Recreation & Retirement

The trend of second home buying for well-heeled homeowners is definitely worth noting, and there may be real opportunity for REALTORS® who serve areas with swimming, boating, golf and other recreational amenities to sell their clients second homes or vacation homes as their clients plan for retirement.

The trend was first officially noted by the National Association of REALTORS® who, for the first time this year, included second homes and vacations home in its bi-annual homebuying and selling survey, released two months ago.

According to the survey, vacation homes or second homes accounted for only 2% of home purchases in 1997, but with the Taxpayer Relief Act of 1997, those figures should be significantly higher for NAR's next survey, scheduled for compilation in 1999. The survey noted that baby boomers will drive the trend, using equity from a home sale to trade down to smaller, easier to maintain home, then purchase a trial vacation home.

NAR president, Layne Morrill, noted that tax policy now permits people to make purchase decisions based on their needs and desires rather than tax consequences.

The primary advantage for high-end and luxury real estate owners is that they can now sell their homes every two years and not pay capital gains on their homes up to $500,000. This enables a number of move-up buyers or empty nesters to sell their homes without the pressure of having to put all their capital gains back into another residence, opening the possibility of setting some money aside for a vacation home or second home.

Some empty nesters are downsizing to smaller homes and using the gains to purchase a second home for a retreat, with the plan of ultimately retiring to their vacation home permanently. Demographics show that many boomers and seniors are retiring early or with more disposable income than previous generations, and are in better health. These potential second home buyers want to take advantage of an 'active adult' lifestyle which includes sports and other recreational amenities.

Following this trend closely is Century 21, who has just completed a survey about people who are considering the purchase of a second home. The findings indicate that homeowners are primarily thinking of recreation and retirement.

'A second home provides much needed respite from the daily routine and the hustle and bustle of today’s busy world. Second home buyers are seeking a place to pursue a more active lifestyle, but more and more we are seeing the purchase is made with retirement in mind,' said Robert Moles, President & CEO, Century 21 Real Estate Corporation.

The survey results are that more buyers will look at recreation first, retirement second and investment third, that they will favor the Southeast and Northeast for their retirement location and that swimming, boating and golf will be the most popular pastimes.

Additional activities that respondents would like close to a second home included beaches, local parks and museums, mountains, hunting and horseback riding.

'Given the combination of demographics, aesthetic desires, tax changes and the growth of wealth, the vacation home market is poised for strong growth,' announced Morrill when the survey was first released. 'Anecdotally, we hear about a lot of areas where this is already happening.'

According to Robert Irwin, 30-year real estate veteran and author of Buy or Sell Real Estate After the 1997 Tax Act, 'the new capital gains tax will bend involvement in real estate both up and down as investors seek to take the best advantage of the new law.' Some high-end taxpayers may sell their residences whenever appreciation approaches the $500,000 limit.

Irwin cautions that the new tax code is very complex, and not to take any exclusions for granted. For properties held for five years or more after the year 2000 there will be additional rate changes.

Published: September 29, 1998