Second Homes-- Dream or Income Stream?


While the primary real estate market still struggles to gain traction, market factors actually favor a smaller segment of the industry: vacation homes. The reason, according to Brian Sharples, CEO of HomeAway, is the typical buyer – individuals who are nearing retirement and have the income and assets to qualify for today’s historically low mortgage rates.

In fact, baby boomers are expected to continue to push sales of second homes in the coming years. The National Association of Realtors (NAR) found in 2009 that the median age for vacation home buyers is 46. Currently, 44.8 million people in the United States are 40 to 49 and 39.2 million are 50 to 59.

Sharples says that the purchase of a second home can be a smart part of a retirement plan, and can actually help pay for itself until the near-retirement owner is ready to move in. At HomeAway – the world’s leading online vacation rental marketplace – the average second home owner rents out their property 20 weeks a year, generating more than $35,000 in rental income per year.

Sharples recommends individuals consider three strategies when contemplating the purchase of this type of real estate:

  • Buy-and-hold: For those who’ve dreamed of retiring to an exotic location or even across town, now is a good time to buy and hold onto a second home. Given the record-low housing prices and attractive mortgage rates, with housing prices expected to rebound as the economy recovers, waiting to buy a home for retirement will likely mean paying a higher price later.
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  • Buy-and-use: Another advantage of purchasing a second home before retirement is the ability to use the home as your personal vacation getaway prior to permanently moving in upon retirement, providing an opportunity to create memories with loved ones.
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  • Buy-and-rent: Buying and renting out a second home as a vacation rental property using sites like HomeAway.com or VRBO.com until you’re ready to move into the home upon retirement can significantly help offset the cost of ownership. The income stream, in addition to tax write-offs for maintenance and repairs, make this an appealing option for many consumers. And because the individual manages the time period when the home is rented to travelers, they can continue to use the property as their personal vacation home.
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With the median sales price of vacation properties down significantly – they fell 23.1 percent from 2007 to 2008 according to NAR’s 2008 Investment and Vacation Home Buyers Survey – now is a good time to take a look at how second homes can fit into an overall retirement plan.