As published in Scotsman Guide's Residential Edition, August 2011.
After a decade of the most spectacular expansion and contraction in the history of the real estate market, there is no better time to examine new business opportunities. Rarely, if ever, has the climate for real estate investment been so good, especially when it comes to vacation and resort properties.
To tap this market, mortgage originators must identify customers and properties, assess opportunities, and provide access to purchase funds. You also should understand some key differences between vacation homes and investment homes:
Investment properties are typically purchased for much less than vacation homes.
Investment properties are typically located closer to the buyers’ primary residence.
The National Association of Realtors (NAR) reports vacation-home buyers typically seek properties located close to recreational opportunities such as those afforded by an ocean, river or lake.
In addition, vacation-home buyers often have enough money to make a substantial downpayment, and many of them are married couples. A NAR survey reported the median age of vacation-property purchasers is 49 years and the annual income is $99,500, compared to that of investment-property buyers, whose median age is 45 years and annual income is $87,600.
Beyond these differences, the largest factor separating these two groups of buyers is their reason for purchasing a piece of property. Investment buyers want income; vacation buyers want fun.
The Kelsey & Norden Resort Real Estate Survey extensively examined prospective purchasers and existing owners of resort properties. One of the survey’s main conclusions is that members of Generation X have deposed baby boomers as the primary purchasers of vacation homes. Although these generations share many of the same values, their members often regard vacation property differently from one another.
More than half of boomers who purchase a vacation home envision themselves retiring there. On the other hand, Gen X buyers consider it a second home for their own use and that of family and friends.
Both generations, however, show little interest in purchasing raw land and constructing a new home. In addition, neither group likes ongoing costs, such as homeowners’ association dues.
Although the vacation market will continue to be nearly equally divided between these two generations for the next few years, mortgage originators entering this market should pay careful attention to the shift in buyer dynamics. Buyers wanting a party pad often seek different property types and locations than those buying a vacation home they plan to move into full-time in a few years.
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