Last year, Kelley and Jeff Barton bought their first vacation home in Mammoth Lakes, Calif., a ski-resort area about 350 miles from where they live in Seal Beach, Calif.
At $200,000, the condo unit was a bargain considering it had been priced at more than $400,000 in the past, said Barton, 52. Plus, since the couple rent out the home when the family isn’t using it, they’re able to cover their mortgage payments and all their expenses — and make a profit.
Lately, more people are wondering if the market is ripe for turning the dream of owning a vacation retreat into a reality.
Prices on vacation homes have fallen even more sharply than on primary homes. Last year alone, the median price of a vacation home fell 11%, while the price of a typical primary residence fell 5%, according to the National Association of Realtors’ annual Investment and Vacation Home Buyers Survey, which includes information from about 1,900 buyers.
In some cases, people are scooping up cabins in the woods for less than $100,000, said Charlie Young, president and chief executive of ERA Real Estate, a residential real-estate brokerage franchiser. Even some individuals who rent their primary residences are looking to buy a vacation property in a more affordable market, Young said.
But unlike a primary residence, a vacation home is a discretionary purchase, and in times of financial uncertainty, people are reluctant to shell out unnecessary funds.
It’s wise to think about a vacation-home purchase carefully, looking at the financial and tax implications, and monthly maintenance costs, said Michael Kay, president of Financial Focus, an investment advisory firm in Livingston, N.J. Potential buyers also should consider the opportunity cost of making the purchase, or the benefits of investing the money elsewhere, he said.
Dan White, president of Daniel A. White & Associates, a wealth-management firm in the Philadelphia area, said prospective vacation-home buyers need to be cautious before acquiring more debt, carefully considering the stability of their employment before committing to another mortgage. White said he has worked with many people in their 50s who suddenly find themselves out of work. And if they have a second mortgage on a vacation home, that becomes a big problem.
Before buying, you also need to come to terms with how much you really will use the home and how you will maintain it, said Troy Thiel, a real-estate agent with First Weber Group in Madison, Wis.
An important factor for many people is how long it takes them to get to the vacation home: A two-hour drive from their primary residence is often more palatable than a four- to five-hour trip.
Some baby boomers are seizing an opportunity to get a deal on a vacation home they can enjoy now but that’s also a home that eventually will become their primary residence when they retire, Thiel said.
“That’s one of the primary drivers in the market: people selling their big house and buying a smaller home or condo in their current market and using the equity to purchase the second home,” he said.
According to the National Association of Realtors’ survey, 34% of people who purchased a vacation home in 2010 plan on using that property as a primary residence at some point in the future.