Up-to-the Minute Marketing: Second Homes Offer Multiple Benefits

News you can actually use: Take today’s hot trends and turn them into sources of business with the all-new guest column at REALTOR® Magazine Online.

June 1, 2003

Vacation homes—investment as much as fun

At last, it’s summer vacation time. Whether your family’s idea of the perfect trip is a cabin in the woods or a luxury condo on the beach, if you’re like many of today’s vacationers, you are thinking about turning that one-or-two week rental into full-time ownership.

Not only is a vacation home a great escape from the pressures of life, but it can become a great long-term investment. Owners can cover most or all their costs with rental income. And if buyers eventually expect to retire to an area, buying a second home now can save them money if prices appreciate.

It’s no wonder the purchase of second-homes as investments has nearly doubled in the past three years, according to the 2002 National Association of REALTORS® Profile of Second Home Owners. Three years ago, 20 percent of second homes were purchased primarily for investment benefits. Today that number has grown to 37 percent.

Demand is particularly strong right now because many individuals are looking for alternative investments to stocks. And it should remain strong for at least another decade. In fact, the NAR study estimates that about 150,000 new second-homes will need to be built each year for the next ten years to meet demand.

The best second-home investments are properties in desirable vacation areas with specific activities available and within a few hour driving time of a major metro area. These are the offerings that are now in greatest demand. And, of course, growing demand translates to rising prices.

Marketing mileage: Identify vacation properties near your marketing area that meet some of the criteria listed above. It’s also a good idea to check with U.S. Census Bureau data to look for demographic trends that might indicate current and projected numbers of retirees to your area.

Next, run through your present and past client list, and select those you feel are most likely to be motivated by this type of investment. Typically, today’s investment-minded buyers of second homes are in their 50s, married, and have no young children living at home. They are often Baby Boomers at the peak of their earning potential.

Develop a presentation that emphasizes not only the beauty of a vacation home listing, but also demonstrates in detail the estimated rental return and possible appreciation (based on average appreciation for the last five years) that can be realized. It’s also important to include a detailed explanation of the tax implications of owning a second home.

For example, if a second home is used primarily for the family’s use, interest on the mortgage and property taxes can generally be deducted, just as it is on a primary residence. However, if the property is rented, the property owner must live in the house either 14 days or 10 percent of the time it is rented, whichever is greater, to qualify for these deductions. (See www.irs.gov for more details.) Otherwise, the property would be considered an investment property for tax purposes. Develop handouts that explain the pros and cons of each option and be prepared to help prospects analyze the impacts on their finances.

Tax Break for the Military

Congress is now in the final stage of hammering out the Armed Forces Tax Fairness Act of 2003, a law that will allow military people involved in the war in Iraq and other areas to more easily benefit from capital gains tax breaks when they sell their homes.

Under current federal laws, the first $250,000 in gain from the sale of a home is exempt from capital gains tax ($500,000 for married couples filing jointly), provided the home has been lived in as a principal residence for two out of the last five years.

“Many service members keep their homes while assigned overseas in hopes of returning to their residence,” the Military Officers Association of America reports. “On occasion when this proves impossible and the home must be sold to permit purchase of a new principal residence, service members find themselves subjected to substantial tax liabilities.”

The new legislation would correct that inequitable situation. It will suspend the 5-year residency requirement during any period that an individual or the individual’s spouse is serving on qualified official extended duty as a member of the uniformed services or Foreign Service. If this law is passed, it’s expected to save home-selling military families an average of $23 million per year in federal taxes over the next 10 years.

Marketing mileage: Contact military personnel, and let them know this new law makes it possible for them to sell their homes now without incurring taxes. Offer to handle the sale of their property if and when they want to relocate. After checking out the very latest status of the law (H.R. 1307) at a site such as Thomas Legislative Information on the Internet, you might also prepare a news item about this development and send it to local news media editors and veteran organizations in your area as a way to promote yourself to military clients.

Jim Woodard writes a nationally syndicated newspaper column on real estate news and trends, titled “Open House.” For many years he has also operated a PR/marketing agency – The Woodard Agency, Communications – specializing in real estate-related accounts

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