Resort Second-Home Markets Course CHAPTER TWO RESORT

Resort & Second-Home Markets Course CHAPTER TWO RESORT AND SECOND-HOME MARKETS CHAPTER TWO 1

In This Section • Understanding your market • Important considerations for types of properties • Financing and ownership options • Helping buyers chose the right property, financing and form of ownership • Property management basics RESORT AND SECOND-HOME MARKETS CHAPTER TWO 2

Know Your Buyer’s Profile • Choose locale and property • Anticipate questions • Discuss comparable properties and areas • Demonstrate how your market’s properties fulfill buyer objectives • Focus your marketing efforts RESORT AND SECOND-HOME MARKETS CHAPTER TWO 3

Single Family Residences • Single-family structures account for eight out of ten vacation-homes as well as investment properties RESORT AND SECOND-HOME MARKETS CHAPTER TWO 4

Skill Builder Tip Buyers compare properties and locations In addition to a detailed knowledge of their market areas and properties, specialists should be able to compare similar properties in other locales. Why is your market area more desirable than similar ones elsewhere? RESORT AND SECOND-HOME MARKETS CHAPTER TWO 5

Weather • Weather is a very important consideration • Be prepared with a chart showing seasonal averages for temperature, rainfall, snowfall, days of sunshine and the like RESORT AND SECOND-HOME MARKETS CHAPTER TWO 6

Outdoor Activities • The more activities an area offers in close proximity, the more appealing it will be to a second-home buyer and investor RESORT AND SECOND-HOME MARKETS CHAPTER TWO 7

Cost of Living and Taxes • Groceries, restaurant meals, gasoline, insurance, utilities, medical care, professional services • Low income, sales, and real estate taxes • Tradeoff: lower costs and taxes and inadequate infrastructure versus higher costs and tax levels RESORT AND SECOND-HOME MARKETS CHAPTER TWO 8

Housing Options • A variety of housing options makes a location attractive to a wider spectrum of potential buyers RESORT AND SECOND-HOME MARKETS CHAPTER TWO 9

Entertainment • Variety of cultural activities • Festivals, theatres, dance productions, art exhibits and galleries, and museums • Restaurants RESORT AND SECOND-HOME MARKETS CHAPTER TWO 10

Shopping • General shopping such as grocery, clothing, housewares, and hardware stores • Specialty stores for the “Power Shopper” RESORT AND SECOND-HOME MARKETS CHAPTER TWO 11

Tourism • Features that attract second-home buyers will also attract tourists who are potential renters • Is the area overwhelmed during “high season” by tourists and traffic congestion? RESORT AND SECOND-HOME MARKETS CHAPTER TWO 12

Safety and Security • Personal safety and security for the property are major factors in choosing a location • Safer area than primary residence • Property security for absentee owners RESORT AND SECOND-HOME MARKETS CHAPTER TWO 13

Infrastructure & Services • Health care services • Private personal and property services • Adequacy of utilities, public transportation, police and fire protection, streets and roads, quantity and quality of the water supply RESORT AND SECOND-HOME MARKETS CHAPTER TWO 14

Local Attitudes • Community’s feeling about vacationers and investors • Benefit to the local economy? • Or intrusive outsiders? • How can specialists influence negative attitudes? RESORT AND SECOND-HOME MARKETS CHAPTER TWO 15

Waterfront Properties • Water sports are a major attraction for vacation homes • Ocean shore, lakes, and rivers • Proximity and access to the water is a main value determinant • Know local regulations regarding public and private access RESORT AND SECOND-HOME MARKETS CHAPTER TWO 16

Waterfront Property Considerations • • Road maintenance and rough terrain Owner’s intended activities Elevation Dock space Changing water levels Water temperature Navigation obstruction Beach erosion and migration RESORT AND SECOND-HOME MARKETS CHAPTER TWO 17

Golf Properties • Match courses with player’s skill and strength level • Variety of course difficulty, design, and memorable features • Club dues add to cost of ownership • Proximity to courses is a value determinant RESORT AND SECOND-HOME MARKETS CHAPTER TWO 18

Skill Builder Tip Parlay your own interests Consider arranging a trip with a good client to view and play golf courses in potential second-home areas. When the client finds a golf course to their liking, make contact with a local real estate professional on a referral basis. You will receive a referral fee, do less of the transaction work and property search, and reinforce your role as a trusted real estate adviser. Use the same technique for other areas of interest, such as skiing, fishing, and the like. RESORT AND SECOND-HOME MARKETS CHAPTER TWO 19

Ski Areas • Ski in and ski out (SI/SO) • Good exposure for sun and warmth • Deeded parking in a garage • Insulation and soundproofing • Ski storage • “Is there a hot tub? ” RESORT AND SECOND-HOME MARKETS CHAPTER TWO 20

“Birding” • Fastest growing nature hobbies in the United States. • Does your market area include a “birding trail” or wildlife refuge? RESORT AND SECOND-HOME MARKETS CHAPTER TWO 21

Skill Builder Tip Do not stereotype retirees It would be a mistake to stereotype all retirees as “snowbirds” in search of senior-oriented retirement communities. Baby Boomer retirees expect to be very active in their retirement years. Retirees are interested in all types of properties and locations for retiring in place or relocating. RESORT AND SECOND-HOME MARKETS CHAPTER TWO 22

HOPA • 80% of units occupied by at least one person 55 years of age or older • Publish and adhere to policies that demonstrate the intent • Management must verify age eligibility • Not necessary to offer significant services, programs, or activities RESORT AND SECOND-HOME MARKETS CHAPTER TWO 23

Universal Design Standards • • No step entry to the house or main rooms One story living, barrier-free Wide doorways and hallways Extra floor space for a wheelchair to turn Good task lighting Thresholds flush with the floor Lever door handles and rocker light switches RESORT AND SECOND-HOME MARKETS CHAPTER TWO 24

Older Homeowner and Retiree Preferences Most preferred amenities: • Full maintenance lawn care • Walking • Swimming and water fitness • Older “boomers” prefer hobbies clubs RESORT AND SECOND-HOME MARKETS CHAPTER TWO 25

Condo Cabanas • Private pool or beachside space for • • entertaining and relaxing Deeded to the owner 150 to 500 square feet Include maintenance costs in affordability Check usage rules - no overnight stays RESORT AND SECOND-HOME MARKETS CHAPTER TWO 26

Condotels • Operates as a hotel • Deeded ownership of a room in the • • hotel, not just the right to use the property for a certain number of weeks Rented when not owner-occupied Owner receives rental income RESORT AND SECOND-HOME MARKETS CHAPTER TWO 27

Condotels • Can appreciate in value • Management company maintains the property • Property must function effectively as a hotel with all usual amenities, e. g. restaurants and housekeeping • Down payment requirements and interest rates may be higher RESORT AND SECOND-HOME MARKETS CHAPTER TWO 28

Condos • Ownership of a unit of real estate in a multi-unit property based on a legal description of the air space: "from the paint in“ • Undivided interest in the common elements • Include monthly assessment charge when calculating the affordability RESORT AND SECOND-HOME MARKETS CHAPTER TWO 29

Manufactured and Factory Built Housing • Manufactured homes: factory constructed off-site and delivered to the owner’s property • Must meet HUD construction and safety standards • • Financed by personal loan • Factory built: constructed in sections assembled on site Eligible for conventional mortgage financing If permanently affixed to a foundation, RESORT AND SECOND-HOME MARKETS CHAPTER TWO 30

Second Homes for Student Children • • Cheaper than room and board Roommates’ rents can cover part of the mortgage payment Location determined by the college or university Graduation coincides with the best time to sell? Resale to other parents Keep file of repair and service contacts Popular summer area? RESORT AND SECOND-HOME MARKETS CHAPTER TWO 31

Values of Second Homes Less than $50, 000 7% $50, 000 to $99, 000 8% $100, 000 to $149, 000 11% $150, 000 to $199, 000 9% $200, 000 to $299, 000 $300, 000 to $399, 000 15% $400, 000 to $499, 000 14% $500, 000 to $999, 000 18% Median Value -- $300, 000 RESORT AND SECOND-HOME MARKETS CHAPTER TWO 32

Facts About Second-Home Financing • Lenders view second-home loans differently • Borrower more likely to let the payments lapse on the second home? • Most require 20% down payment • If too many condos in a development rented, the buyer may not be able to obtain financing RESORT AND SECOND-HOME MARKETS CHAPTER TWO 33

Skill Builder Tip Use local lenders for financing When the property is located in another area or state, it may be best to seek mortgage financing through a local banks because the loan officers will know and understand the region. A buyer might look to a local branch of their home bank for financing. RESORT AND SECOND-HOME MARKETS CHAPTER TWO 34

FHA and VA • Not intended for vacation and second home loans RESORT AND SECOND-HOME MARKETS CHAPTER TWO 35

Rental Income • Rental income & expense factored into loan approval amount • Allowing 75% percent of rental income accounts for vacancies • Help the buyer make a realistic projection on rental income • Be conservative in estimating ability to sustain a mortgage when rental property is vacant RESORT AND SECOND-HOME MARKETS CHAPTER TWO 36

More Facts About Second-Home Financing • Lenders may push second-home buyers to use a home equity loan on their primary residence to finance some or all of the second-home purchase RESORT AND SECOND-HOME MARKETS CHAPTER TWO 37

Contract Contingencies • Obtaining of suitable financing • Appraising for at least the purchase price • Passing all inspections or repair at the seller’s expense RESORT AND SECOND-HOME MARKETS CHAPTER TWO 38

Mortgage or Home Equity • In order for the mortgage interest to be treated as deductible interest on home acquisition debt up to $1 million, the mortgage must be obtained within 90 days of the home purchase RESORT AND SECOND-HOME MARKETS CHAPTER TWO 39

75 / 10 / 15 Finance Strategy • 75 % first mortgage • 10 % down payment • 15 % seller financing RESORT AND SECOND-HOME MARKETS CHAPTER TWO 40

Skill Builder Tip Converting a rental property to a retirement residence Purchase a second home and use the rental income to offset as much of the mortgage and expense as possible. When the owner is ready to retire, sell the primary home and use the proceeds to refurbish the rental property which then becomes the owner’s retirement home. Or, sell both properties and use the proceeds to purchase new home. RESORT AND SECOND-HOME MARKETS CHAPTER TWO 41

Forms of Ownership • Fee simple individual or joint ownership • Ownership in severalty • Co-Ownership • Corporation RESORT AND SECOND-HOME MARKETS CHAPTER TWO 42

Land Trusts • Held by a trustee but beneficiary (the owner) retains control of the property • Ownership interest in the trust is personal property • Privacy • Protection of other assets • Estate planning • Disposing of a partial interest RESORT AND SECOND-HOME MARKETS CHAPTER TWO 43

Co-Ownership • Individuals or families go together to • • • buy a property and share costs Formal usage agreement prevents conflict and disagreement Usage assignment: exclusive use for a specific number of days Pay to use: pre-agreed usage fee for each day or week; fees and rental income pay expenses and mortgage RESORT AND SECOND-HOME MARKETS CHAPTER TWO 44

Time Shares • Most common type is “right to use” • Accrued weeks • Bonus time • Fixed unit/ Fixed week • Floating week • Lockout unit • Quarter share RESORT AND SECOND-HOME MARKETS CHAPTER TWO 45

Time Shares Pro & Con • • Less expensive • • No real estate taxes or utilities • • Dependent on the sponsoring organization Prime location no upkeep expense or responsibility Flexibility through exchange programs No value appreciation & hard to resell Inexpensive, off-season, or mediocre property are more difficult to sell or exchange Usage limits RESORT AND SECOND-HOME MARKETS CHAPTER TWO 46

Fractional Ownership • Deeded interest in the property • 13 weeks per year =1/4 share • Extra time first-come, first-served • Greater usage to cost ratio than a time share • Pride of owning a luxury second home without the expense or responsibility RESORT AND SECOND-HOME MARKETS CHAPTER TWO 47

Skill Builder Tip Help buyers clarify objectives The specialist plays an important role in helping buyers clarify their objectives, evaluate and choose the right property, form of ownership, and the financing options. RESORT AND SECOND-HOME MARKETS CHAPTER TWO 48

Seasonal Versus Year Round visit peak and off-season Buyers should • • • Too cold or hot? Access hindered by road conditions? Peak-season traffic congestion tolerable? Same services and shopping year round? Always be something interesting to do? Peak-season too noisy? RESORT AND SECOND-HOME MARKETS CHAPTER TWO 49

Real Estate Professional is #1 • The real estate agent is the #1 source for information on acquiring a primary residence and second home RESORT AND SECOND-HOME MARKETS CHAPTER TWO 50

Meeting Investor Objectives • If buyer cannot state investment • • • objective succinctly, more thought may be needed Keep trying if first statements are vague Describe other buyers’ goals to see if any match up with your buyer’s objectives Help the buyer form realistic expectations RESORT AND SECOND-HOME MARKETS CHAPTER TWO 51

Attracting Renters • Activities, climate, and attractions that draw vacation-home buyers will also attract renters • Help the investor tune into the features that renters expect, want, and will pay a premium for RESORT AND SECOND-HOME MARKETS CHAPTER TWO 52

Skill Builder Tip Budgeting for Furnishings If the property will be purchased unfurnished, the specialist can suggest that the buyer get a cost estimate from a local furniture store that specializes in fitting out vacation properties; this might be a good idea even if the property will be purchased with the furnishings because it will provide some idea of how much to add to the purchase price of the property to buy it furnished. RESORT AND SECOND-HOME MARKETS CHAPTER TWO 53

Provide a Rental History • Help the buyer budget for rental income and expense • Inform buyers of area property unique needs RESORT AND SECOND-HOME MARKETS CHAPTER TWO 54

Usage Policies • Occupancy limits, no smoking, no pets, etc. • Reserve the time periods for their personal use as far in advance as possible • Partners need a policy for handling additional weeks of personal usage RESORT AND SECOND-HOME MARKETS CHAPTER TWO 55

Property Management • 79% of investment-home owners rent out their property • 57% rent for 6 months or more • Many want an easy to manage the rental process and will pay rental fees • Specialists must know about the process and costs involved RESORT AND SECOND-HOME MARKETS CHAPTER TWO 56

Formulating a Management Plan 3 basic tools • Regional and local market analysis • Property analysis • Analysis of owner’s objectives RESORT AND SECOND-HOME MARKETS CHAPTER TWO 57

Steps for Preparing a Management Plan • Prepare an operating budget • Establish optimum rent/lease • Determine the gross annual income • Calculate yearly operating costs • Establish reserve funds • Predict anticipated revenues • Prepare a five-year forecast • Develop a comparative and expense analysis RESORT AND SECOND-HOME MARKETS CHAPTER TWO 58

Property Owner & Manager Relationships • Employer-employee relationship • Principal-agent arrangement • Formal fiduciary relationship RESORT AND SECOND-HOME MARKETS CHAPTER TWO 59

Components of a Contract • Identification of parties and property • Duration of the contract • Responsibilities of the property manager • Responsibilities of the owner • Fees and leasing/sales commissions • Signatures of the parties RESORT AND SECOND-HOME MARKETS CHAPTER TWO 60

Benefits the Specialist Property Manager Can Provide • Obtain competitive market rents • Qualify tenants • Handle rents and deposits and disbursement to owner • • Maintain accurate records Respond to emergencies 24/7 Inspect the property before-during-after Handle repairs and maintenance RESORT AND SECOND-HOME MARKETS CHAPTER TWO 61