REAL ESTATE TOPICS

The 'luxury' investment even the middle class should consider

By Jeff MackeMay 16, 2014 10:11 AMBreakout

For the last few years the only thing vacation homes have hedged against was wealth. Now, with housing values on primary residences in some cities approaching old record highs and high-end summer rental rates soaring, some intrepid souls are daring to step back into the market and looking at second homes not as a luxury but an investment.

“My favorite investment in real estate right now is vacation homes and second homes,” says author and real estate expert Shari Olefson in the attached clip. She’s got two good reasons. First is the entirely logical lag in the recovery of the second home market. Suffice it to say when people were underwater on their city dwelling they tend not to double down on a place they only visit a few times a year.

As a result of that caution the second home pricing market has been slow to recover. “You can still buy assets in that class for 20% to 40% under what the peak value was,” she explains. “Those homes are selling at a rate about 30% faster than what they were before, but there’s still plenty of opportunity.”

Of course assets that go through a bubble often never get back to the old highs. Olefson concedes the point but says there’s a sweet spot in moderately priced assets that can offer a decent chance of appreciation and even some rental income.

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The second factor working in favor of the second home market is the efficiency in placing rental properties. Services like AirBnB or HomeAway.com make it easier for owners to keep their properties filled. That reduces the risk of your second home asset sitting idle and thus drives up the price.

It’s not just the super wealthy getting involved. Olefson says the average income of second home buyers is about $85,000 and many of the purchasers are investing with an idea that the property will one day serve as a retirement home.

Clearly most Americans aren’t ready to start getting their money tied up in second homes again but the market is becoming compelling again for a select few. “About a third (of these buyers) report just not being able to avoid going after such a good deal.”