Before You Jump Into Buying That Getaway Spot …

By Tom Thornhill

The way you use a second home or vacation condo should shape any decision about where to buy and how to finance it.

How long have you been wishing for a place to escape the pressure associated with your daily routine? Has your dream progressed to the point of serious consideration of purchasing a second home in the sunny south, at the lake or in the mountains? Do you feel prepared and adequately informed to venture into unfamiliar markets with a substantial investment at stake? Variables relating to market condition, financing, proximity to amenities and so much more need advance consideration. Though I am now in my twentieth year representing others as a broker, two years ago the shoe was on my other foot as my wife and I shopped the market for a second home in the sunny southwest. My advice to you is to develop a comprehensive and meaningful roadmap to follow all the way to the closing table.

First cardinal rule: No matter how much research you have done on Zillow or Trulia, you will not have completely accurate or comprehensive knowledge of what is about to become a major purchase. Entrust yourself to a seasoned professional who knows that local market. Though your internet search for financing may produce seemingly attractive options, consult one or more locals with boots on the ground and a stake in seeing that closing is timely and accurate. Keep in mind that HOA fees are factored into the equation for qualifying for your loan. Matters beyond your control such as rental versus owner occupancy within the community may impact availability of financing. If you intend to offer the property for rent, know that your lender may view it as an investment property, making the loan subject to a higher rate. And if it is within fifty miles of your primary residence, you may not qualify for lower market interest rates. Referrals to local professionals may best be gathered from visiting with others whom you know to have previously purchased in that market.

Imperative number two: Read the small print and then read it again. The vast majority of second/vacation properties are going to be in communities, whether it is a condo, townhome or free standing residence inside the gates, subject to rules, regulations, covenants and restrictions. Do you intend your investment to be an income producing property? There may be restrictions. Do you anticipate modifications to the property? Homeowner Association Board approval will likely be required. Have you satisfied yourself that the HOA is financially stable? Increases in monthly fees are inevitable, but substantial assessments may rear their ugly head. Is there commercial space within the community or are units available for rent as hotel rooms? These may pose an issue for financing. It’s all spelled out in black and white, but I recommend reading it when you are wide awake.

Advisory Number Three: Learn what is customary in the local market relating to inspections, escrow closing costs and local taxing jurisdictions. Your local professional can and should point you in the right directions to satisfy yourself that surprises will be minimized. And always remember as a buyer that someday you or your heirs will be a seller.

Being a pioneer in a developing market may or may not pay off. The Vail Valley and Los Cabos were virgin territory not all that many years ago. A purchase then would be viewed as a wise investment today. But how would you appraise your Atlantic City condo in your portfolio in view of recent casino blues?

No market wholly escaped the down-turn in housing through the recession, but generally speaking most have bounced back. San Francisco and wine country are still solid and Reno may continue to suffer, but as the economy has improved and consumer confidence climbed, absorption in primary and secondary homes across the country has accelerated.

Certainly some pockets of moderately distressed areas still hold the prospect for good buys on properties that will appreciate as those markets improve. But keep your real objective primary in your mind. Are you an investor focusing on return on your dollar or someone hungry for a retreat?

Speaking from personal experience, securing our winter getaway made carefully seeing the process through to completion more than worth the time and attention. My advice? Wake up, smell the roses, let the sunshine in, make the dream a reality, but proceed with caution and on good advice.  

About the author

Tom Thornhill is an associate broker for Kansas City Homes, part of the Better Homes & Gardens Real Estate network.