Sales of second homes, whether for investment or getaways, continue to surge, according to a report by the National Association of Realtors. While they account for more than one-third of residential transactions, the purchase of a second home varies somewhat from that of the primary home. Knowing the particulars of this growing market can make all the difference for agents and their clients.
By K.K. Snyder
The business of selling second homes is growing exponentially, and knowing the ropes when working in these transactions is paramount. Enough unique tactics exist in facilitating the sale and purchase of a second home that the National Association of Realtors (NAR) began offering for the first time a Resort and Second Home Property Specialist (RSPS) certification in January.
Tax law reforms in 1997 fueled the surge in demand for second homes by allowing home sellers to exclude up to $500,000 in profit on the sale of a home from capital gains tax, making second home buying more financially tempting than ever before.
When considering the purchase of a second home, certain issues need to be addressed early in the buying process, says attorney and counselor Charles Murphy of Prohov & Associates, LTD. “Mortgage rates and insurance premiums are often higher on second home purchases, especially if the home will be used as investment or rental property,” he says. “If the buyer intends on renting out the home, and the home is part of a condominium or homeowners’ association, the buyer should inquire about restrictions on renting.”
Generally, mortgage interest and property taxes are deductible for qualified second homes that are used as residences. However, owners could lose or limit these deductions if they rent the property.
“Lenders use varying standards in determining how a second home will be treated, and the IRS has its own standard,” says Murphy. Since so much depends on how a second home is used, he suggests buyers consult a mortgage professional and tax advisor to gain an understanding of these issues.
Every client has his own ideas about his second home search, including how far he’s willing to travel to get to it; how much he’s willing to spend; whether the purchase is for investment, recreation or retirement; what amenities he desires; and how often and with whom he will use it – partner, children, grandchildren, friends. Murphy suggests a buyer who is looking at a home in a retirement community check age restrictions, which may attempt to limit extended visits from younger people, such as grandchildren. All of these details play into identifying the ideal second home for a client.
Water is a big draw for second home locations. Forty percent of homebuyers request property close to an ocean, river or lake, 34 percent want to be close to family members, and another 26 percent prefer being close to mountains. But vacation spots near major metropolitan areas are also popular with second home buyers, because the properties can be visited more often with less gas needed to get there. Some 29 percent of second home buyers want easy access to golfing, and 18 percent are most interested in winter recreational activities, according to NAR.
GET OUTTA TOWN
Six years ago, Realtor Karen Strohl opened an office for Rubloff Residential Properties in New Buffalo, Mich., because of the high interest in second homes in that state’s Harbor Country, where she and her husband have owned a second home for over 30 years. Strohl says finding just the right second home or vacation getaway for a client requires careful consideration.
“One of the biggest issues is that the criteria are infused with a lot of subjective whimsical characteristics, because it’s an escape from the primary residence,” she says. “They want it to be very different from home.” Clients typically ask for such features as porches, fireplaces, outdoor space for gardening and ample room inside to accommodate guests.
“And they’re using these homes all year long, on weekends and on holidays, enjoying all the seasons in these second home communities,” Strohl adds.
So where are people going in search of second homes? NAR estimates that 36 percent of buyers who purchased a second home bought a property that was more than 100 miles away from their primary residences.
The largest concentration of vacation home buyers is right here in the Midwest, accounting for 33 percent of the vacation home sales, although the property may be located in another region. But most investment home buyers are in the South, 38 percent of the total, according to the NAR. Much of the increase is attributed to the 77 million-strong Baby Boomer generation preparing retirement properties or acquiring investments, which would continue to generate income once they are off the company payroll.
Rich Aronson and partners Chris Picone and Scott Sinar of Camelot Realty and Stage Development Co. hope they’ll come to South Haven, Mich., where they’re building 188 Arts and Crafts-style single-family cottages and 22 attached townhouses at The Preserve at Woodland Harbor.
Though dirt won’t actually be moved until late-June or early-July, 20 percent of the units in this second home development have already been pre-sold, says Aronson. The development will include a 110-slip marina, and prices starting in the high-$200,000s. He said much of the interest for The Preserve has come from Chicagoland residents, whom he expects to populate at least 50 percent of the property when all is said and done.
GET OUTTA THE COUNTRY
Some buyers opt to leave the country altogether on their second home search, creating an additional surge in the international market, says Vera Stepanovich, Realtor with Century 21 Hallmark in Berwyn, Ill. Stepanovich, who recently became a Certified International Property Specialist, has listed and sold condos in Belize and even entire islands in the Caribbean and Central America, two hot spots for international sales of second homes. Buying internationally does present some additional issues, however.
“A lot of banks will not finance property in other countries, though I’ve seen a few international banks that are starting to,” she says, noting that interest rates are higher outside the United States. “A lot of people will just refinance their home and take cash to purchase their second home.”
Among other points to consider about purchasing abroad are currency exchange rates, laws about foreigners purchasing real estate, taxes and, if the plan is to live there full-time, residency requirements. Foreign ownership in Mexico and Canada has been made easier in recent years. And if you’re considering purchasing property in Europe, consider Spain – a smart buy because of its infrastructure and solid government.
On the flip side, many Realtors, including Casey Koslowski of Majestic Properties in Miami, concentrate on assisting international clients with purchasing second homes in the United States. Koslowski’s ability to speak Spanish and German is priceless to his work and, in the seven years he’s been in real estate, he’s seen nothing but growth in international numbers.
The countries from which Koslowski’s clients originate fluctuate from year to year, based on a number of criteria, most of which are related to finance. For instance, the euro is strong right now, so he sees an influx of Germans, Italians and French in the market for property in the States this year.
“Even after Sept. 11, [the United States] is still an easy place for foreign nationals to buy property,” he says. “Getting full-time residency is a different matter, but buying property is easy.”
He said the process does involve a little more paperwork than a sale to an American, and there are some Visa requirements. But overall, the transaction is the same. The United States is an attractive market, because many areas outside the States impose higher property taxes for foreign nationals, Koslowski adds. C.A.
Camelot Realty And Stage Development Co.
Prohov & Associates
Camelot Realty And Stage Development Co.
Camelot Realty And Stage Development Co.
Century 21 Hallmark
Rubloff Residential Properties