Buying a Vacation Home Even as Prices Soar
Plenty of first-time home buyers are having difficulty getting their hands on that first house. Inventory is low, demand is high, and prices are going through the roof. But what about the vacation home crowd? Are they having any better luck? That depends on the market. Millionacres contributor and real estate investor Matthew Frankel recently bought his first vacation property despite soaring prices.
Frankel is by no means alone. Other investors are seeing the value in vacation properties even as the world emerges from coronavirus. They are taking the plunge now despite knowing they could have purchased the same homes for less a year ago. So why are they doing it now?
The reasons are as varied as the investors themselves. One thing they all have in common is the belief that their investments will pay off. Time will tell. The real estate market could be poised for continued growth throughout the foreseeable future. On the other hand, it could crash and burn just like it did back in 2008.
Interest Rates Are Attractive
One of the things that caught Frankel’s attention was interest rates. He was originally approved for a vacation home mortgage in 2019 at 4.25%. The pandemic prevented him from buying. However, that’s not necessarily a bad thing inasmuch as the mortgage on the house he just bought sits at 3.125%.
The 1.1% difference is big. At the old rate, he would pay $492 per month for every $100,000 he borrowed. The new rate drops his monthly payment to $428. That means more house for the same budget. It also means saving quite a bit of interest over 30 years of payments. That is big when you are investing.
Interest payments reduce the overall return on your investment as a real estate owner. So anything you can do to bring them down helps. As the thinking goes, rates may not remain so low for much longer. In Frankel’s case, it made sense to buy now – before inflation sends rates climbing again.
Vacation Destinations Matter
Investing in a vacation home requires carefully choosing your destination, unless your goal is something other than making money. The reasoning is simple. Vacation homes do not have as much rental value in locales tourists don’t want to visit. A case in point: vacation properties in the Carolina’s Outer Banks region are a lot pricier than what you’re likely to find in the greater Detroit area.
Another hot vacation destination is Northern Utah. Locales like Park City and Sundance are extremely popular for vacation homes right now. According to Salt Lake City architects Sparano + Mooney, Northern Utah is a nature lover’s paradise.
Buyers are snapping up valuable parcels of land and then hiring Sparano + Mooney to custom design their dream homes. And because the area has a year-round appeal, the homes have strong rental value whether there’s snow on the ground or not.
People Are Ready to Travel
It is clear that the aftermath of the coronavirus crisis has people wanting to travel. We are all tired of being stuck at home. This suggests that the rental value on vacation homes will remain pretty high for the next 12 to 18 months, at a minimum. Offer renters a fantastic experience and they may keep coming back year after year.
Despite soaring prices, the current environment is incredibly attractive to people looking to invest in vacation home rentals. Some, like Frankel, have just bought their first vacation properties. Others are adding to already extensive portfolios. All indications are that the vacation home trend isn’t going to fade in the near future. It looks long-term.