The Inside Scoop on Buying a Resort Property

The Inside Scoop on Buying a Resort Property

by Larry Brzostek, CRS, CLHMS

 

Acquiring a vacation/resort home is a major element of the American Dream.  

It can provide untold benefits in enjoyment with loved ones and tremendous relief of the stresses of our everyday lives. It can also be an unused luxury and a drain on your resources if purchased totally on emotion without adequate research 

 The data in this series should help you get the most for your money whether it be a condo or a castle and an investment of a few thousand to a few million dollars! 

Location!     Location!     Location! 

   

Geographic Location    

 Buying in a location that is accessible  (a comfortable distance easily traveled) for you is important. A property you use will give you many benefits; a property you do not use will just give you expenses. 

No vacation home can give you any enjoyment if you do not use it. The longer it takes to plan a getaway and travel back and forth, the less likely it is you’ll enjoy the home 

Sarasota, Florida is accessible, close to airports and major highways. 

It is one of the most beautiful locations in the USA.  Magnificent  Beaches, Arts and Entertainment are all here in this Paradise on the GulfCoast! 

   

 Types of Property

 A resort property can be a single family detached home, a multifamily with 2 or more units (adding the possibility of rental income), some form of condominium ownership (a single room or suite of rooms in a townhouse, low, mid or high rise configuration), or a manufactured home (mobile home). 

Vacant land requires more research and is more speculative. 

Each type of property has its own pros and cons. 

Consider carefully how you will use the property. If you like to work on your home, choose a single or multi-family. 

If you prefer all maintenance to be done for you, then a condominium with a monthly maintenance fee to pay a staff of groundskeepers, window washers, etc., is for you. 

Deciding what you like and how you will use it should give you direction in your search. 

Local building and zoning codes should be investigated. Are they restrictive or nonexistent? Does the property conform to the codes and can the property be rebuilt in event of damage, are important questions. 

   

        Working with an Agent

A professional Real Estate agent earns their living marketing and selling properties.  

They are bound by the licensing laws of their respective state and the agency/property disclosure laws of those states. 

Knowing the Comps (comparable properties that are listed and more importantly, comparable properties that have recently sold) can be critical in your decision on the offer you make on the property. 

No location or town is perfect; a successful agent knows the pluses and minuses of the area.  A good agent can help you find your dream house; a great agent can make it a pleasure! 

Availability and Inventory

When buying a resort property it is important to look at the inventory and availability of the prospective homes 

The next step is to determine your budget constraints and what choices are in that price range. 

Inventory is always a result of supply and demand. 

You may find that what you want and what you’re willing to pay is a rare (or even nonexistent) quantity within the area you’re considering. 

You will have to either pay the price or make adjustments. 

On the other hand, you may find that there are a reasonable number of candidates. 

This puts you in a better position to negotiate. 

What might impact the Town/Area 

Before making an offer, determine if there are any changes which can make an impact (positive or negative) on the community.  

Are any major improvements on the drawing board? Are there any infrastructure improvements scheduled that might cause a significant increase on the tax bill? 

Are there any unfinished developments? An uncompleted housing project can be a burden on an area. 

Any changes in the infrastructure (installing or upgrade of roads, water or sewer systems, etc) can also impact the quality of life and the cost of living in a resort community. 

  

Motivation

You can not compare the purchase of a vacation home to the purchase of your primary home. 

While the process (inspections, title work, survey, mortgage application, etc,) is the same, a seller’s motivation probably is not. 

When you sell your primary home you have a need to replace the roof over your head. 

Since many resort home owners are absentee owners, the seller of a second home does not have that motivation! 

Very often the seller of a resort property has the luxury of waiting for their price. 

The fact that an investment home can generate an income also alters a seller’s position.  

For example: A Florida house with an income from December to April is worth more in the fall than in the summer with little income until the winter.  

The exact opposite is true for a beach house on the Northern East Coast. A beach house with a $25,000 income for a 16 week summer season is worth more in the spring with the income to be received rather that in the fall with no income due until the following spring. 

Also, as with any property, there are always the motivations that every buyer wants to find: financial distress, divorce, or health issues. 

Negotiating

Once you have found the property that suits your needs, negotiating the transaction can make it yours. 

The more questions you ask (and get answers to) the more able you are to sketch out an offer that will be acceptable to the seller. 

Every real estate transaction has 3 elements – Price, Terms. and Conditions. 

Neither buyer nor seller always gets all three.  

For example, a buyer willing to meet the seller’s price might want concessions on the terms (ex. large mortgage contingency, later closing) and/or conditions (repairs to property, extra items included). 

Conversely, a seller willing to accept a lower sale price will want a quick closing (terms) and an ‘as is’ or no repair sale (conditions). 

Due to licensing laws, an agent may not be able to  disclose confidential information a seller wants kept confidential (such as divorce or financial distress). 

How long a property is on the market is not confidential and may give you some insight to make a win-win proposal for both parties. 

  

Financing

At the time you have established your budget you should begin to explore your financial options. 

Different types of properties will determine the financing programs available, your assets and credit history will give you further details. 

This is also the time to discuss with your accountant/financial advisor which financing methods fit best with financial picture. This may mean no mortgage at all (a cash purchase), substantial down-payment (50% +/- of the purchase price) to keep monthly payments low, or a highly leveraged investment down payment of the purchase. Smallest down-payment possible of the purchase price. 

It is strongly recommended to work with a local bank or lending institution. They will usually have a sound working knowledge of the area and get things done in a timely manner. 

Getting prequalified (a loan approval for a certain dollar based on finding an acceptable property) cuts down on the closing time. It makes an offer almost as good as cash offer, needing only the time to get an appraisal of the subject property. 

While the financing is being put in place you should immediately work on property/hazard insurance. Many major insurance companies have taken large losses in the past few years with hurricanes, earthquakes, etc. Consequently, they have limited or left many markets. Based on where you are buying you may also be required to get flood insurance. 

Tax Considerations

While many people have made substantial profits in vacation homes, others have lost money. 

An important consideration is to look at the purchase as to how much enjoyment you think you will get – you cannot put a price on stress relief! 

If you spend a substantial sum to rent in the same place every year, compare your cost to owning and collecting rent from others for the time you won’t be using it.  The property may pay for itself or come close and give some tax relief. If there is any appreciation at all, that just makes a better investment. 

Everyone’s tax situation is different, and you should seek advice from your accountant/ financial advisor in these matters. However, there are some general guidelines to work with, the owner of a second home can deduct their property taxes and mortgage interest (interest limited to $1Million total for a primary and second home, and an additional $100,000 in home equity debt). if the property is an investment, the mortgage interest , property taxes, depreciation, and any expense for maintenance and operation of the property are deductible. 

Taxpayers with an adjusted gross income over $100,000 are subject to the passive loss income provisions of the IRS tax code. 

These require full explanation by your account. (This is general information only and is NOT to be considered tax advice).  

Please consult your financial advisor as to what is best for you.