Is a Second-Home Investment Still a Good Idea?
Even with early summer predictions declaring the secondary-home surge at an end, the demand for second dwellings in Q2 of 2022 was still significantly above pre-pandemic levels. While the housing market as a whole has cooled (and is still cooling), the party is far from over.
Cash buyers have kept the market strong, creating the silver lining of substantially increased equity in resort locations. While the rest of the housing market relies on supply and demand, the secondary-home market follows the stock market. According to NAR’s REALTOR® Magazine, “we may see a resurgence in second-home demand when the stock market makes a comeback.â€
Remember in early 2020, when virtual employment opportunities and good portfolio gains paved the way to a second-home buying boom? Those two things happened together in an unprecedented way at that time, when quarantine was on everyone’s mind and uncertainty was a frightening reality. Vacation-home sales surged, and would continue aggressively upward for the following two years.
A Home Away From Home: It makes sense that a part-time home would be sought-after during a global pandemic, when offices are going remote and home-based jobs are preferable to commuting to a crowded work environment. What happens when you are free to work remotely? You are not bound to a particular area, city, town, or state (or country, for that matter). You can go where you want. And most people want to be surrounded by something other than cubicle farms, crowded parking structures, traffic lights, busy highways, and 8-5 hours. Why not go to the beach? How about the mountains? Get out of town. Highly favored areas near big cities attracted a rushing tide of investors and home-seekers in 2020, and drove the average home price up 50-80% in many metropolitan-adjacent communities. Investment-asset borrowers made up most of the cash-in-hand buyers who came prepared to outbid competitors’ offers.
Although the demand for secondary homes is down from the record-setting levels of 2020 and 2021, the remote work environment has gained momentum, and will likely never return to pre-pandemic levels.
Even if you only sporadically work remotely and a permanent relocation isn’t feasible due to sentimental attachments or family in the area, an escape to a second home can certainly be one way of coping.
But if having a secondary dwelling standing empty for long periods of time doesn’t make financial sense, the answer may be to consider the advantages of rental ownership.
Vacation Rentals as Income Properties: Investors have discovered that one of the best ways to enter the real estate business is through the vacation rental market. Success with income properties has soared with the growth in popularity of Airbnb and other such online-based booking sites focused on short-term rentals. Resort communities such as Big Bear Lake with ski slopes in the winter and lake activities in the summer can boast year-round high-occupancy rates, which is sure to attract potential buyers hoping for a consistent income flow.
If your intention is to run a vacation rental property as a business, you should have a solid management strategy, and do some thorough research. Taxes, facilities maintenance, housekeeping, marketing, and contingency plans are significant details to factor in. If you rent your vacation home at least two weeks per year it is considered a real estate business; the income is taxable – and many of the expenses can be written off.
Those keen to invest should do it now, before second-home loan fees have a chance to rise further, and talk of inflation forces more inventory off the market. The good news in all this is that competition is becoming less fierce, and in some areas home prices are falling.
If you are considering purchasing a fixed investment that will grow in value, provide income, and function as a second home for part of the year, contact Easterby & Associates/Keller Williams Big Bear-Lake Arrowhead for a consultation and receive expert advice for investing in Big Bear or Lake Arrowhead.
Once you own your rental property, be sure to visit Big Bear Experiences for Vacation Rental Management services. Big Bear Experiences helps property owners increase rental bookings, maximize profits, and enhance guest experience.
