Buy Now, Retire Later
Kerry Hannon, 06.08.11, 06:00 PM EDT
Forbes Magazine dated June 27, 2011
If you’ve got cash, pick up a future resort retreat now at a bargain price.
Dazzled by the price and the view, Linda and Patrick Gallagher scooped up their Virgin Islands villa years before his retirement.
This past February Linda and Patrick Gallagher fell in love with the dazzling Caribbean view from a two-bedroom villa perched on the hillside above St. John’s Cruz Bay in the U.S. Virgin Islands. They scooped up the property, which had been listed for as much as $1.495 million, for only $960,000–all in cash.
The Katonah, N.Y. couple bought the villa, called Perelandra, as a future retirement home. While Linda, 57, retired last year from her job as a school librarian, Patrick, 60, plans to work a few more years as chief financial officer at the public relations firm Robinson Lerer & Montgomery. “The price was the impetus to buy now,” Linda says. “We had vacationed there several times, so we knew the island and had been looking for over a year. We realized that if we waited, and prices came back up, we wouldn’t be able to do it. So we sold stock and bought. It felt like paradise.”
The Gallaghers aren’t alone. The housing crash is grim news for those who need to sell their homes to retire. But it’s also an opportunity for well-off boomers to buy marked-down properties in attractive resort areas they want to move to–or at least spend more time in–once they dial back their working hours.
According to the 2011 National Association of Realtors Investment and Vacation Home Buyers Survey, vacation-home buyers in 2010 had an average age of 49, and 34% planned to use the property as a primary residence sometime in the future. If you’re looking to pick up a bargain retirement home now, here are some pointers.
Prices are near a bottom
Last year the median sales price of vacation homes was $150,000, down 11% from $169,000 in 2009, according to the NAR survey. Mark Zandi, chief economist with Moody’s ( MCO – news – people ) Analytics, predicts that housing prices will drop another 5% this year before hitting bottom at year’s end. But the timing will vary by market. Florida retirement spots, including Fort Lauderdale, Cape Coral and Naples, aren’t expected to bottom until 2012, reports Moody’s housing analyst Celia Chen. But other popular second-home locales, including Bend, Ore.; Coeur d’Alene, Idaho; San Luis Obispo, Calif.; Flagstaff, Ariz.; and St. George, Utah should see the bottom this year–meaning now is the time to start looking.
Cash is king
Nearly 40% of vacation home buyers paid cash in 2010, up from 29% in 2009, according to the Realtors. Forget about buying with 10% down; among second-home buyers who took mortgages, the median down payment was 32%.
Since getting a mortgage for a second home is now a slow and iffy process, a buyer ready to pay cash is likely to snag a better deal. “This is the greatest time ever for the cash buyer,” crows real estate attorney Adam Leitman Bailey, author of Finding The Uncommon Deal: A Top New York Lawyer Explains How to Buy a Home for the Lowest Possible Price (Wiley, 2011). It’s not just the prospects of getting a bargain that motivates cash buyers. Says Bailey: “My clients figure they’re not making money in the bond market. They don’t trust the stock market, and the interest is so low on their bank accounts it’s not worth keeping cash there. So they are floating money into real estate.”