for almost anyone to find one within a two- to three-hour driving distance from their home.
2. Vacation homes tend to be less expensive than hotel rooms. This is especially true if you’re traveling with extended family or a group of friends. HomeAway recently contrasted a three-bedroom vacation rental private condo in Orlando with a popular three-star hotel and found that the condo was cheaper by more than $1,700! “That’s a big difference, and in a tenuous economy it seems even bigger,” notes Karpinski.
3. When airfare gets expensive, people start taking road trips instead. Even with gas prices relatively high, it’s still far cheaper to drive a couple hundred miles to your mountain cabin than to fly to some lavish vacation destination. “Even with the bad economy, people need to take vacations,” says Karpinski. “In fact, psychologically, they may need to get away more than ever. A fairly inexpensive stay in a nearby vacation home is the perfect solution.”
4. The weak dollar makes U.S. tourist destinations attractive to European travelers, whose currency is still strong. “On my recent trip to Hawaii, I noticed a lot of German tourists,” notes Karpinski. “And when I speak to many of the vacation homeowners I work with, they confirm that they’ve encountered a surprisingly high number of European travelers lately.”
5. Business travelers still need a place to stay. When corporations must meet with business associates-who increasingly hail from overseas-they need good lodging solutions. Enter the vacation home. “More and more executives are putting their guests up in vacation homes instead of cramped, impersonal hotel rooms,” notes Karpinski. “It’s a far more comfortable option; plus many companies work out deals with homeowners whereby they can get ‘volume discounts.’ It’s a win/win for all parties involved.”

Christine Karpinski is the author of “How to Rent Vacation Properties by Owner, 2nd Edition: The Complete Guide to Buy, Manage, Furnish, Rent, Maintain and Advertise Your Vacation Rental Investment” (Kinney Pollack Press, 2007, ISBN: 0-9748249-9-2, $26.00) and “Profit from Your Vacation Home Dream: The Complete Guide to a Savvy Financial and Emotional Investment” (Kaplan, 2005, ISBN: 1-4195069-1-9, $19.95).

For more information, visit www.HomeAway.com.

RISMedia welcomes your questions and comments. Send your e-mail to: realestatemagazinefeedback@rismedia.com.

Read more articles by Christine Karpinski on RISMedia.com:

Selling the Great ‘Not-So-Great-Economy’ Getaway
5 Reasons for Seniors to Rent Their Vacation Properties
In the Know: Second Homeowners and Saving on Taxes

Some Purchases May Still Be Worth the Price

By RON LIEBER
Published: October 17, 2008
In the last month or so, it has become much harder to take out our wallets without feeling guilty.




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Dan Stefanski
The Stefanski family’s sailboat, the Tres Joli, on the waters of Lake Charlevoix in Michigan.
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Ron J. Stefanski
Dan, left, and Will Stefanski, aboard the family sailboat. Their father sees the boat as an investment in memories.
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Readers shared their thoughts on this article.
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No single authority figure has told us not to spend. But people are scared, and that fear is showing up in lower sales on all sorts of big-ticket items, from autos to electronics.
Homeowners had already been feeling poorer, and the devastating investment losses have made thrift a necessity for many people. Saving every extra dollar now seems the most sensible course of action, given predictions of rising unemployment and daily mentions of the Great Depression.
But it’s easy to forget a couple of important things. First of all, the vast majority of people in the United States are not going to lose their jobs. Second, most of us work not merely for subsistence but so we can spend money on things and experiences that bring us some form of contentment.
So let this serve as a reminder that there may be plenty of good reasons left to spend what you earn.
This is not a call to consumer patriotism, a suggestion that we all go shopping for the good of the economy. Instead, I’m merely suggesting that if you’re feeling undeserving of anything special at this particular moment, or think you should help perform some sort of collective penance for our national overspending, you may want to cut yourself some slack.
I was reminded of this about a month ago, when I got a note from a man in Ann Arbor, Mich., named Ron Stefanski. At the time, I was writing about reducing financial risk, and he and his family had recently splurged on a 38-foot sailboat and lowered the 20-year-old vessel into the waters of Lake Charlevoix. The question his message raised was whether spending money on a boat was actually wise, and if so, why?
Money was part of what kept the family from buying a boat for years, even though Ron had long wanted one. Until four years ago, Ron’s wife, Kay, had been home raising their two boys, Dan, now 15 and Will, 17. Ron, who is 48 years old, is a vice president at Gale, a reference publisher.
“We don’t have trust funds for our kids or oodles of discretionary income,” Ron said. “So I was the one who kept saying, ‘Do we really need to be spending money like this when we need to get money in the bank for college?’ ”
But trying to do the math on buying a boat will often end badly, as it will with many large discretionary purchases. Boats depreciate, vacations are over in a week or two, and you probably won’t recoup the entire cost of your remodeled patio.
Instead, the Stefanskis came to realize, the boat was an investment in something much more valuable than money. Ron’s mother died when he was 16, and his grandmother helped raise him. Three months before his first son was born, his grandmother was murdered in her Detroit home by her newspaper delivery boy.
“When you look at life from that perspective, it’s about creating memories,” he said. “Because the good moments can be fleeting and they can be peppered with other experiences that you don’t want to be as memorable.”
A boat is also an investment in relationships, something that isn’t readily apparent until you’re on one a lot. Kay, who is 46 and works in textbook sales, helped talked Ron into buying the boat.
“We’re getting ready to be empty-nesters, learning how to navigate the space of being alone together, and that’s something that’s been a little bit sobering,” Ron said. “What she helped me to see is that having the boat is an opportunity to connect, to spend time together when the boys are off doing their own thing.”
In fact, Dan and Will have been on the boat a fair bit, too.
“As a teenager, I look forward to doing things that teenagers do, going to parties and hanging out with my friends,” Dan said. “But the boat was something I really learned to love.”
That has been an added bonus, given that the boys will soon be in college or away for the summers.
“This was a window of opportunity,” Ron said. “And the fact that we have to put the effort into driving up to the lake, it marks the time as untouchable.”
The Stefanskis paid $55,000 for their boat and financed the purchase with a $30,000 home equity line of credit. They earn more than $250,000 each year, though that is a relatively recent development in their lives.
If you make much less and have much less, you may be wondering what all this has to do with you. But not every investment of this sort needs to have a four- or five-figure price tag to be significant.
Perhaps it’s buying a better bicycle and taking daylong rides with others (or commuting to work to get in shape and save money on gas). Or it’s the fanciest paella pan or pizza stone you can find, which keeps you out of expensive restaurants and at home with friends and family who will appreciate your new skills, the free meal and the conversation.
A sports car probably doesn’t qualify here. Nor does a tummy tuck. Instead, it’s about investing money tactically in our relationships with one another, building bonds that last beyond ones to any particular employer or a house that we may no longer be able to afford.
For people who find themselves frightened by the possibility of a long, deep recession, well, the Stefanskis know how you feel. Since they bought the boat, the balance in their retirement accounts has fallen by about a quarter. The investments in the college savings accounts for the two teenage boys have hit the skids, and the troubled regional economy means their house in Ann Arbor is worth a lot less as well.
In the last downturn, Ron lost his job two weeks before the Sept. 11 attacks, and it wasn’t a great time to be looking for work.
What the family learned then, however, leaves them with no regrets now that they are boat owners, even though their jobs are potentially vulnerable once again.
“If you value family and friendships and experiences, the things that you might lose don’t mean quite as much,” Kay said. “It puts it all in perspective.”
Ron added, “Your job as a parent, a friend or life partner is to create memories with each other. That’s what we’re here for. And I think in that respect, the decision to purchase the boat was a good decision.”

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