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Why Now Is the Right Time to Make Your Vacation Home

You've been kicking around the idea of buying a vacation home for quite a while now. A few years ago, it seemed like a great idea. The real estate market was hot, hot, hot and properties everywhere were appreciating rapidly. Getting a good return on your investment felt like a sure bet. But now, things have cooled off considerably. With home sales slowing across the nation, and interest rates poised to rise, your enthusiasm is waning. But don't shelve your vacation home dream just yet.

According to Christine Karpinski, now is actually the perfect time to take the plunge. "It's true that the real estate market has stabilized, but that's a good thing," says Karpinski, director of Owner Community for HomeAway.com and author of How to Rent Vacation Properties by Owner: The Complete Guide to Buy, Manage, Furnish, Rent, Maintain and Advertise Your Vacation Rental Investment (Kinney Pollack Press, 2004) and Profit from Your Vacation Home Dream: The Complete Guide to a Savvy Financial and Emotional Investment (Kaplan, 2005). "It's actually an easier leap of faith to buy when the market is normal than to buy when real estate prices are going up 10 to 20 thousand dollars a month."

There are several reasons why now is a good time to buy a vacation home. First, says Karpinski, we're in a buyer's market. 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.

Second, more stable home prices usually mean more stable property taxes and insurance costs. That's good for your bank account over time (and Karpinski believes buying for the long haul – i.e., not to turn a quick buck – is the smart strategy).

Third, even though overall real estate sales are down, sales of second homes are stronger than ever. In fact, 2004 and 2005 were record years for vacation home buying. That means if you want to rent out your vacation home – a plan Karpinski heartily endorses – you're sure to find a healthy customer base.

"An estimated five million vacation homes are currently being rented worldwide, yielding an estimated $100 billion-plus in transactions on an annual basis," Karpinski says. "No doubt about it: The idea of renting vacation homes as opposed to staying in hotel rooms is a growing trend. There is a definite 'if you build it, they will come' scenario going on here. And the Internet has only made things easier for vacation homeowners. With sites like HomeAway and VRBO, your property is only a mouse click away from interested renters. If you're on the fence about buying a vacation home, knowing that you can rent it out without too much effort might make the decision easier."

If you do decide to purchase a vacation home, Karpinski offers a few tips:

Don't buy in a "bubble" market.

In other words, don't buy in an area where there are too many speculators (i.e., such as Southeast Florida). In rapidly developing areas where lots and lots of developers build and hope to quickly sell, real estate prices tend to be artificially inflated.

"The last thing you want to do is buy in a marketplace where there are too many speculators," Karpinski says. "The risks of the bubble bursting when supply exceeds demand and your getting soaked are much higher. It may be better to purchase in an older area that's already well developed, like Cape Cod. The supply is so low in these areas that real estate tends to hold its value."

Buy with your wallet, not your heart.

"Make sure you're buying a smart investment," Karpinski says. "This is especially difficult for vacation homebuyers because we're risk-takers who tend to use our emotions more than our heads. It's easy to get caught up and sign on the dotted line when you see that gorgeous beach home or perfect ski resort. Why do you think so many people own timeshares? Because they get caught up in the moment and see only the romantic side of ownership without doing the due diligence necessary."

No intention of renting? Leave your options open.

Never say never, Karpinski says. "Today it may be financially feasible to not rent your home, but what will tomorrow bring?" she says. "What will change in your finances over the years? Will you be retiring? Will your children be attending college? Will the tax rate for the property skyrocket? What about the simple costs of ownership? Buy where you know you can utilize the option to rent your property (i.e., not in an area with a short-term rental ban). You know the old saying 'It's a woman's prerogative to change her mind'? Well, it should be a vacation homeowner's, too."

Consider renting by owner rather than using a property management company.

Worried that it's too hard or time-consuming to become a do-it-yourselfer? Don't be. A survey conducted through HomeAway, Inc., indicates that vacation homeowners who have taken the plunge to rent out their properties "by owner" find it very easy and inexpensive to do so. Being a "do it yourselfer" can save 20 to 50 percent in management company commissions.

"As I mentioned earlier, the Internet has made renting by owner much easier," Karpinski says. "Advertising on the HomeAway.com Network, a group of established vacation rental Web sites, is one simple and inexpensive way to find guests. It costs only $299 a year to list on four Web sites."

Rent out only 17 weeks and your new vacation home will pay for itself.

When your monthly mortgage payment is less than or equal to one peak week rental, 12 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.

"Surveys conducted through HomeAway, Inc., reveal that the average weekly rate is $1,656, and that the average property is rented out twenty weeks or more per year," Karpinski says. "These figures suggest that the average vacation home brings in more than $33,000 in rental revenue each year. According to survey results, 67.15 percent said that the cost savings is the primary reason that they rent by owner. Interestingly, 37 percent said they do it because they like the sense of control. They feel they can take better care of their property than anyone else and like to know who is renting their homes."

Of course, owning a vacation home isn't right for everyone. Karpinski emphasizes the importance of doing your homework as well as plenty of soul-searching before making the decision to buy.

"Yes, I've enjoyed my vacation homes and have profited from them, financially and otherwise," Karpinski says. "It's nice to have a place to escape to, and I've made some great friends over the years. But no doubt about it: Buying a vacation home, especially one you're going to rent out, means embarking on a whole new lifestyle. Read up on the subject so you'll know what to expect. Doing plenty of research and making an educated decision will keep your vacation home dream from turning into a nightmare."

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