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   ARTICLE   |   From Scotsman Guide Residential Edition   |   August 2011

How to Tap the Vacation-Home Marketplace

With real estate struggles come opportunities for a new focus

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.

"Because many resort areas are located away from population centers, the level of competition from other mortgage originators could be minor."

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.

Resort-property loans will often involve purchase transactions for single-family detached residences. Refinances and loans for land, construction, log homes and condominiums will provide niche opportunities.

Because many resort areas are located away from population centers, the level of competition from other mortgage originators could be minor. Often, local banks comprise the only existing loan market. These lenders have been hit hard by the market collapse and generally offer only conservative loan products. This leaves many lending needs unmet.

There are five keys to working with vacation properties and their buyers:

  1. Know the customers: Technology allows many people to live where they used to vacation and to vacation where they used to live. Nowadays, you can conduct business from almost anywhere. The baby boomer generation will fuel the retirement home market while continuing to be a significant — but declining — component of the vacation market. Generation X will increasingly dominate the vacation-home market. Both generations use e-mail and the Web extensively.
  2. Know the property: Private roads, easements, septic and well systems are a few of the complications of many vacation properties. Anticipating these problems and helping clients work through them is crucial. Financing complications often require inspections and supporting documentation. Condominiums, condo-hotels and co-ops present other documentation and approval challenges.
  3. Know the lenders: Lenders sometimes have their own guidelines related to disclosures, underwriting, etc. Many will preapprove resort developments, master-planned communities and condo projects. Many will not. You should know any factors that could affect closing and handle them in advance.
  4. Know the market area: Each resort development and area has specific characteristics that attract buyers. You should know what those are. You also should know the local players and how they conduct business. For example, local title and escrow companies will probably be your closing agents. Become their best friends.
  5. Use technology: You must find your customers where they’re already located. Integration of Web and social media marketing represents an economical and essential approach to building your resort-property niche.

The mortgage and real estate market may suffer for years to come. During that time, many buyers will look to purchase vacation properties. By building expertise in these areas — and by knowing how vacation and investment homes and buyers differ — you can increase your client offerings and start visiting the same areas as your newfound clientele.


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