resort and second-home markets chapter two 2.1 resort & second-home markets course chapter two

2.1RESORT AND SECOND-HOME MARKETS CHAPTER TWO

Resort & Second-Home Markets Course

CHAPTER TWO


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


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


Single Family Residences

•Single-family structures account for eight out of ten vacation-homes as well as investment properties


Skill Builder Tip

Buyers compare properties and locationsIn 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?


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


Outdoor Activities

•The more activities an area offers in close proximity, the more appealing it will be to a second-home buyer and investor


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


Housing Options

•A variety of housing options makes a location attractive to a wider spectrum of potential buyers


Entertainment

•Variety of cultural activities

•Festivals, theatres, dance productions, art exhibits and galleries, and museums

•Restaurants


Shopping

•General shopping such as grocery, clothing, housewares, and hardware stores

•Specialty stores for the “Power Shopper”


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?


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


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


Local Attitudes

•Community’s feeling about vacationers and investors

•Benefit to the local economy?

•Or intrusive outsiders?

•How can specialists influence negative attitudes?


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


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


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


Skill Builder Tip

Parlay your own interestsConsider 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.


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?”


“Birding”

•Fastest growing nature hobbies in the United States.

•Does your market area include a “birding trail” or wildlife refuge?


Skill Builder Tip

Do not stereotype retireesIt 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.


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


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


Older Homeowner and Retiree Preferences

Most preferred amenities:

•Full maintenance lawn care

•Walking

•Swimming and water fitness

•Older “boomers” prefer hobbies clubs


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


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


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


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


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

• Eligible for conventional mortgage financing If permanently affixed to a foundation,

•Factory built: constructed in sections assembled on site

•Must meet local building codes


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?


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 15%

$300,000 to $399,000 15%

$400,000 to $499,000 14%

$500,000 to $999,000 18%Median Value -- $300,000


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


Skill Builder Tip

Use local lenders for financingWhen 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.


FHA and VA

•Not intended for vacation and second home loans


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


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


Contract Contingencies

•Obtaining of suitable financing

•Appraising for at least the purchase price

•Passing all inspections or repair at the seller’s expense


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


75 / 10 / 15 Finance Strategy

•75 % first mortgage

•10 % down payment

•15 % seller financing


Skill Builder Tip

Converting a rental property to a retirement residencePurchase 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.


Forms of Ownership

•Fee simple individual or joint ownership

•Ownership in severalty

•Co-Ownership

•Corporation


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


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


Time Shares

•Most common type is “right to use”

•Accrued weeks

•Bonus time

•Fixed unit/ Fixed week

•Floating week

•Lockout unit

•Quarter share


Time Shares Pro & Con

• Less expensive

• Prime location no upkeep expense or responsibility

• No real estate taxes or utilities

• Flexibility through exchange programs

• No value appreciation & hard to resell

• Inexpensive, off-season, or mediocre property are more difficult to sell or exchange

• Dependent on the sponsoring organization

• Usage limits


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


Skill Builder Tip

Help buyers clarify objectivesThe specialist plays an important role in helping buyers clarify their objectives, evaluate and choose the right property, form of ownership, and the financing options.


Seasonal Versus Year Round

Buyers should visit peak and off-season

•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?


Real Estate Professional is #1

•The real estate agent is the #1 source for information on acquiring a primary residence and second home


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


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


Skill Builder Tip

Budgeting for FurnishingsIf 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.


Provide a Rental History

•Help the buyer budget for rental income and expense

•Inform buyers of area property unique needs


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


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


Formulating a Management Plan

3 basic tools

•Regional and local market analysis

•Property analysis

•Analysis of owner’s objectives


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


Property Owner & Manager Relationships

•Employer-employee relationship

•Principal-agent arrangement

•Formal fiduciary relationship


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


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 2.1 resort & second-home markets course chapter two

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