Did you know that vacation homes (on average) appreciate twice as fast as other single family homes? Twice as fast sounds like a good investment! Did you know that there will be 3.6 million second homes purchased in the next decade? That means vacation homes will be in high demand for the next 10 years. So, what should you be looking for in a vacation home? I want to share 4 things to look for when investing in vacation homes.
Look at both the local economy where you want to buy and the national economy.
Most of the hot vacation property locations will primarily be affected by the national economy because the money that will be purchasing those properties is not coming from the locals. It’s coming from people outside of the local economy. So, typically, if the stock market is doing well, real estate is probably doing well also. But if the local economy is down, it doesn’t matter how good the stock market is, real estate in that local area is not going to be as strong. So, be sure you check out both the local economy and the national economy when you are getting ready to invest in a vacation home.
Look for unique properties with a high demand.
An example would be a waterfront home. Typically, we aren’t making more waterfront properties. There’s only so much water to build around. But I say typically because sometimes they can actually dig a new lake. I’ve seen that happen! Another example would be ski areas that back up to a national forest or protected land. That land is never going private again, so they won’t be building more in that particular area. So you’re looking for properties where there’s a uniqueness and a demand. The uniqueness will actually create the high demand.
Look back 15-20 years in that area and make comparisons.
So, let’s say there’s a ski village that you are looking at buying a property in. Look at how that village has done in the last 15 years, not just the town. And don’t look at just one village or area. Look at two different areas and compare. For example, if you look at properties in Keystone and Breckenridge Colorado, you will find that the Breckenridge properties have sold for $200 more per foot than Keystone properties, and that the rental values have always been higher. So even though they’re both right in Colorado and the ski experiences are pretty much the same, the Breckenridge area is in more demand than the Keystone area. That’s the kind of comparisons you want to do.
Look at the numbers.
You want to make sure you can pay for your vacation property in 16 weeks of high income. That means your principle, interest, taxes, insurance, management and homeowner’s fees are covered in 16 weeks. If you can buy a property, even with your down payment, and pay for it in that length of time, then that’s a good buy.
Demand for vacation properties is continuing to grow and that makes investing in vacation properties a great investment. What vacation area are you considering investing in?
For more on investing in vacation properties, check out the September 2016 Real Estate Workshop in Denver.