By Lois A. Vitt, Ph.D.
Anyone who knows how to pick stocks well will tell you that successful investments start with understanding the business of the companies you choose. The same is true investing in real estate, whether it’s a single family home, town house or apartment complex.
If you are thinking of buying a second home for vacation, retirement, or trying your hand at investing in real estate take your time. Study the options. Calculate the numbers, consider the services of a financial advisor and learn all you can before jumping into the market.
Becoming an owner of rental property has made millionaires of many who chose to take this investment path and work hard at it.
A Way of Life
Think about this: Owning and keeping your primary home in tip-top shape requires some “business judgment.” Owning a second home requires even more including, good timing, financing savvy, patience, maintenance, management skills and an eye for spotting value.
If investing in real estate is your next move, your checklist should include the following:
- You already own your own home.
- Savings and investments to protect the new asset.
- You enjoy a predictable income.
- You know how to quantify net income potential.
- You can hang in for the long haul.
Perhaps the most important item on your checklist should be that you enjoy stability in your marriage or other personal relationships. Housing investments require teamwork and you’d better have a willing, capable, and compatible partner.
Second Home Dilemma
Owners of second homes report mixed motives for buying them. Many own for both “recreational purposes” and “investment purposes,” according to a study by the National Association of Realtors®. But there are other ways to become a second home owner besides buying one. You might inherit the family home or a family member’s vacation home. You can decide to relocate, rent out your present home and buy another at your new location. Or, you might wind up re-owning a home that you once sold and financed for a buyer who couldn’t make the payments.
There are also many ways to hold title to property: as a partner, time-share owner, condominium owner, or owner in fee simple. Each of these is a complex subject that requires thorough understanding before you sign on the dotted line for any real estate purchase. Whatever your reasons are for buying a second home, its location is as important as it is for your primary residence.
When a home is located in a desirable community, it is more likely to increase in value, making it easier both to rent and to sell, and it’s especially true for vacation or resort communities.
When purchasing a second home near water, golf courses, or ski resorts that are popular tourist areas, the value of your property is impacted directly by the quality of the resort or vacation area. Become thoroughly familiar with the area before you invest by visiting many times as a vacationer. Study the market, visit several real estate and management firms, and talk to year-round residents and shopkeepers. Understand local zoning, development and commercial growth potential, and check sales and rental data for the past few seasons.
It takes study, analysis, and good timing to learn your way around the housing investment arena. While each circumstance is unique, there are certain principles that apply to second home investments, depending on what you hope to accomplish through your purchase.
About the Author
Lois A. Vitt is a housing expert and financial sociologist, and is the author of “10 Secrets to Successful Home Buying and Selling”, the first book to demystify the psychological forces behind our housing decisions. To learn more about Lois and this book, visit www.RealtyStudies.com.