While the pandemic has been detrimental in many ways, there has been one unexpected bright spot: real estate is booming. However, buyers aren’t merely purchasing primary homes. More people than ever are buying a second home, boosting the vacation properties market by margins not seen in recent memory.
What is behind the incredible surge in vacation home buying? And how can buyers and their agents make the most of this moment in history? We’ve got the answers below.
More People Buying a Second Home in Wake of Pandemic
The COVID-19 pandemic changed the real estate landscape across the country. Rising demand for more space, historically low interest rates, and more accessibility to work-from-home options meant increased home sales nationwide.
While we saw increased demand for primary residences in many markets over the past year, we saw an unprecedented demand for second homes and vacation properties as well.
By September 2020, mortgage applications from those buying second homes rose by 118% year over year. January 2021 applications rose 84% compared to January 2020, indicating the demand remains strong even amid surging vaccination rates and declining infections.
Why Vacation Home Sales Are Up
Several factors contribute to the increased demand for second homes.
Our increased ability to work from home means it’s easier than ever to pick up and go to a vacation destination and still operate our businesses. Workers can conduct Zoom calls from a beachfront villa, a ski condo, or a lake house. Furthermore, many schools are conducting virtual classrooms, giving families a unique opportunity to access education straight from their favorite vacation spot. This versatility attracted more people than ever to consider buying a second home, where they no longer have to choose between work and pleasure.
Buyers are also flocking to vacation homes because they are safer than hotels or other accommodations. With travel restricted due to the pandemic (particularly international travel), many are avoiding air travel, hotels, and even rental homes. Instead, affluent buyers are purchasing second homes, allowing them to travel safely and still enjoy quality time away from the everyday hustle and bustle.
Finally, buying a second home is more affordable than ever. While most lenders will require a larger down payment on vacation homes, interest rates are still incredibly low, making vacation homes within reach for more Americans.
Second Home Demand Vs. Supply
The strong demand for vacation homes is outpacing supply, leading to surging prices in many popular vacation home markets. Remote work is likely here to stay, at least in some form, even after the pandemic is firmly under control. For affluent buyers across the nation, that’s an incentive to buy a second home and take a prolonged vacation.
Of course, with the demand for vacation homes booming are paying top-dollar for their second homes. Many popular vacation destinations report a surge in home prices. Inventory in these popular locations is at the lowest levels reported since Realtors began keeping track of such data.
Considerations When Buying a Second Home
If you or your clients are considering buying a second home, there are several considerations to keep in mind. While it can be tempting to have a place to call home when traveling to your favorite destination, it’s not always the best option.
First, consider maintenance costs and the logistics of maintaining a vacation property. Since you will only be there a few weeks at a time, you will need to make arrangements for keeping the property secure and maintained throughout the year. This could potentially be a costly venture and will need to be considered in the overall cost of the home.
Secondly, consider how often you intend to use the property. If you’re someone who enjoys traveling to different locations each time you leave home, buying a second home might not be the right choice. When you purchase a vacation home, you will return to the same location again and again. Of course, if you can find a vacation home in a place you love to visit –somewhere you don’t mind staying every year – buying a second home could be an ideal option.
Finally, you’ll have to consider the tax and lender implications of owning a second home. More on that below.
Buying a Second Home Vs. Buying an Investment Property
One important note here: buyers should consider whether they intend for the second property to be a vacation spot or intended as a rental. Buying a second home means you intend to use the space only for personal use. Conversely, if you intend to rent out the property (either part of the year or the entire year), you must claim that home as an investment property.
Second homes and investment properties have very different lending and tax implications, so it’s essential to consider how you intend to use the property. A second home or vacation home is loosely defined as a property that you intend to use as a temporary personal residence for at least part of the year while still maintaining a separate primary residence. On the other hand, an investment property is any property you intend to rent out for profit or gain.
The clear-cut definitions of each can vary depending on your lender and your state’s real estate laws. Some properties might be considered investment properties even if you live there most of the year. If you rent the home out to others, and it’s not your primary residence, some lenders may consider it an investment property. Still, other lenders will qualify a home as a second or vacation home, even if you rent it out to others, as long as you occupy the property a certain number of days per year.
The tax implications are a bit more clear-cut. The IRS has regulations regarding what can and cannot be claimed as investment properties. Because these requirements differ from lender to lender and state to state, it’s crucial to contact a real estate attorney or experienced real estate professional before making such a purchase.
How Realtors Can Help Clients Buying a Second Home
For Realtors, the vacation home boom represents an incredible opportunity to break into a new niche market. Real estate agents could find this market particularly lucrative, especially given the current demand. For agents and other real estate professionals who live close to popular vacation destinations, now is the time to embrace this niche.
The National Association of Realtors offers specific training and resources to agents who want to access this niche market. Taking the time to educate yourself about current market trends, lending options, and other considerations, you can help lead existing clients to the ideal second home.
Are you a real estate agent working in the vacation home niche? We would love to hear more about your experience! Please leave us a message in the comments below.