How to buy a vacation home

Creativity and extra flexibility can help you have your own private retreat
Joyanna Laughlin

You've dreamed about it: a vacation cabin or cottage where you can get away, spend time with family and friends, and fully explore the relaxed outdoor lifestyle that the West is all about. Think you can't afford that second home? You can ― with some creative planning.

We talked with three families who shared their strategies for making a vacation home a reality ― from buying with friends or choosing fractional ownership to finding the next frontier of second-home communities. Now may be the time to invest in a vacation home: In certain parts of the West, the housing market cooled in 2006. This means there's a number of houses out there, and it may be a buyers' market.

STRATEGY 1: BUY WITH FRIENDS

What do you do when you're avid skiers, tired of renting condos, and can't afford to buy a chalet on your own? For husband and wife Yee Lee and Jami Milton, the answer was to go in on a house with their ski buddies. In 2003, Yee and Jami, their married friends Keith and Susan, and their single friend Matt bought a two-story, four-bedroom, three-bath home in the North Lake Tahoe area (which straddles California's eastern and Nevada's western state line) for $510,000. All five homeowners are professionals or entrepreneurs in their early to mid-30s, as well as skiers and snow enthusiasts. The two couples live in California's Bay Area, while Matt lives in Boston. Yee and Jami, who have a 6-month-old named Hamilton, are the first in the group to have children.

With three bedrooms and a family room on the upper level, and one bedroom and another family room on the lower level, the 1,400-square-foot house is laid out perfectly for multiple owners. "We wanted a house where everyone could be there at the same time," Yee says.

Before they started house shopping, the five friends drafted a tenancy-in-common agreement and developed criteria for the home they wanted, including size, price range, and location. They did most of their house hunting online, communicated often via email, and split up duties. Yee researched Tahoe real estate and narrowed the search to Tahoe City and Dollar Point; Matt and Keith worked with the realtor and gathered information and inspection data on properties; and all three evaluated the financial aspects of the deal.

Yee says that one reason this multiple ownership arrangement worked out so well is that the owners had common interests (skiing and home ownership) and had known each other for years but were able to remain impartial about the purchase. Group decisions are made by majority vote.

Tips for owning with friends

Buy with those you trust Choose investment partners you can trust to take good care of your vacation home. One clue: how well they care for their primary home.

Match interests and lifestyles Family-focused or party animal? Make sure you enjoy spending time with your partners, especially if you're going to be using the house at the same time.

Get it in writing Draft a tenancy-in-common agreement to handle every possible contingency (such as what to do if one partner wants to sell). Have each partner sign off on it before you shop for houses.

 

STRATEGY 2: FIND THE NEXT FRONTIER

For Jon Kessler and Laura Gottsman, the idea of driving for hours on crowded freeways to get from their home in San Carlos, California, to a vacation house was unappealing. And prices of homes in nearby vacation areas were out of reach. In addition, the couple, who are both 39 and the cofounders of an employee benefits company, have three children ― 8-year-old Juliana, 5-year-old Molly, and 2-year-old Teddy ― and they wanted to vacation in a safe, kid-friendly community.

In 2005, the family purchased a 3,100-square-foot home on an acre of land in Comox, British Columbia, for $325,000 (in U.S. dollars). Located on Vancouver Island 150 miles north of Victoria, Comox is a coastal town of 12,000 residents that has year-round recreation, including skiing, fishing, and golf. It's the kind of place where Jon and Laura feel it's safe to let their kids ride bikes to the alpaca farm down the street. To get to Comox, the family flies into a regional airport and then drives the last few miles.

"Having a vacation home that we fly to instead of drive to makes it a weeklong ― not a weekend ― destination for us," Laura says. Yet she still considers it a smart decision because of the home's relative affordability. The family discovered Comox while on vacation and did much of their research online. While researching financing, Jon and Laura found variable-rate mortgages in Canada attractive because monthly payments don't change when interest rates change, unlike adjustable-rate mortgages, the U.S. equivalent. Down payments of 25 percent or higher have generally been the norm in Canada, and the couple pulled equity out of their first house to cover that. To pay the mortgage, they opened a Canadian bank account into which they deposit money every six months, eliminating the need to check exchange rates.

Tips for buying off the beaten path

Forgo impulse shopping Don't compromise on what you want, and don't buy in a hurry. Visit your potential vacation hometown at different times of the year if possible.

Read up on foreign affairs If you're considering a second home outside the United States, research the home-buying process in your desired country. Find a local bank in the region where you want to buy and talk to someone knowledgeable about real-estate transactions. Let them walk you through the process.

Rent it out Even in a less well-known area, your vacation home can earn its keep. Find creative ways to market your property. Make it stand out from the competition, and you may bring in enough rental income to pay the mortgage.

 

STRATEGY 3: CONSIDER FRACTIONAL OWNERSHIP

For more than 10 years, Steve and Toni Nielsen have owned a vacation cabin in McCall, Idaho, a lakeside town of 2,500 residents about 2½ hours north of their home in Boise. With ski slopes and fly-fishing beckoning, Steve, a computer systems consultant, and Toni, regional president of a bank, got tired of spending their vacations on cabin maintenance.

In 2006, the couple (who are each 44) bought a 2,000-square-foot, fractional-ownership vacation home at Hearthstone, a community in McCall, for around $125,000. They pay homeowners' dues of $1,250 a quarter for taxes, maintenance, and capital improvements. Unlike time-shares, fractional ownership allows Steve and Toni to own a one-eighth deeded share in their home, and their share appreciates with the market, although perhaps not as quickly as a traditional home does.

According to Verna Vanis, resort guide and sales manager at Hearthstone, time-shares are typically purchased in lieu of spending rental dollars, while fractional ownership is generally an investment made instead of buying a second home. The one-eighth share translates to six weeks of use per year. Scheduling is handled equitably through a reservation system, and the couple can schedule unlimited additional time on a "space available" basis.

Happy with their purchase, Steve and Toni have put their original cabin up for rent and plan to use the rental income to cover both its mortgage and the Hearthstone home's annual expenses. One of their favorite features at Hearthstone is the concierge service, which includes grocery shopping for homeowners and on-site storage.

Tips for fractional ownership

Research pros and cons Understand what you get (and don't get) for your money. And if you're planning on renting or selling your share, research the rental and resale market.

Be flexible When sharing a home, realize there are times you won't get to use the house during the specific weeks you want.

Look for perks Buy in a location where you can take advantage of "space available" opportunities. Research owners' benefits ― an excellent concierge service is a plus. For example, the Nielsens say they get an extra half-day on every stay because the concierge does chores, like getting supplies and packing up.