2012 Second Home Buying Guide
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5 steps to buying a rental
property or weekend getaway
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Evaluate
your lifestyle and needs before buying a vacation or rental home.
One out of three homes sold
in 2009 was a vacation home or investment property, showing that demand for
second homes remains healthy despite a slow housing market. Reasons for buying
a second home vary, from recreation and vacation enjoyment to investment and
development to retirement planning.
With homebuyers enjoying an
advantage in many markets, now may be the time to buy that second home. Whether
you're dreaming of paradise like “Palmas del Mar” or profit, follow
these five steps for a smart investment:
·
Step 1: Decide if it's the right time to buy
·
Step 2: Know what to look for in a second home
·
Step 3: Explore financing options and negotiate with the seller
·
Step 4: Learn the tax ins and outs
·
Step 5: Research alternative ownership options
SECOND HOME FACTOIDS:
Median age of buyer: 46 (baby boomers own 57 percent of all second homes)
Median household income: $99,100
Median price of second home/nonprimary residence: $211,000
No. 1 reason for
buying: Family retrea
No. 2 reason: Future
primary residence
No. 1 location to buy:
The South
No. 2 location: The
West
Most popular type:
detached single-family homes, followed by
townhomes and
condominiums.
Most popular area:
suburbs, followed by small towns, urban
areas, resort and
vacation areas like Palmas del Mar,
Puerto Rico www.palmasmls.com
Source: National Association of Realtors
Step 1: Decide if it's the right time to buy.
Think through your plans
for a second property before you leap advice experts.
·
Assess your goals. It may come down to investment reasons, vacation enjoyment or a combination of both. Want a place
within driving distance for a retreat? Looking for a family vacation spot? A
jump on a retirement home? Read the bylaws before signing a purchase contract
and agreement, and make sure they allow you to rent the unit in short term
rentals.
·
Consider the market conditions, your personal finances and the
affordability of the property. Given the downturn in housing prices with many U.S. regions taking
hits, there are deals to be had, says Elder Lopez, from www.palmasmls.com a real estate broker in Puerto Rico, specializing in second
and luxury homes. "Use the right agent in the right city and if you do
your homework, you can find some phenomenal buys if guided with Elder Realty.
Don't plan to flip or sell the property within the next 12 to 24 months."
·
Focus on areas with steady appreciation rates. Don't bank on renting out
the home or having all your expenses covered, advises Elder Lopez, from Elder
Realty at Palmas del Mar Resort www.palmasmls.com . "Do look at a
second home as an investment and consider areas where homes are going to
appreciate." Palmas del Mar has great deal in short sales, foreclosures
and discounted new developments plus all the current local government
incentives like:
·
No Recording fees
·
No Property Taxes for five years
·
No Capital gain when you resell
·
No rental income tax
·
These incentives apply to new properties only and you must close before
June 30th 2011.
Palmas del Mar Resort with its new
renovated country club offer the best at low price, visit www.palmaspac.com for more details.
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Step 2: Know what to look for in a second home.
Once you have a good idea
of your goals around a second home, it comes down to homework and scouting for
the right property in the right location.
·
Try it out first.
When assessing location, particularly for a vacation home in an area you're not
familiar with, renting for at least
one stay is always a good first step. Carefully consider travel time and
expenses against how often you plan to use the home, real estate broker Elder
Lopez says. "How accessible is the property? With the price of gas today
and rising airfares, this is a big issue."
·
Talk to the locals.
Even if you've been vacationing in the same area for years, getting to know the
place from a local perspective is important before buying a home there. Talk to
residents and ask them what they like about the area, how it's changing, what
types of people are moving there and what it's like off-season.
·
Act like a local.
You should also visit the area yourself during each season to get a feel for
what it's like year round. While you're there, scope out restaurants, grocery
stores and entertainment. Does the area have enough of the things you like to
keep you interested? Also check out the school system www.palmasacademy.org ; even if you never plan
on your kids attending there, homes near great schools have more value.
·
Look at the comps.
To help gauge whether the property is a good investment, review other home
sales in the community to examine what the track record is on resale values of
similar properties, Elder says.
·
Know the rules of renting.
If you plan to rent the property, expect to do additional research. For
example, some communities ban weekly vacation rentals, allowing only for
monthly rentals. "It depends on the homeowners association and the law," Elder says. On the flip side, if you're craving a
quiet retreat, you may not want to vacation in a community with a lot of rental
turnover.
·
Work with an experienced agent like Elder Realty at www.palmasmls.com
A seasoned real estate agent can help you weigh your criteria and make all the
difference in a second home purchase. Try these tips for finding an agent or
broker:
o
Find an agent that knows the area and property values. "Select one
with at least five years minimum experience in that marketplace, preferably
more," Elder says.
o For extensive searches,
scouting in resort communities like Palmas del Mar or exploring alternatives, like Google search
engines, consider an agent with the Resort & Second Home Property
Specialist like Elder Realty who lives and operate inside Palmas del Mar
Resort.
o Beyond the sale, a good
agent will stay in contact and help you. This is particularly important for
homeowners who may not live near the property.
Step 3: Explore financing options and negotiate
with the seller.
In many ways, second home purchases are similar to the primary
home purchase. Elder Realty says putting 20 percent down or more is common for
second homes to avoid the expense of mortgage insurance and given today's tightened lending practices. "It's possible to
buy a true second home with 5 or 10 percent down, but it's tricky,"
says Elder Lopez (Resort & Second
Home Property Specialist), from Elder Realty at www.palmasmls.com When it comes to negotiating, second home sellers may
be more flexible than their primary-home counterparts. "Second home
sellers are often more flexible in price and terms of sale. They may want out
because they are overextended or their lifestyle has changed," Elder says.
To move the sale along,
buyers can request special terms of the seller. For example, as an incentive,
sellers might be willing to carry a short sale where buyer will paid less what
the payoff of the seller is. Elder says.
Consider these tips when
investigating your financing options:
·
·
For mortgage financing, use a local lender in the area you are buying,
avoid, mortgage broker, Elder says, because
its expertise and knowledge of the market can avoid problems later;
·
Stricter guidelines are involved in qualifying for a mortgage for an
investment property. Typically, borrowers pay a higher interest rate; but avoid
paying discount points or origination fees, also never accept prepayment penalty
fees, and pick your own insurance company not the one recommended by lender.
What out for predatory lending. Make sure they comply with federal laws.
·
If you do need the rental income to qualify for the loan, you may need a
minimum of 25 percent down, Elder says. Lenders tend to give credit for up to a
75 percent occupied rate;
·
Other forms of financing include tapping into your primary home's equity
line of credit, known as HELOCs. This way you avoid the financing in Puerto
Rico and it is cheaper because the closing costs and in most cases they can be
a write off from income taxes in the
states. (consult with your accountant first)
Step 4: Learn the tax ins and outs.
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Savvy tax planning can make
a difference in your return on the property. Tax implications for second homes
can vary significantly based on your financial situation and whether or not you
plan to rent out the property.
Keep these in mind when
figuring the impact on your taxes: ![]()
·
Consider property taxes, utilities, homeowners association and regin fees and other applicable
expenses. Palmas del Mar for example have two HOAs in most cases, Palmas
del Mar Home Onwers Association in General
and then each subdivision have its own HOA fees too.
·
Generally, the interest on the mortgage of your second home is tax
deductible, and rental properties are subject to additional tax breaks.
"If it's an investment property, then the deductions come in an array of
possibilities, including depreciation of the real estate itself and a separate,
accelerated depreciation of personal property such as furnishings," Elder
says. "Owners can use the property only for two weeks a year to get
certain tax benefits on rentals,”
·
If you rent out the home for 15 days or more during the year, you have
to report all rental receipts to the IRS as income or to Hacienda, but you can
also deduct operating expenses such as utilities, repairs, insurance and
management fees against that income.
·
Always consult with a tax professional or a specialist such as a
national qualified intermediary for tax-deferred exchanges before getting too
far into the second-home buying process.
·
Remember that if you purchase a new property before June 30th
2012 the government of Puerto Rico will waved the Capital Gain Tax, Rental
Income tax, Property Taxes in the next five years etc.
Step 5: Research alternative ownership options.
In addition to
single-family homes, townhomes and traditional condominiums, experts say to tread cautiously with alternative ownership forms of
vacation homes such as fractional ownership, vacation clubs, time shares and condo hotels.
Whether you're looking for
a home to spend your retirement days or an investment property to diversify
your portfolio, make sure you do your homework and work with the right experts
like Elder Lopez from www.palmasmls.com
For All your Investment
opportunities call Elder at 787-207-4255
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Limit of Liability/Disclaimer of Warranty: The
information and opinions expressed herein are presented with the understanding
that they do not represent any or all of the opinions of Elder Lopez or
www.Palmasmls.com member making this publication available to you. The
information contained herein is not intended to be a comprehensive discussion
of the strategies or concepts mentioned. Nor is any information or data
discussed intended as tax, investment or legal advice. In pursuing any concept
or idea presented, you should rely on your own due diligence and on your own
attorneys, accountants and other professionals to determine if such ideas or
concepts are appropriate for you. Although information herein has been obtained
from sources believed to be reliable, Elder Lopez and www.palmasmls.com , and
its local member do not guarantee its accuracy or completeness and accept no
liability for any direct or consequential losses arising from its use. Elder
Lopez and www.Palmasmls.com and its local member assumes no responsibility for
any errors, omission or damages arising from use of information contained
herein