6 tips for buying a vacation home

June 17, 2014
Author: The Orange County Register (Santa Ana, Calif.), Marilyn Kalfus.

When Taylor Billington and her husband, Gary, set their goals 10 years ago, one of the items they included on their "vision board" was a vacation home.

It was more than an idle fantasy. The Fort Lauderdale homeowners, who own a marketing firm, had traveled to Orange County many times, and they had a clear idea of what they were seeking.

"The house had to have a water view," Taylor Billington said. "It had to be Zen. It had to be modern. It had to have a very organic feel."

Earlier this year, they took the plunge, spending $2.9 million on a three-bedroom, 3,800-square-foot home overlooking the Pacific Ocean in Laguna Beach, where they'll celebrate July 4th.

The home, perched on the edge of a canyon, beckoned with its fluid decks and an abundance of windows, as well as an infinity edge swimming pool and spa. The couple isn't crazy about Laguna Beach's summer traffic, but it did not come as a surprise. And it wasn't a deal-breaker.

"We just don't hate it as bad as here," Taylor Billington said of the congestion on South Coast Highway, in an interview from her Florida home, "because the (Laguna) views are so amazing."

The Billingtons followed one of the top rules that real estate agents cite about buying a second home: Make sure you know the area well first. Not just the draw. The drawbacks, too.

"Many people vacation somewhere, have a great time, then decide to buy something on a whim," said Phil Malamatenios, Stanfield Group manager at Hom Sotheby's International Realty in Orange County. It's "not a good idea without researching thoroughly."

Vacation home sales surged in 2013, the latest year available, according to the National Association of Realtors. They made up 13 percent of all residential transactions last year, the highest market share since before the housing crash in 2006.

If you're on the market for a vacation home, here are some additional issues to consider, as laid out by agents and others knowledgeable about Southern California real estate:

Beware joint ventures

Ideally, one person or family will buy and use the home.

"If you involve friends or family members in a joint venture, be cautious and have an attorney to draft a partnership agreement," said Phil Immel of ImmelTeam Luxury Real Estate in Dana Point. "Human nature changes business and family relationships. Divorce or financial change of circumstances over the years can get messy."

If there's more than one party involved, he advised, have a buyout agreement in advance.

Also, you would have to figure out who signs the loan documents. Some or all of the partners? The fewer involved, he said, the better.

He explained it this way: If two separate parties were on the documents, they'd be jointly – and separately – liable for the payments.

"If (you're) not on the loan, the lender cannot use that against you" in evaluating whether you can afford other properties, Immel said. "However, you can count it as an asset, improving your creditworthiness overall."

Consider renting it out

If you're buying in a beach town and thinking of renting the home when you're not there, get close to the water. Walking distance is most in demand, said Larry Aguilar of First Team Real Estate.

Aguilar is in the midst of closing a deal on a Balboa Peninsula condo for a client whose primary home is in Yorba Linda.

On the peninsula, Aguilar said, "You can make in the summer months what most people make in the whole year on a month-to-month rent somewhere else."

"I own a lot of rental properties inland," he said, adding, "Why don't I buy something over there (near the ocean), and I can almost double or triple my income on rentals?"

If you are considering becoming a seasonal landlord somewhere, make sure you are clear on any rental restrictions, either by the city or a homeowners association.

Figure on extra costs

Think about how you would handle the business of rentals, including whether to hire a management company.

"Along the same lines, if you do not plan to do all of the work on the rental yourself, you need to consider having a team of people who can do repairs and manage the condition of the property as well," said Christine Donovan, a real estate broker and attorney at DonovanBlatt Realty in Costa Mesa. "These all add up to additional costs of owning the home."

Even if you don't share your getaway with tenants, remember to factor in such costs as utilities, maintenance and landscaping.

Make it a stress-free trip

Many people prefer a relatively short trek to their second home, so buying something that's between a 45-minute and a couple-of-hours' drive from your primary residence can be a good idea.

Larry Aguilar's Yorba Linda client is 56-year-old Hemant Agrawal. The Balboa Peninsula condo is his first vacation home. The search, Agrawal said, was a relative snap.

"It was much simpler than had it been for someone who's not aware of what they need," he said. "We were already clear we wanted to be as close to the water as we can."

He also saw no need to travel far.

"Sometimes you just want to get away just to take a break," said Agrawal, who works in the software industry and is married with two grown children in their 20s. The kids like the peninsula's summertime vibe, busier than their quiet, inland neighborhood, he noted.

"They wanted to be someplace where there's some action."

Pick the right beach

Buying a house along the beach brings its own set of decisions.

"Do they want a busy beach or quiet beach?" asks Ken Ross of Surterre Properties, who sells oceanfront houses along a strip of Capistrano Beach where the homeowners also own the sand.

"Do they want to be closer or further away from the water?" he said. "In Orange County the water could be anywhere from 50 feet away to 500 feet away."

And size doesn't matter as much as it might in another area, according to Ross.

"Do they really need a bigger home?" he said. "When at the beach, they are outside 80 percent-plus of the time."

Don't isolate yourself

If it's isolation you're after, that's fine. But be aware of the financial implications. Agents say that being an outlier can limit a vacation home's resale potential.

"A remote location could be a hard resale, as most people don't want to be remote," Donavan said. They typically want to be near such amenities as restaurants and shopping, she said.

Gloria Jewell of Teles Properties, who sold the Billingtons their Laguna Beach house, agreed.

"Although a remote area does appeal to a few, the masses will prefer a destination resort for a vacation home," she said. "Anywhere in a resort area – whether it's golf, ocean, skiing (or) desert – will sell quicker."

Above all, don't let your vacation bliss lead you into a bad decision that could be with you for years.

"Purchasing a vacation home is such an emotional purchase," Ross said, "that I have seen very smart people make decisions they would not do in any other circumstance."