Vacation homes are a hot commodity this time of year. Despite being even in The Great Recession, it’s vacation season. And for many people, that means heading for a vacation home. For many the choice is deciding whether to buy a vacation home or to rent a vacation home.
A few weeks ago, my husband and I headed to Northern Wisconsin to visit our son at Camp. We were amazed at how many for sale signs littered the roads. The North Woods are dotted with lakes, around which you can find everything from 75-year old cottages to brand new McMansions. Inventory for these second homes and vacation homes is a big problem and homes don’t appear to be selling that quickly.
But they may be renting these second homes and vacation homes out to people.
According to HomeAway, a collection of popular vacation rental websites that offers more than 400,000 vacation homes in 120 countries, two-thirds of vacation home owners reported that vacation bookings were the same or better than 2008.
More than half of vacation home owners surveyed say they need to rent their vacation home to cover costs due to the economy.
But the economy hasn’t affected everyone. The HomeAway vacation home owners’ quarterly survey said that 12 percent of those who already own vacation homes either bought one in 2009 or were thinking about buying a vacation one. Historically, just 6 percent of home buyers bought vacation homes.
Our neighbors are in New Hampshire, visiting with friends at their lakeside vacation home, trying out the concept of vacation homeownership. They’re starting to talk about renting or perhaps even buying a vacation home to use next summer.
There’s an American mythology to vacation home ownership. There are images of idyllic afternoons by the lake or swimming pool while at a second home or vacation home, small towns with farmer’s markets on Saturdays, and lazy summer evenings roasting marshmallows and watching fireflies.
But vacation homes and second homes require at least as much work as your primary residence, and perhaps more because you’re not there every day, or even every week.
If you’re renting out your vacation home, you’ll need to hire a cleaning service to make sure the property is presentable for the next guests. You’ll need to restock kitchen and bathroom basics that tend to disappear – like spoons, towels, and keys – or break, like dishes.
You’ll have to replace worn-out linens, furniture, carpet and charcoal grills that wear out. And, you’ll need to make sure you get your money upfront, before the guests stay.
And then there is the cost of advertising your vacation home or second home for rent, which is less than it used to be thanks to the Internet, or paying the property manager to manage the rental. If your vacation home is in a vacation community, like Keystone, Colorado, management takes a huge chunk of your vacation rental fee, leaving you perhaps half, after maid service is paid for.
Even if you’re not renting your vacation home, someone has to do all of the maintenance and upkeep, like mow the lawn, clean the gutters, spray for pests (thanks to Barry, in D.C. for that reminder), make the necessary repairs, and sweep the cobwebs out from the corners of the vacation home.
(If you only visit your vacation home or second home once a month or so, you might spend all weekend getting it back into shape, only to run out of time to enjoy it before heading back to reality. Our friends, Ruth and Lane, opted to rent their vacation home to someone else year-round because their real life got so busy that all they did at their vacation home was work!)
It’s hard to imagine how the economics worked for a vacation property rental earlier this decade. Most vacation properties don’t rent out year-round, and even if they did, property prices were too high until recently to make the numbers work. If you wanted to defray your own expenses, you could, but breaking even was a stretch for anyone who bought at inflated prices.
But now, as Yale professor Robert Shiller points out, home prices have fallen so much that affordability is at a 40-year high and prices in some areas are back to the levels seen in 2001. Vacation home prices have crashed in many vacation destinations as well. If you were looking for a sunbird destination, Phoenix, Las Vegas, and Florida are half-off. This could be the best time in a generation or two to buy the second home you’ve been dreaming of all these years.
Of course, credit restrictions might dampen your dreams slightly. You may need at least a 25 percent down payment for a second home these days, plus more for reserves. But interest rates are still at near-historic lows. If you can qualify, you can get a loan on a vacation home just about as cheaply as for a primary residence.
But plan on buying a vacation home you’re going to use and enjoy. After all, that’s what vacations are all about.
Learn more about second homes.