Cashing in on the Second-Home Market

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Sales of second homes, whether for investment or getaways, continue to surge, according to a report by the National Association of Realtors. Although they account for more than one-third of residential transactions, the purchase of a second home differs from that of the primary home. Knowing the particulars of this growing market can make all the difference for agents and their clients.

By K.K. Snyder

Although people continue to be drawn to the sun and surf, the second home market is losing some buyers who traditionally have come from low-cost markets in the Midwest to buy in Florida. Rapid increases in property and insurance costs have them searching for second homes in other coastal regions, says a spokesperson for the NAR.

Obviously, clients have their own ideas about a second home search: how far they’re willing to travel to get to it, how much they’re willing to spend, whether the purchase is for investment, recreation or retirement, what amenities they are looking for and how often will they use it and with whom (partner, children, grandchildren or friends).

All of these details play into identifying the ideal second home for a client, says Debbie Jacobson, a Realtor with Rubloff Residential Properties, who lived in Florida for 40 years, more than 20 of which she spent as an agent in the Miami real estate market. Now she sees a lot of Florida license plates in Harbor Country, Mich., a huge second home market.

“Second homes are getting bigger and bigger—and more expensive,” says Jacobson. But buyers have to be realistic about how far their money will go in a second home market. “They’ll tell me the main thing they want is to be close to the beach for $250,000, and they want to know if that’s doable. Not anymore.”

She says selling to second-home buyers is a whole new ballgame for her, much different than the full-time residence sales she used to do exclusively. “They don’t have to buy, and therefore you have to adjust your behavior. It may take them three months to sign. It happens.”

Having recently returned from a trip to Miami, she was blown away by the real estate development here. “It’s just amazing. Everywhere you look there’s a crane. International buyers are driving the construction right now, but the past five years have been incredible.”

“ They don’t have to buy, and therefore you have to adjust your behavior. It may take them three months to sign. It happens.”
-Debbie Jacobson, Realtor, Rubloff Residential Properties

It’s no secret that Miami’s proximity to water is a big draw, with 40 percent of buyers requesting property close to an ocean, river or lake. Another 34 percent want to be close to family members and 26 percent preferred being close to mountains. But vacation spots near major metropolitan areas are also popular with second-home buyers because they can be visited more often and require less gas to get there. Some 29 percent of second-home buyers want easy access to golfing and 18 percent are most interested in winter recreational activities, according to the NAR.

And because the second home is seen as an escape from the primary residence, buyers often want it to be dramatically different from home and typically ask for such features as porches, fireplaces, outdoor space for gardening and ample room inside to accommodate guests.

In some cases, it’s the finest service money can buy that buyers are looking for in their second home search, says Tere Proctor, director of sales for the 92-story Trump International Hotel and Tower Chicago, which offers 472 residential condos and 286 hotel condos. The latter is popular with the company’s Florida market at Trump Grande on Sunny Isles Beach, because Trump buyers are typically interested in turn-key properties that they can walk away from between visits and be assured all is taken care of with the highest quality service in their absence.

“Florida buyers are educated and understand the concept of hotel condominiums,” says Proctor. “You buy them like a condo with no restriction on usage. You pay 100 percent of the price and get 100 percent of the income,” made by leasing them out when the owner isn’t on the property, she adds. She often works with Miami agents who serve as translators for South American clients interested in purchasing Trump property.

Proctor adds that there is also a third-home market demographic on the rise, with those buyers being referred to as “splitters,” who split their time during their year among three residences. “This has grown to such an extent that we’ve even created a new demographic.”

So where are people searching for these second homes they are willing and able to purchase? The NAR estimates that 36 percent of buyers who purchased a second home bought a property that was more than 100 miles away from their primary residence. The distance is often much further when you look at buyers of Miami real estate, because so many buyers come from outside the country.

Stateside, the largest concentration of vacation home buyers are in the Midwest, which account for 33 percent of the vacation home sales, although the property might be located in another region. But most investment homebuyers are in the South— 38 percent of the total, according to the NAR. The association attributes much of the increase to the 77 million-strong Baby Boomer generation preparing a home for retirement or as an investment, which would continue to generate income once they are off the company payroll.

Many Realtors, including Casey Koslowski of Majestic Properties in Miami, concentrate on assisting international clients with purchasing second homes in the United States. Koslowski’s ability to speak Spanish and German are priceless in his work. In the seven years he’s been in real estate, Koslowski has seen nothing but growth in the number of international buyers.

The list of countries from which his clients originate changes from year to year based on a number of criteria, most related to finance. For instance, the Euro is strong right now so he has seen an influx of Germans, Italians and French in the market for property in the states this year.

“Even after Sept. 11, [the U.S.] is still an easy place for foreign nationals to buy property,” he says. “Getting full-time residency is a different matter, but buying property is easy.”

He says the process does involve a little more paperwork than a sale to an American, and there are some visa requirements, but overall the transaction is the same. The United States is an attractive market because many areas outside this country impose higher property taxes for foreign nationals, adds Koslowski.

When considering the purchase of a second home, certain issues need to be addressed early in the buying process, says Alan Kravets, president of Sheldon Good & Co. of Florida, who is also a Florida broker and a real estate attorney.

“They first have to establish whether the second home is for a vacation home or an investment,” says Kravets. “If it’s for a second home, the buyer would have the traditional deductions of interest and taxes. As an investment, they can also deduct all carrying costs like maintenance, condo association fees, housekeeping fee and get depreciation. But when you sell that investment property, there will be tax consequences relating to capital gains or ordinary income.”

Another major consideration in light of Hurricane Katrina, is insurance, especially if the client plans to purchase in Florida or the Gulf Coast, which will increase the condo price and the condo assessment. “Any buyer must investigate whether it’s available and whether the property is properly insured to protect the homeowner. Condo or home insurance, assuming it’s available, could go up 100 percent, and what does that do to your condo assessment?”

Encourage international clients to look at the tax laws in their own country, advises Kravets. Also, have them check on how long they can stay in the U.S. in a second home. Depending on the amount of time they intend to reside stateside, they could be subject to U.S. income tax liability of all their income, regardless of where in the world they earn it.

Generally, mortgage interest and property taxes are deductible for qualified second homes that are used as residences; however, owners could lose or limit these deductions if they rent the property.

“And mortgage rates and insurance premiums are often higher on second home purchases, especially if the home will be used as investment or rental property,” adds attorney and counselor Charles W. Murphy of Prohov & Associates, LTD. “If a buyer intends on renting out the home and the home is part of a condominium or homeowners’ association, a buyer should inquire about restrictions on renting.”

Because so much depends on how a second home is used, he suggests buyers should consult with a mortgage professional and tax advisor to gain an understanding of these issues. Likewise, agents and brokers need a strong grasp of the legal and financial issues that come with purchasing a second home, especially when working with international clients, who currently purchase about 15 percent of the homes in Florida, according to the NAR.

While the number of second-home buyers looking to purchase Florida is down at the moment, the right knowledge about mortgage rates, property taxes and second-home buyers’ specific needs can help you land the customers who still place a premium on sand and sun.


Casey Koslowski
Majestic Properties

Charles Murphy
Prohov & Associates

Debbie Jacobson
Rubloff Residential Properties

Alan Kravets
Sheldon Good & Co.

Tere Proctor
Director of Sales
Trump International
Hotel & Tower

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