The Vacation Home Market is picking up as bargain hunters use their good credit and existing equity and cash to buy great houses at fantastic prices:
Bargain hunters are sniffing out the best deals in parts of the country where the underlying economics are good but prices have fallen or look like they could fall from their height in 2005.
The most popular hunting grounds are those areas where there are lots of second homes, including Sante Fe, N.M., the Outer Banks of North Carolina, Cape Cod and Nantucket-Martha’s Vineyard in Massachusetts, and California’s Napa Valley. Prices in these areas actually haven’t fallen much, but the abundance of inventory on the market suggests that sellers may have to concede and cut prices if they want to sell soon.
In Miami and Las Vegas, where the problems stem from over building, prices are about 64 percent higher than they were in December 2002 when the run up began in earnest, according to Radar Logic. In Los Angeles, where tighter lending after the subprime mess has made getting financing difficult for some buyers, prices are 57 percent ahead.
At the height of the real estate boom, an investor could flip a house at a profit in as little as three months in many areas. Now the odds are stacked against a quick turnaround, experts say, and buyers should plan to hold onto properties for at least three to five years.
“I think to be an investor like this you’ve got to have a pretty strong stomach,” says Jonathan Miller, chief executive of Miller Samuel, an appraisal firm.
Source: The Wall Street Journal, Christina S.N. Lewis (03/07/08)
Plus, the IRS has recently ruled that 1031 exchanges can be done on vacation properties:
The Internal Revenue Service recently issued a Revenue Procedure ruling that spells out how vacation properties can qualify for 1031 exchanges, which involve the exchange of investment properties.
The guidance aims to clear up the debate about whether vacation homes are investment or personal use properties. The ruling states that the property must be held by the taxpayer for 24 months. The holding period is broken into 12-month blocks, and during each the property must be rented at the fair market rate for no less than 14 days.
Additionally, the owner can use the property for 14 days or 10 percent of the days rented, whichever is greater, plus a “reasonable” number of days devoted to maintenance tasks. Because it is a safe harbor ruling, experts say failing to comply with all the rules does not mean the exchange will be denied or an audit will automatically occur.
However, they underscore the importance of keeping good records of the property’s rental history and the dates the property was occupied by the owner for maintenance.
Source: Realty Times, Gary Gorman (03/06/08)
