Felix Sater

Everyone knows the standard summer safety tips: Only swim where there’s a lifeguard, apply sunscreen liberally, drink plenty of liquids. But there’s one item your financial advisor would probably like to add to that list: Beware of the sudden, seemingly unstoppable urge to buy a second home in the place where you just spent two idyllic weeks of vacation. This article series goes in depth into the strategies for purchasing a vacation home.   Where Should My Vacation Home Be Located? If you are like most vacation home buyers, you want to buy in a place that’s totally unlike where you live full-time. Rheinberger says that 9 times out of 10 people want a climate, scenery, just about everything to be different from their primary residence. Forty percent of all vacation home purchases are in a beach area. To see what are the most popular destinations for online searches for vacation homes, check out Trulia’s interactive site. Click on a city, and you’ll see what the top five most popular vacation destinations are in that area. According to this map, are top five in the U.S. are Ocean City and North Wildwood, New Jersey; Kissimmee, Florida; Ocean City, Maryland and Marco Island, Florida. If renting out your home is part of your plan, you’ll want to buy in an area that attracts tourists. Ben Kinney, a realtor in Washington, suggests checking out Airbnb, HomeAway, VRBO, LoveHomeSwap, VRBO and Flipkey to find out what the favorites are on these sites. To be sure you really like a location, rent before you buy. Novick recommends to his clients that they do this for a year. As he points out, “it can be an expensive mistake if the perfect vacation house turns out to be in the next town over.” Spend time in your prospective vacation home during all four seasons. “What is serene in the spring can be noisy and chaotic in the summer,” cautions realtor Melanie Siben. Sharon McIntosh, a broker in New York City, bought a 1920s vintage Montgomery Ward kit house two years ago, which she’s been renovating and restoring ever since. She recommends that you look at the transportation possibilities. “How will you get there? If the drive is more than two or three hours you won’t want to go every weekend; I set my own limit at two hours,” she says. “How will your guests get there? It’s great to be on a train route, even a bus route is fine for some.” Also to consider, she says: Do you need hiking, swimming, access to restaurants, cultural activities? If the latter, consider a college town. Do you want to get away from it all or be with others who share your interests? If you have young children, be sure that there is enough entertainment for them as well. Contact the local school district, recreation department, religious institutions to get a feel for what’s available for kids; talk to parents in the local grocery store and at the playground. What Kind Of Vacation Home Am I Wanting? The majority of vacation home buyers purchase a single family home; 27% buy a condo and 18% buy a townhouse or row house. Tammy Barry, who does sales and marketing for Heritage Harbor Ottawa Resort in Illinois, says that buyers need to decide whether they want “the turnkey, maintenance-free lifestyle of a townhome or condo community or the extra space of a single-family home.” Either way, “vacation homes are places meant to spend time with friends and family; open floor plans and flexible spaces that can be turned into extra sleeping areas when company comes are what people want most.” According to the NAR survey, the size of vacation homes declined by 200 square feet from 2013–2015, but some in the biz would like to see it decline even further. Dan Dobrowolski, founder of EscapeHomes, designs 400-square-foot cottages, many starting at $75,000. He promotes them for their beauty, affordability and portability. “We can produce and deliver a new authentic cottage-style vacation home within 60 to 90 days and folks can begin living in them immediately.” Who buys these “tiny homes”? According to Dobrowolski, “young couples and families, empty-nesters, single men and women, you name it.” Recent clients included a Silicon Valley couple who are putting theirs on property in wine country and professors at the University of Iowa who are putting theirs by a lake.” Embedded Tax Implications Current laws offer several tax breaks that can help make second-home ownership more affordable. If you use the property as a second home, not as a rental, you can deduct mortgage interest as you would for a primary residence. You can also deduct property taxes. When you rent out your property for more than 14 days, the rules get more complicated. When to buy, where to buy and if to buy a vacation home is a decision that requires careful research, rational calculations and the advice of a variety of experts from financial advisors to real estate lawyers to brokers. As real estate broker Melanie Siben says,”You’d better love, love, love the home you are going to buy because if investment potential is the reason you’re buying this home, you definitely need to reconsider.” If you’ve enjoyed what you have read so far, please check out […]

Everyone knows the standard summer safety tips: Only swim where there’s a lifeguard, apply sunscreen liberally, drink plenty of liquids. But there’s one item your financial advisor would probably like to add to that list: Beware of the sudden, seemingly unstoppable urge to buy a second home in the place where you just spent two idyllic weeks of vacation. This article series goes in depth into the strategies for purchasing a vacation home. When it comes to the vacation home decision, Karyn Glubis, a broker in Tampa, Fla., has this advice: “Take your time. You don’t have to buy the first property you fall in love with…just like dating, there will be another to choose from that in the long run may be a better choice.” Can I Afford A Vacation Home? This is probably the most important question of all. For the answer to this, disengage heart, engage brain (and the brains of your trusted financial advisors). Calculate what the costs of owning a vacation home will be, including: mortgage payments, property taxes (which may be higher for non-residents than for residents), insurance (post Sandy, flood insurance on the East Coast has skyrocketed), water, gas, electricity, association membership in resort developments, trash removal, landscaping, an alarm system, the cost of someone to watch over the property while you’re away, and more. And, you need a “slush fund” for the inevitable emergencies: Financial consultant David Monberg suggests that you set aside 1% to 2% of the purchase price of your home. A calculation that may help answer the “is it worth it?” question: Estimate the number of weeks you will be spending in your second home each year and multiply that times the weekly rental rate at a favorite vacation spot. Is the rental more or less than you would spend on the second home? Andrew Novick, a Pennsylvania-based financial planner, says: “A good rule of thumb is to keep housing costs – for one or two homes – below one third of your income.” Owning a second home is as much a lifestyle, as it is a financial investment issue. Monberg suggests starting with a thorough financial analysis – what are your long-term goals, and how will the second home purchase affect them? “Will it get you off course on your savings plan or your investment model? Is this a new goal or one that’s already been figured into your planning? Are you ready to add another five years to the timeline to accrue enough for retirement, for your kids’ college education?” There are no guarantees, he says: “You can’t factor in a ‘perfect scenario’ – the market will go up and it will go down. You need to factor in the bad times and the good because there will be both.” For high-net-worth families: When considering the financial ramifications of purchasing a vacation home, Nikolay Djibankov, a financial advisor with the Matterhorn Group at Morgan Stanley Wealth Management, explains that typically for families with a net worth of under $10 million the primary questions are “can we afford it, what is the impact on our cash flow and long-term wealth plan, should we liquidate investments or finance the purchase with a fixed or variable mortgage?” For those with a net worth of more than $10 million, the issue becomes “how to structure the purchase of the property in order to mitigate estate-tax liability when property passes on to children and grandchildren? Structures such as the Qualified Personal Residence Trust (QPRT) may be useful – consult a reliable estate-planning attorney for advice on this.” Should I Buy Alone Or With Others? Co-ownership is one route to making the purchase of a vacation home financially feasible, but as broker Lee Williams cautions: “Get all the terms in writing. Nothing will strain or ruin a friendship faster than not having had a full discussion of potential issues before the deal is done. If you’re buying with another family, will both of you be using it at the same time? What are the guest policies? What happens if one family uses the home more often than the other?” And what happens if one family gets tired of it and wants to sell? How Is This Going To Be Used? […]

Everyone knows the standard summer safety tips: Only swim where there’s a lifeguard, apply sunscreen liberally, drink plenty of liquids. But there’s one item your financial advisor would probably like to add to that list: Beware of the sudden, seemingly unstoppable urge to buy a second home in the place where you just spent two […]

Your property is about to be put on the market. Your plan is to hire a competent real estate broker. But there are a few things the broker wants you to be made aware of before he even steps foot in the door. This article series (two parts) goes into what the real estate broker […]

Your property is about to be put on the market. Your plan is to hire a competent real estate broker. But there are a few things the broker wants you to be made aware of before he even steps foot in the door. This article series (two parts) goes into what the real estate broker […]

There are four big stepping stones of the insanely wealthy regarding personal tangible items: mansion, private jet, yacht, and private island. Many have dreams to join the ranks of DiCaprio or Branson by owning their own private piece of paradise. It’s one of the largest-scale real estate businesses that sets the mark for the elite […]

There are four big stepping stones of the insanely wealthy regarding personal tangible items: mansion, private jet, yacht, and private island. Many have dreams to join the ranks of DiCaprio or Branson by owning their own private piece of paradise. It’s one of the largest-scale real estate businesses that sets the mark for the elite […]

Good news for real estate brokers. When people were polled and asked to rate varying professions for ethics and honesty, real estate brokers rated higher than politicians. Not by much, though. Yet, whether you are buying or selling a home, brokers likely won’t lie to you. They may not disclose the entire truth, though. This […]

Good news for real estate brokers. When people were polled and asked to rate varying professions for ethics and honesty, real estate brokers rated higher than politicians. Not by much, though. Yet, whether you are buying or selling a home, brokers likely won’t lie to you. They may not disclose the entire truth, though. This […]

Purchasing real estate is about much more than finding a place you can call home. Real estate investing has become enormously popular over the past sixty years as markets are consistently on the rise, and has become a very common method of investment. Although the real estate market has vast opportunities for making incredible profits, […]