NEW YORK (MainStreet) – Buying a vacation home is not just for soon-to-be-retirees. Younger buyers, too, are now looking to the second home market as a real estate investment opportunity and in some cases buying a vacation home first before their primary residence.
“A large number of Millennials are coming into the market,” said Carl Shepard, co-founder of HomeAway, the parent site that operates vacation rental sites VRBO.com and VacationRentals.com.
The National Association of Realtors (NAR) finds that the average age of a vacation home buyers dropped to 43, compared to 61 years from over a decade ago in 2003 when the organization first started collecting data for its annual Investment and Vacation Home Buyers Survey.
“Vacation home buying is spread among all the age categories,” said Jessica Lautz, director of survey research and communication at NAR, who added that every age group was taking advantage of the lower interest rates for buying into the second home market.
HomeAway’s Shepard says young adults in their late 20s and 30s are buying a second home these days as part of a wealth-building activity.
“We never intended to do a vacation rental,” said 28-year-old Whitney Wigren, who purchased a log cabin homestead located ten miles outside of Anchorage, Alaska with her husband. “My sister started doing a vacation rental, and then we saw how profitable it was.”
Wigren said she had never meant for their homestead property with scenic glacier views to be a vacation home rental until she was activated back into the U.S. Air Force from her civilian job as an FBI intel analyst. The couple moved out of their cabin and listed the property for rent.
“When we were renting it out, too many opportunities came up because it’s a log cabin and very Alaska-like,” said Wigren, who rents the two-bedroom cabin at $209 per night on VRBO.
The Alaska native boasts a 94% occupancy rate and credits her property’s popularity to being featured on what she calls “cheesy” Alaska shows on the History Channel and Discovery Channel.
“We’ll probably never live in it,” laments Wigren, who moved into a three-bedroom house in Anchorage last year with her husband Kevin, 28, to start a family.
Wigren said that the property turns a hefty revenue stream, amassing over $52,000 gross revenue annually over the $22,000 operating costs — easily paying off the mortgage inside of a couple years.”For the average family, investing in the second home, is a good place to put your money,” said Shari Olefson, director of the Carnegie Group and author of Foreclosure Nation (Prometheus, 2009). “People still perceive real estate as a lot safer than the stock market.”
Vacation homes sales boomed in 2014 above their most peak level in 2006, representing 21% of all home purchasing transaction last year, according to NAR’s most recent Investment and Vacation Home Buyers Survey released in April. The survey found that the price of vacation home fell by 11% since 2013, selling at a median price of $150,000.
“Most people who buy them rent them out part of the time and use them part of the time, ” Olefson said. “Most are not covering all their income and expenses, but it’s helping to subsidize [their vacation home].”
Some younger vacation home buyers who reside in expensive cities are purchasing a vacation home in lieu of a primary residence.
HomeAway’s Shepard, a father of two adult children aged 25 and 30 who live in San Francisco, is encouraging his kids to invest in the vacation home market instead of primary residence.The median home values in San Francisco is one the nation’s highest at around $1 million, according to real estate database company Zillow.com.
“San Francisco is so out of reach for the average person, but Big Sur isn’t and certain parts of Sonoma,” Shepard said. “The notion of buying your second home first is a wealth building activity.”
Shephard says roughly half of its users cover 75% of the mortgage through vacation rentals.
“If you get in the right places, then you can cover the entire mortgage – especially if you’re in a place like Sonoma,” Shepard said. “I’ve been personally fascinated that the Catskills are coming up again in real estate sales.”
In the Catskills, listings for the New York mountain resort area have grown 56% on VRBO.com and 24% on HomeAway.com over the last five years. There has been tremendous growth in second home sales in Sonoma — roughly a 90-minute drive from San Francisco. Listings in Sonoma have soared by 66% on VRBO.com and 46% on HomeAway.com since 2009.