In the last three years, a couple that I am acquainted with has bought 3 investment properties in a mountain resort town about 3 hours from where they live.

The first townhouse they bought was for weekend getaways, but now it will probably more than cover its costs through summer and fall rentals, the couple reports. One of their properties is now on the market for nearly double what the couple paid. In fact, prices in the 3,000-acre community have at least doubled since it opened five years ago.

That kind of activity has been replicated in vacation home areas across the country in the past few years, according to Paul Bishop, manager of real estate research for the National Association of Realtors.

NAR recently released a new study that looks at the vacation and investment home markets. Last year, 40 percent of all homes bought were vacation homes or investment properties. That’s up 16 percent from 2004, to a record 3.34 million homes.

“We don’t have good numbers on this, but the information we do have is a lot of the activity is from buyers who buy 1 to 2 or more properties over the course of a year or two,” Bishop explained. “The majority of these folks are actively in the market to buy investment properties as opposed to people buying a one-off home to rent. They are serious residential investors.”

Bishop said the study showed there is a clear distinction between the people who buy vacation homes and those who buy investment properties.

“Buyers of vacation homes look for lifestyle opportunities, and perhaps residences for retirement. Investment property buyers want to purchase property close to their homes,” he noted. “We’re talking about both groups together, and that’s a pretty broad brush. They have entirely different motivations.”

The Midwest is the strongest area for second home or investment property purchases, Bishop added. Donna Hofmann, a Coldwell Banker agent located in Chesterton, Indiana, says that 90 percent of her vacation or second home buyers come from the Chicago Metropolitan area, and 80 percent live in the suburbs.

“Most of our buyers want somewhere that is close to the office that they can visit on weekends and get away from the city for awhile. Most of them are purchasing second homes in order to turn them into a retirement home someday. They plan to move there eventually,” Hofmann said,

In Alpharetta, Ga., RE/MAX Greater Atlanta agent Tom Zaccaro is working for a new vacation home division called Resort Connection, selling resort properties in the Florida panhandle to Atlanta-area residents.

“Panama City Beach is where the big boom is now. They’re putting in an international airport. It’s next to Destin, which is a big hot spot. What’s going on there are beachfront condos for $1,000 per foot,” he said, adding that “dumpy” hotels are being replaced by exclusive resort property. “Panama City Beach properties are going for $425 per square foot.”

Investors, he said, are gobbling up everything for sale.

But in Phoenix, which has been one of the hottest markets for more than a decade, Coldwell Banker agent Ann Morgan said there appears to be an oversupply of lower-priced homes in the outer regions of the greater Phoenix area.

At the same time, home prices at the upper end are growing quickly. “Homes priced at $400,000 a couple of years ago are now priced at $600,000. Retirees and snowbirds are looking in Scottsdale because it’s a nice clean safe environment. They want the stainless steel appliances, granite tile, an updated house and they’re spending $300,000 to $400,000 without thinking about it,” Morgan explained.

According to Bishop, the median price of a vacation home in 2005 was $204,100, up 7.4 percent from 2004. The typical investment property cost $183,500 last year, up 24 percent from a year earlier. Eleven percent of all homeowners own 2 properties. Four percent own 3 or more properties.

What’s contributing to these second, third, and fourth-home purchases? Bishop says it’s the Baby Boom generation (born 1946-1964) flexing its financial muscle.

“The median age of vacation home buyers is about 52, so this is the first wave of Baby Boomers and about one in 5 are planning on using the second home they’ve purchased as a primary residence someday. They’re thinking about lifestyle issues and their future retirement,” Bishop explained.

Past research has shown that people aged 55 to 65 are the most active second-home buyers, followed closely by those aged 45 to 55. Since the Baby Boomers are just turning 60, the first wave of Boomers is just hitting their peak second home buying years.

Bishop said that with Boomer buying power, second homes could remain a large percentage of all home purchases for the next twenty to thirty years.

Published: Jan 19, 2009