Initially used as a vacation home, the second home market has grown and continues to evolve. Many second home buyers buy for their exclusive use, but others buy to rent out, generating rental income on their real estate investment.
Both buyers look at their homes as investments with appreciation over time. The same forces making the primary home market so vibrant has affected the second home market, low interest rates and continued demand for homes in destination resort areas.
A survey by Escape
Homes.com found that 29 percent of prospective second home buyers looked at a second home as an investment. Another 26 percent looked at a second home for retirement. Only 18 percent looked at a second home as a vacation home.
Interesting statistics from the National Association of Realtors (NAR) show that in 2002 the median age of a second homebuyer was 47, compared to 40 for all buyers or 32 years old for first time home buyers. Another statistic from NAR shows that second homes as an investment rose from 20 percent in 1999 to 37 percent in 2002. So, truly, second homes are becoming an investment of choice.
Tax law changes stemming back to 1997 regarding capital gains is but one factor behind the growing interest in second homes as an investment. It's also a tangible asset compared to the stock market. The owner has control of his or her property, maintaining it and directing its future. To many stock market investors, they continue to remember the sting of losing money through poor decisions by others in places far away out of touch with their stockholders. Stock appreciation has not matched the appreciation of real estate.
Additionally, leveraging helps catapult your investment return. If you get a 10 percent return in appreciation over a series of years with, say 20 percent down, that comes to a 50 percent return. Our more recent property appreciation coupled with leverage has made a lot of people a lot of money. But it's unrealistic to think that will be sustained at those same levels in all segments of our market for numbers of years. But as buyers of second homes look to them more and more as investments versus retirement or vacation homes, that will add more pressure to the market, helping values hold up.
Traditionally on Marco Island, second home buyers go through a couple of phases depending on their intent to purchase. Initially, they buy something to have a "stake" in the market.
According to an EscapeHomes survey, only 29 percent of respondents had visited their second home community two or three times before buying. Their first purchase usually is a smaller condominium. They may fix it up and then rent it out. They make enough rental income to cover their real estate taxes, maintenance expenses and maybe a little more. They figure getting a couple of thousand dollars a month for a couple of months during season is worth it.
During off-times they use it for themselves, getting more familiar over a period of years with Marco Island. Eventually, they decide they want to use it exclusively for themselves without renting it.
That's the loss of a rental unit on the market. Then our owner decides to move up into something they identify more consistent with their lifestyle. They look for all of the up-to-date luxury conveniences and amenities, whether in a condominium or a home.
The second home market continues to look strong. In the short run there may be pockets of more supply than demand but those pockets should be temporary.
Appreciation of second homes will continue. Baby boomers are still in their peak earning years looking towards a future with second homes as an investment to use or cash in for their retirement. Their kids, the echo generation, are now getting into their early years of buying property. Additionally, interest rates and numerous financing opportunities are keeping payments low.
The second home has proven itself to be popular for many reasons, as an investment is but one of them. Marco Island is on the Platinum Coast of Florida. Its southernmost location on the west coast assures warmer weather than anyone else further north. That coupled with the fact that Marco is surrounded by water means there won't be more developable property to add to the supply of real estate.
Get ahold of your favorite professional Realtor for details on properties that might make sense for you.
I look forward to seeing you around our island paradise.
Maury Dailey was the 2003 vice president of the Florida Association of Realtors, SW Florida Region. He was the 2003 Realtor of the Year and the 2002 President of the Marco Island Area Association of Realtors. He is the broker/owner of Sunrise Realty of Florida. You can direct questions and comments to him at SunX@Mar
coRealty4U.com.