Second Homes and Vacation Homes Investing - 2005 was one of the hottest years on record for people buying second homes with over 21% of all purchases being second homes. Driving this trend is the availability of capital for baby boomers from harvesting the swelling equity from primary residences as home values soared over the last few years.
Some areas like Destin Florida averaged over 25% appreciation in 2005 alone. Hot areas are, as suspected, homes near the beach, like the Destin area, mountains and other recreation areas. According to the National Association of Realtors, for markets where over 10% of the homes are seasonal, there was a 59% increase in value from 2001 to 2004.
Also helping in the growth is the publicity given to the real estate investment industry with infomercials like Carlton Sheets focusing on the low down payments required. In some cases 5% or less is all that is required to get you interest rates that rival those for primary residences.
Lastly the popularity of low payment loans like the interest only and cash flow option arm have joined the low down payment programs so that the homes are cheaper to get into and cheaper to hold, at least on the short term.
Also helping in the growth is the publicity given to the real estate investment industry with informercials like Carlton Sheets focusing on the low down payments required. In some cases 5% or less is all that is required to get you an interest rates that rival those for primary residences.
Lastly the popilarity of low payment loans like the interest only and cash flow option arm have joined the low down payment programs so that the homes are cheaper to get into and cheaper to hold, at least on the short term.
You may be asking yourself why real estate is such a good investment. Let's look and see why it is such a good investment. You average home's appreciation rate is around 5% per year.
The numbers look like this:
Year 1 - 100,000 home value when you buy
Year 2 - 105,000
Year 3 - 110,250
Year 4 - 115,762
Year 5 = 121,550
As you can see it doesn't take long to build up some equity in your house. If you bought a 200K home then those numbers would be double. This example is not even taking in into acount that you are paying down the principle balance on your loan. If you have your home on an interest only or payoption loan then you are probably cash flowing each and every month too.
The first step for obtaining a second home is to speak with your mortgage broker and discuss financing options and determine the amount of money you can affords to spend. Be sure to remember the added maintenance costs of a second home, alot of routine work needs to be done to maintain it and keep it in enjoyable condition. This may be work that you may not be able to do yourself do to distance or time limitations.
If the property that you are buying is for the purpose of a legitimate vacation or second home, many lenders offer loan terms that are comparable to those offered on a primary residence. To qualify, the lender will need to be comfortable that the property is being used as a second home, not as investment (rental) property.
Lenders offer more favorable terms on second homes than investment properties. Underwriters will want to know for sure if the home is being used as a second home or as an investment property. Most people purchase second homes in resort areas for vacation purposes or near relatives and family members.
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