RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.1 Resort & Second-Home Markets Course CHAPTER TWO

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.2 In This Section Understanding your market Important considerations for types of properties Financing and ownership options Helping buyers chose the right property, financing and form of ownership Property management basics

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.3 Know Your Buyer’s Profile Choose locale and property Anticipate questions Discuss comparable properties and areas Demonstrate how your market’s properties fulfill buyer objectives Focus your marketing efforts

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.4 Single Family Residences Single-family structures account for eight out of ten vacation-homes as well as investment properties

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.5 Skill Builder Tip Buyers compare properties and locations In addition to a detailed knowledge of their market areas and properties, specialists should be able to compare similar properties in other locales. Why is your market area more desirable than similar ones elsewhere?

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.6 Weather Weather is a very important consideration Be prepared with a chart showing seasonal averages for temperature, rainfall, snowfall, days of sunshine and the like

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.7 Outdoor Activities The more activities an area offers in close proximity, the more appealing it will be to a second-home buyer and investor

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.8 Cost of Living and Taxes Groceries, restaurant meals, gasoline, insurance, utilities, medical care, professional services Low income, sales, and real estate taxes Tradeoff: lower costs and taxes and inadequate infrastructure versus higher costs and tax levels

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.9 Housing Options A variety of housing options makes a location attractive to a wider spectrum of potential buyers

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.10 Entertainment Variety of cultural activities Festivals, theatres, dance productions, art exhibits and galleries, and museums Restaurants

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.11 Shopping General shopping such as grocery, clothing, housewares, and hardware stores Specialty stores for the “Power Shopper”

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.12 Tourism Features that attract second-home buyers will also attract tourists who are potential renters Is the area overwhelmed during “high season” by tourists and traffic congestion?

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.13 Safety and Security Personal safety and security for the property are major factors in choosing a location Safer area than primary residence Property security for absentee owners

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.14 Infrastructure & Services Health care services Private personal and property services Adequacy of utilities, public transportation, police and fire protection, streets and roads, quantity and quality of the water supply

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.15 Local Attitudes Community’s feeling about vacationers and investors Benefit to the local economy? Or intrusive outsiders? How can specialists influence negative attitudes?

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.16 Waterfront Properties Water sports are a major attraction for vacation homes Ocean shore, lakes, and rivers Proximity and access to the water is a main value determinant Know local regulations regarding public and private access

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.17 Waterfront Property Considerations Road maintenance and rough terrain Owner’s intended activities Elevation Dock space Changing water levels Water temperature Navigation obstruction Beach erosion and migration

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.18 Golf Properties Match courses with player’s skill and strength level Variety of course difficulty, design, and memorable features Club dues add to cost of ownership Proximity to courses is a value determinant

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.19 Skill Builder Tip Parlay your own interests Consider arranging a trip with a good client to view and play golf courses in potential second-home areas. When the client finds a golf course to their liking, make contact with a local real estate professional on a referral basis. You will receive a referral fee, do less of the transaction work and property search, and reinforce your role as a trusted real estate adviser. Use the same technique for other areas of interest, such as skiing, fishing, and the like.

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.20 Ski Areas Ski in and ski out (SI/SO) Good exposure for sun and warmth Deeded parking in a garage Insulation and soundproofing Ski storage “Is there a hot tub?”

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.21 “Birding” Fastest growing nature hobbies in the United States. Does your market area include a “birding trail” or wildlife refuge?

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.22 Skill Builder Tip Do not stereotype retirees It would be a mistake to stereotype all retirees as “snowbirds” in search of senior-oriented retirement communities. Baby Boomer retirees expect to be very active in their retirement years. Retirees are interested in all types of properties and locations for retiring in place or relocating.

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.23 HOPA 80% of units occupied by at least one person 55 years of age or older Publish and adhere to policies that demonstrate the intent Management must verify age eligibility Not necessary to offer significant services, programs, or activities

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.24 Universal Design Standards No step entry to the house or main rooms One story living, barrier-free Wide doorways and hallways Extra floor space for a wheelchair to turn Good task lighting Thresholds flush with the floor Lever door handles and rocker light switches

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.25 Older Homeowner and Retiree Preferences Most preferred amenities: Full maintenance lawn care Walking Swimming and water fitness Older “boomers” prefer hobbies clubs

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.26 Condo Cabanas Private pool or beachside space for entertaining and relaxing Deeded to the owner 150 to 500 square feet Include maintenance costs in affordability Check usage rules - no overnight stays

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.27 Condotels Operates as a hotel Deeded ownership of a room in the hotel, not just the right to use the property for a certain number of weeks Rented when not owner-occupied Owner receives rental income

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.28 Condotels Can appreciate in value Management company maintains the property Property must function effectively as a hotel with all usual amenities, e.g. restaurants and housekeeping Down payment requirements and interest rates may be higher

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.29 Condos Ownership of a unit of real estate in a multi-unit property based on a legal description of the air space: "from the paint in“ Undivided interest in the common elements Include monthly assessment charge when calculating the affordability

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.30 Manufactured and Factory Built Housing Manufactured homes: factory constructed off-site and delivered to the owner’s property Must meet HUD construction and safety standards Financed by personal loan Eligible for conventional mortgage financing If permanently affixed to a foundation, Factory built: constructed in sections assembled on site Must meet local building codes

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.31 Second Homes for Student Children Cheaper than room and board Roommates’ rents can cover part of the mortgage payment Location determined by the college or university Graduation coincides with the best time to sell? Resale to other parents Keep file of repair and service contacts Popular summer area?

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.32 Values of Second Homes Less than $50,0007% $50,000 to $99,0008% $100,000 to $149,00011% $150,000 to $199,0009% $200,000 to $299,00015% $300,000 to $399,00015% $400,000 to $499,00014% $500,000 to $999,00018% Median Value -- $300,000

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.33 Facts About Second-Home Financing Lenders view second-home loans differently Borrower more likely to let the payments lapse on the second home? Most require 20% down payment If too many condos in a development rented, the buyer may not be able to obtain financing

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.34 Skill Builder Tip Use local lenders for financing When the property is located in another area or state, it may be best to seek mortgage financing through a local banks because the loan officers will know and understand the region. A buyer might look to a local branch of their home bank for financing.

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.35 FHA and VA Not intended for vacation and second home loans

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.36 Rental Income Rental income & expense factored into loan approval amount Allowing 75% percent of rental income accounts for vacancies Help the buyer make a realistic projection on rental income Be conservative in estimating ability to sustain a mortgage when rental property is vacant

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.37 More Facts About Second-Home Financing Lenders may push second-home buyers to use a home equity loan on their primary residence to finance some or all of the second-home purchase

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.38 Contract Contingencies Obtaining of suitable financing Appraising for at least the purchase price Passing all inspections or repair at the seller’s expense

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.39 Mortgage or Home Equity In order for the mortgage interest to be treated as deductible interest on home acquisition debt up to $1 million, the mortgage must be obtained within 90 days of the home purchase

RESORT AND SECOND-HOME MARKETS CHAPTER TWO / 10 / 15 Finance Strategy 75 % first mortgage 10 % down payment 15 % seller financing

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.41 Skill Builder Tip Converting a rental property to a retirement residence Purchase a second home and use the rental income to offset as much of the mortgage and expense as possible. When the owner is ready to retire, sell the primary home and use the proceeds to refurbish the rental property which then becomes the owner’s retirement home. Or, sell both properties and use the proceeds to purchase new home.

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.42 Forms of Ownership Fee simple individual or joint ownership Ownership in severalty Co-Ownership Corporation

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.43 Land Trusts Held by a trustee but beneficiary (the owner) retains control of the property Ownership interest in the trust is personal property Privacy Protection of other assets Estate planning Disposing of a partial interest

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.44 Co-Ownership Individuals or families go together to buy a property and share costs Formal usage agreement prevents conflict and disagreement Usage assignment: exclusive use for a specific number of days Pay to use: pre-agreed usage fee for each day or week; fees and rental income pay expenses and mortgage

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.45 Time Shares Most common type is “right to use” Accrued weeks Bonus time Fixed unit/ Fixed week Floating week Lockout unit Quarter share

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.46 Time Shares Pro & Con Less expensive Prime location no upkeep expense or responsibility No real estate taxes or utilities Flexibility through exchange programs No value appreciation & hard to resell Inexpensive, off-season, or mediocre property are more difficult to sell or exchange Dependent on the sponsoring organization Usage limits

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.47 Fractional Ownership Deeded interest in the property 13 weeks per year =1/4 share Extra time first-come, first-served Greater usage to cost ratio than a time share Pride of owning a luxury second home without the expense or responsibility

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.48 Skill Builder Tip Help buyers clarify objectives The specialist plays an important role in helping buyers clarify their objectives, evaluate and choose the right property, form of ownership, and the financing options.

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.49 Seasonal Versus Year Round Buyers should visit peak and off-season Too cold or hot? Access hindered by road conditions? Peak-season traffic congestion tolerable? Same services and shopping year round? Always be something interesting to do? Peak-season too noisy?

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.50 Real Estate Professional is #1 The real estate agent is the #1 source for information on acquiring a primary residence and second home

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.51 Meeting Investor Objectives If buyer cannot state investment objective succinctly, more thought may be needed Keep trying if first statements are vague Describe other buyers’ goals to see if any match up with your buyer’s objectives Help the buyer form realistic expectations

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.52 Attracting Renters Activities, climate, and attractions that draw vacation-home buyers will also attract renters Help the investor tune into the features that renters expect, want, and will pay a premium for

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.53 Skill Builder Tip Budgeting for Furnishings If the property will be purchased unfurnished, the specialist can suggest that the buyer get a cost estimate from a local furniture store that specializes in fitting out vacation properties; this might be a good idea even if the property will be purchased with the furnishings because it will provide some idea of how much to add to the purchase price of the property to buy it furnished.

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.54 Provide a Rental History Help the buyer budget for rental income and expense Inform buyers of area property unique needs

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.55 Usage Policies Occupancy limits, no smoking, no pets, etc. Reserve the time periods for their personal use as far in advance as possible Partners need a policy for handling additional weeks of personal usage

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.56 Property Management 79% of investment-home owners rent out their property 57% rent for 6 months or more Many want an easy to manage the rental process and will pay rental fees Specialists must know about the process and costs involved

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.57 Formulating a Management Plan 3 basic tools Regional and local market analysis Property analysis Analysis of owner’s objectives

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.58 Steps for Preparing a Management Plan Prepare an operating budget Establish optimum rent/lease Determine the gross annual income Calculate yearly operating costs Establish reserve funds Predict anticipated revenues Prepare a five-year forecast Develop a comparative and expense analysis

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.59 Property Owner & Manager Relationships Employer-employee relationship Principal-agent arrangement Formal fiduciary relationship

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.60 Components of a Contract Identification of parties and property Duration of the contract Responsibilities of the property manager Responsibilities of the owner Fees and leasing/sales commissions Signatures of the parties

RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2.61 Benefits the Specialist Property Manager Can Provide Obtain competitive market rents Qualify tenants Handle rents and deposits and disbursement to owner Maintain accurate records Respond to emergencies 24/7 Inspect the property before-during-after Handle repairs and maintenance