As my husband and I sipped our glasses of Guinness and warmed ourselves by the peat fire in Golden's Pub in County Cork, Ireland, I felt I had found a place where I could be very happy. Always the romantic, I pictured us buying a whitewashed cottage on the coast, where I would write my novel, we could bicycle to the pub, and on stormy nights, we could listen to the ocean break on the cliffs from our chintz covered chairs by the fire.
Thank goodness I am married to a pragmatist. He pointed out all the negatives ““ high cost of airfares, need for an on-sight overseer, tax implications ““ and reminded me that I had said much the same thing when we had fallen in love with a restored farmhouse in the South of France.
The novel would need to be an international best seller to finance the romance.
The first lesson in buying a vacation property: Never buy with your rose coloured glasses on.
But purchases of vacation properties are on the increase, and the investment can be both profitable and practical. We owned a ski chalet in upstate New York that gave us ten years of great winter adventure and family fun. When the kids left for university and my husband couldn't ski anymore, we sold the property for a nice profit ““ a winning investment all around.
And who says you can't buy dreams? Not Christie's or Sotheby's.
“Many of our clients are finding little return on investment in the stock market and are instead recognizing the intrinsic value in purchasing and enjoying a home,” says Jeff Hyland, of Christie's International Real Estate. Experts from Christie's auction house, which witnessed continued interest from clients worldwide in 2012, corroborate this trend toward non-consumable asset acquisitions.
Paul Provost, Deputy Chairman, Christie's, stated: “Although the art and real estate markets are different, high-value art and property purchases are both about passion and investment. The two markets are converging to a degree, as people increasingly seek to diversify and acquire assets of lasting intrinsic value.”
A vacation property, if wisely acquired, can provide a vibrant lifestyle while performing as a good, though often long term, growth investment.
Why buy instead of rent?
Renting a vacation property has so few strings and if you don't enjoy the experience, you can move on to another. That freedom is desirable, but there are drawbacks. The location of your rental may be great, but the décor may not be your favourite. The sheets may be synthetic, the kitchen may not be equipped in the style you are accustomed to, and you won't have the chance to build up long term relationships with your neighbours. And that rental money? ““ Gone.
Owning a vacation property certainly comes with responsibilities, risk and obligations, but it also provides a familiar and customized location, a sense of community and an investment that is generally reliable and rewarding. It may well become the centre of your family's leisure life, a place where good times are abundant. Cottages, chalets and beach villas often become a hub for inter-generational vacation timeJohnny Davies at Vallarta Coast Realty and one of the best respected realtors in Puerto Vallarta, Mexico, had this to say: “Why should you buy instead of rent? Because you'll get a good stable return on your investment, particularly right now when the prices for vacation properties are low. It may well be a long term investment, but it will go up. No one can manufacture more beachfront space or lakefront acreage. And people who live in the colder climates will always want to come to warm places like Puerto Vallarta. That's not going to change, and will just increase with an aging population. You are never going to lose on property in the long term, unless the world falls apart entirely.”
“Property is the number one thing.”
Davies seems to be right on the money. Vacation-home sales were up 4.7 per cent in the US in 2011, for example, to a new record of $1.07 million, according to the National Association of Realtors (NAR).
Who is Buying?
Davies' most recent clients were a couple from the US Midwest, in their late forties, who flew to PV to buy property. They were looking for a place that would be their eventual retirement vacation home, one that could be rented for part of each year to carry most of the costs in the meantime, and they would use it for family vacation getaways in shoulder season. They settled on a two bedroom condo near the beach, at a price that Johnny described as “˜phenomenal'.
The couple is typical of vacation property buyers, though the demographic has shifted. In 2011, according to the NAR, “second-home buyers had a median age of 44, down from 52 a year before, suggesting that the market has shifted hands to a new generation, one that has time to wait out market volatility.”
Where to Buy
Whether it is a cottage, a ski chalet or a beach house, a vacation property becomes an important anchor for family vacations and a place where memories are made. That's why such places are so desired. But that desire drives up prices and some areas are just too costly for most of us. The best strategy is to find the hot spot where you want to be, and then research the nearby areas that have yet to escalate in price.
Muskoka cottages fronting on Lake Muskoka, Lake Joseph or Lake Rousseau are usually priced in the millions. Instead of a lakefront cottage on Lake Muskoka for $4,985,000, look at nearby Baby Lake where you can pick up a three bedroom shorefront cottage for $539,000. A slopeside ski chalet in Collingwood commands top dollar, but properties a bit farther out can be good investments, while offering many of the same advantages.
There are serious vacation property bargains in the US and Mexico right now.
Puerto Vallarta is one of the safest places in Mexico, sits on the beautiful Bay of Banderas and offers miles of white sandy beaches, a layered and beautiful culture and excellent cuisine. It's cradled by the Sierra Madre Mountains and boasts three hundred and forty days of sunshine.
According to Davies, “You can pick up a beachfront property in the $300,000 range, and I don't think you can do that anywhere else in the world.”
Florida, Arizona and Nevada in the US are good bets for bargains and it appears as if the prices have bottomed out.
Tuscany has long been a favourite place to buy property, especially since Frances Mayes' book, Under The Tuscan Sun, appeared, but the prices have escalated beyond reach. A smart place to look if Italy attracts you is Puglia in the southeast of the country, not as “˜discovered' but possessing many of same delights.
Provence is crazy expensive since Peter Mayle's A Year In Provence, but property in the Dordogne can still be within reach.
Apartments in the South of Spain are now more affordable, with an overage of properties on the market. But the smart money is looking at the undiscovered gems, like Croatia, Albania, or Czech Republic.
Before You Buy
No investment should be undertaken lightly. Buying property in another country comes with a whole set of rules, problems and risks, and it is important that any buyer educates himself thoroughly before committing to a purchase. Even domestic purchases of vacation properties have pros and cons that need investigation. Should you consider fractional ownership? Are there tax implications? What are the carrying and maintenance costs?
Find a good agent, do your homework and take a realistic look at the financial implications.
And had we bought that cottage in Ireland, today it could be worth more than we paid for it, I would have written my blockbuster novel and we'd be negotiating the movie rights.
Either that or we could have spent too much time in the pub and sold at a loss. Depends on whether you're a Romantic or a Pragmatist, I suppose. Either way, it's an interesting proposition.
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