Frank Moore loves his condo on the western shore of Lake Michigan in the tiny town of Manistee, MI. After buying it in 1997, his family was so smitten with the newly developing community, where most units have their own boat slips, that they bought a one-bedroom rental unit for $129,000.
“I was familiar with the property values, and had a good idea that they would rise. My assumptions were right for several years. My initial plan was to sell it after eight years..and that was on target with where property value were going. But the market values were softening right then, so it wasn’t realistic,” says Moore. An asking price of $195,000 drew no offers. The unit is back in the rental pool.
Moore knows his stuff: he is chief investment officer for Vintage Financial Services in Ann Arbor, MI. He might have some money locked up in the rental condo, but he doesn’t regret for a minute owning his family’s unit. They spend summers on the beach and winters at the community’s indoor pool and other amenities.
Is it worth it to buy a vacation home? Estimate the number of weeks you realistically expect to spend annually in the locale. Multiply that by the weekly rental at a place you know and like. Is that more or less than the cost of owning? – Frank Moore, Chief Investment Officer, Vintage Financial Services
Here’s what you can learn from Moore about choosing a vacation home community: know what it’s like in all the seasons you’ll be spending time there. Know what amenities are worth the money, and which you won’t use often enough to be worth a regular fee. Know what vacation househunters value, in terms of amenities and location. And don’t overleverage your purchase. (For more financial considerations of buying a second home, see the related stories.)
Owning a second home is a lifestyle, not financial, investment, say financial planners. Trying out all the recreational amenities is the fun part of househunting that you don’t get when looking for a primary residence. Lakefront or mountain view? Near shopping and restaurants or out in the country? A single family home, with privacy and neighbors at a distance, or a lock-and-leave condo with association fees? A couples’ getaway or a grandchild magnet?
One silver lining to today’s low prices is that it doesn’t cost much, relatively speaking, to buy into many perennially popular destination markets. Of course, those same dynamics make it difficult to sell if your circumstances change. But for many near-retirees, this could be a golden moment, says Dennis Stearns, president of Stearns Financial Services Group, a fee-only wealth management firm based in Greensboro, NC.
“Some of the Florida bargains are amazing,” says Stearns. “The increased cost of insurance and others costs have been rising, but because valuations have come down so much, suddenly it makes sense.”
One of Stearns’ clients, a military officer, will be retiring in about seven years. He and his wife had assumed they would settle in San Diego, but prices there have climbed out of reach. Tampa Bay, FL, though, is rife with solidly built condos at more than reasonable prices.
That’s where they recently bought a brand new condo at a price so low they won’t even have to cover the carrying cost with rental income. “They will just let it sit, and move at their convenience,” says Stearns.
Bobbie Munroe, a certified financial planner based in Atlanta, has been advising near-retirees to consider switching their permanent residence to their second homes. That gives them plenty of time to transition to doctors, financial services and household services in their new community…and a bit of time to back out if they find they don’t like what they find.
One thing’s for sure, says Munroe: if your second home is intended as a grandchild magnet, choose your location and amenities with them in mind.
How one family chose their vacation condo.
Sorry, brokers: selling ‘by owner’ is popular among vacation home owners.