Home prices have plummeted by more than 50 percent in the past year in some vacation hot spots in California and that makes vacation rental investments golden, provided you can stay on the boss's good side and get past the steely scrutinizing of mortgage underwriters.
by Broderick Perkins
© 2008 DeadlineNews.Com
Unauthorized use of this story is a copyright violation -- a federal crime.
Deadline Newsroom - Home buyers able to dig their way out of tight employment conditions, even tighter mortgage underwriting standards and the still tighter credit squeeze could hit a Mother Lode of vacation rental housing in the Golden State.
That's so long as they are willing to grab a stake and stick it out.
Just as lowered home prices are making for bargain basement buys in the new and resale primary residence market, the second home market -- investment properties, vacation rentals, vacation playhouses and retirement homes -- isn't a slouch when it comes to those Blue Light Specials.
Take California ("Please!" say Golden State home sellers).
The California Association of Realtors, in September revealed a statewide crash in home prices as the single-family median price plummeted 40.9 percent from a year ago. Condo prices fell nearly 30 percent.
A closer look reveals coastal and other commonly known tourist areas have been hit even harder as the energy-driven cost of travel and the fear of job losses makes it tough for many to spring for even a day's getaway.
Equity markets buried under a discouraging, long-term economic forecast sent consumer confidence crashing like housing prices to its lowest level on record in October, according to the Conference Board, a private research group.
The board said the Consumer Confidence Index, which represents consumer sentiment about the economy, tumbled from 61.4 in September to 38 this month, a record low for the 41-year old survey.
That dwindling confidence shows up in the prices of vacation homes in high-cost markets like California where housing wealth was once considered the "psychological equivalent of gold."
Down, down, down
What a difference a half decade makes in California's tourist destination housing markets.
CAR reported the median price of housing was down 50 percent to nearly 60 percent in the Monterey and Monterey County regions; down 30 to 50 percent in Santa Barbara regions; down more than 42 percent in Palm Springs; down 35 percent in Los Angeles; down 33 percent in San Diego and the Wine Country; down 32 percent in Santa Cruz; and down 29 percent in San Francisco Bay Area.
You get the picture -- if you've got the dough.
"A vacation home can be a remarkably good investment right now," says Christine Karpinski, director of Owner Community for HomeAway.com, an online vacation home rental marketplace.
"I wouldn't recommend buying a second home with the expectation of flipping it for a quick buck, but if you hang onto it for a while -- and better still, turn it into a vacation rental property -- you'll make a nice profit," said Karpinski, also author of "How to Rent Vacation Properties by Owner" (Kinney Pollack Press, $26.00).
Karpinski said buyers probably still can't make a killing in prime locations, say a mini-mansion on a beach (where, with global warming, you may not want to be anyway), but a few blocks off the main sandy drag could yield vacation home sweet home.
"Because houses aren't flying off the shelf, there's less pressure on you to make a quick decision. You can afford to take your time, do your research, and refine your plan," she added.
Buy the right property in the right location, says Karpinski, rent it out for under 20 weeks a year, handle the property management yourself and the property will pay for itself.
“I wouldn't recommend buying a second home with the expectation of flipping it for a quick buck, but if you hang onto it for a while -- and better still, turn it into a vacation rental property -- you'll make a nice profit.”
Do the math
Your monthly mortgage payment has to be less than or equal to one peak week rental and in just twelve weeks of rental will cover your annual mortgage payments. Other costs, including bills for your phone, power, cable, and association dues, may be paid out of your earnings from approximately five off-week rentals, she explains.
Rent for a longer term and you can afford to pay for your own property manager and still have plenty of time to enjoy the property as a tangible asset.
The decreased buying costs and bottom line potential makes a vacation rental a good deal even if property values are flat and falling for a host of reasons.
Why vacation homes rock
© 2008 DeadlineNews.Com
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Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews Group -- DeadlineNews.Com, a real estate news and consulting service and Web site and the new Deadline Newsroom, DeadlineNews.Com's news back shop. In both cases, it's news that really hits home!
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