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Permanent vacation

If you’re seeking a second home, follow these tips to get the best property at the best price.

By Elizabeth Gehrman
June 27, 2010

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Vacationers, beware: It’s that time of year when you’re most susceptible. You spend a week at a rustic camp in Maine or a few days in a cozy Cape Cod cottage, and – intoxicated by the sound of kids splashing at the dock, the heady scent of saltwater, the luscious taste of lobster rolls and soft-serve ice cream from the corner clam shack – the next thing you know you’re putting a down payment on the place next door. But what do you need to consider when purchasing a vacation home, and where are the top bargains right now?

Know When and Where to Buy

If you’re lucky enough to be able to purchase a second home, the generally depressed real estate market and historically low interest rates beckon. According to the National Association of Realtors’ Investment and Vacation Home Buyers Survey, released in March, the peak of vacation home buying occurred in 2006, with about 1.5 million properties sold nationwide. By 2008, the number of vacation homes transferred was less than half that. And when demand decreases, prices typically follow. The market does appear to be on the upswing: Last year, the number of vacation homes sold nationwide increased by almost 8 percent, to 553,000 from 513,000 in 2008, and the median sale price rose from $150,000 in 2008 to $169,000 in 2009. But that’s still down almost 17 percent from a high median sale price of $204,100 in 2004, and some very desirable New England locations have excellent news for buyers right now.

In Maine, for example, statewide prices for all homes have declined almost 16 percent, from a median of $194,000 in 2007 to $164,000 in 2009. In New Hampshire, the drop was about 22 percent, with Belknap County – which encompasses Lakes Region cities and towns like Laconia, Gilford, and Belmont – declining by 27 percent.

In Newport, Rhode Island, according to realtor Paul Leys of Gustave White Sotheby’s International Realty, a modest wharf-area condo might now go for as low as the upper $300,000s. “That wouldn’t be waterfront,” he says, “but it might be water view.”

And on Cape Cod, prices are down about 20 percent since 2005 – slightly more than the state as a whole, but that number depends in part on where you’re looking to buy. Mid-Cape seems to be the best bargain. “We are selling condos for prices that have not existed since 2000,” says Joyce Bearse, a realtor with Kinlin Grover in Yarmouth Port. That’s because the condo market has taken a bigger hit than the single-family market and inventory is high across the board. “Right now, there are 224 listings in Dennis and Yarmouth for under $300,000. If I had done that search six years ago, it would have been two or three.” Bearse points out that prices may dip even lower now that the federal tax credit has expired, reducing demand, and as homes in foreclosure continue to come on to the market. “Even people at the high end can now afford a property they never could afford before,” she adds. “Now, instead of $1.5 million, that same property might be $1.2.” Even prices in Provincetown, with its easy access by fast ferry to Boston and its cosmopolitan feel, may surprise you. Century 21 Shoreland broker Rick Tourgee, for example, says he has a 1,300-square-foot two-bedroom-plus-den listed in a condo development called Seashore Park for $329,000.

“We don’t know when the bottom is until it starts going back up,” says Tom Kelly, the Seattle-based author of How a Second Home Can Be Your Best Investment, “but this appears to be close to the bottom.”

Analyze Your Needs

According to the National Association of Realtors survey, almost a third of buyers begin their vacation-home hunt by searching Internet sites like lakehouse.com, escapehomes.com, and homeawayrealestate.com. While 20 percent of buyers find their primary home through a friend, relative, or neighbor, or by driving by and seeing a sign in the yard, 28 percent of those looking for a vacation home get their most productive leads this way, suggesting that the idea of buying first enters people’s minds while they’re actually on vacation.

As you weigh the notion of taking on a second home, be sure you’d rather spend time in the same location every year than visit different destinations. “If you buy,” says Tony Giacalone of Tony’s Realty in East Boston, who owns a second home in Palm Springs, California, “you’re not just going on vacation. It gives you a chance to build up community someplace else. It gives you a new set of neighbors and a new set of activities, and gives your kids a whole new group of summer friends.” If you decide that’s for you, consider these points:

> Get to know your desired location before you buy. “If you’ve never been to Maine but you want to buy a place here,” says Tom Ferent of Mr. Lakefront Keller Williams Realty in South Casco, Maine, “well, we’ve got a big state. I always say come spend some time, because it’s a big investment.”

> Determine how you plan to use the property and how long you’ll hold on to it. “Families with kids buy a ski home and think they will come up every weekend to ski,” says Peter Tucker of Tucker Real Estate in Stowe, Vermont. “But when the kids become teenagers, they may have different interests. Hockey is a good example. If you’ve got to be on the rink at 6 a.m. on Saturdays, it’s tough to come up for the weekend.”

> Decide whether you’ll want your vacation home to eventually become your full-time retirement home. It could help determine the features you look for, such as a first-floor master bedroom.

> Finally, consider whether you might want or need to rent out your place to help with costs. If so, study the rental market, going rates, and issues such as advertising options and cleaning services available in the area.

Compromise to Save Money

The best way to save money on a vacation property in New England is by giving up one or two items on your wish list, starting, perhaps, with location. The mid-Cape, for example, has better deals than the lower, or outer, Cape, in part because it contains a broader range of properties. Bearse says a heated 900-square-foot two-bedroom ranch within a mile of the beach might go for less than $300,000. “And you can buy those small places, 450 or 500 square feet, for under $200,000,” she says. “Or if it’s half of a duplex, you could get 500 or 600 square feet for maybe $150,000. Just a place to hang your hat.” It won’t be a sprawling family compound, but with the right layout, 450 square feet can comfortably sleep four or five people.

In the Berkshires, Lenox, Stockbridge, Great Barrington, and Egremont are more expensive than, say, Lee or Becket. “Becket’s still an easy commute” from Boston, says Beth VanNess, broker/owner of Gile Real Estate in Becket, “and it’s close to Tanglewood and all the other cultural amenities of the Berkshires.”

In New Hampshire, Whitefield, for example, is less expensive than towns like Lincoln, where Loon Mountain is located, and Laconia. Whitefield is farther north but still just a short drive to the slopes, and it offers beautiful views, cute shops, decent restaurants, and fewer crowds. Even a small distance from your first choice can make a price difference. A recent Craigslist search on “Winnipesaukee cottage,” for example, yielded a 450-square-foot place with stunning water views about 2½ miles from hot spot Weirs Beach for just $169,900. True, if you paid $80,000 or $100,000 more, you could probably just fall out of bed and onto Weirs – but what’s a short bike ride when you’re on vacation?

Scrutinize the Property

Once you’ve pinpointed a community you can afford, it’s time to fine-tune that wish list. Yes, you’ll likely have to compromise, but Ferent recommends looking for these criteria in a vacation home:

> A knockout view. “As you get older, you’re not as active on the water,” Ferent points out. “If an older person can get in an Adirondack chair and look at the sunset over the mountains, that’s really important.”

> A level lot. This kind of property – or, for lakeside homes, a sandy beach with gradual entry – appeals to a broader market than one with a steep slope.

> Proximity to the water. This can be a two-edged sword. In Maine, for example, all new construction has to be 100 feet back from the water – but, as Ferent points out, “you can’t watch the kids from the deck if you’re 100 feet back,” which might make an older home more appealing. Then again, in certain areas – near the open ocean and on river-fed (as opposed to spring-fed) lakes – being closer to the water may present flood hazards, so you need to inquire about special insurance before making your move.

> Privacy. Ferent contends that for a single-family home, about 100 feet of water frontage is needed for real privacy. “It really kills the atmosphere when you’re sitting on your deck and your next-door neighbor flushes his toilet,” he says. “If it’s 50 feet and the neighbors are on top of you, you’re going to have to really like people.” For some buyers, of course, living closer to neighbors is part of the fun; if you’re one of them, you might want to consider a cottage community or condo rather than a stand-alone house.

Ferent recommends that all the buyers involved – usually a committed couple, but sometimes two or three friends or relatives – take separate notes as they visit properties, ranking each of, say, five attributes on a 10-point scale. “I say, ‘Don’t share, but each of you come up with your top three,’ ” he says. “Often the husband and wife don’t agree on what they like,” but will have enough pluses in common to come to a decision.

Consider the Finances Carefully

By now everyone knows it’s tougher to get a mortgage than it was a few years ago, and for vacation homes it’s even worse. “You can buy a primary house for as little as 3 percent down,” says David Brennan, senior vice president for residential and consumer lending at Cape Cod Five Cents Savings Bank in Orleans. “But for an owner-occupied vacation home – that is, one you’re not planning to rent out – you’d need at least 15 percent down.” And you’ll need at least 20 percent down if you think you’ll get any income from rentals or if you need a jumbo loan, which in Barnstable County, for example, is $462,500 or greater and on Nantucket and the Vineyard, $729,750.

“What I’m hearing, at least here in Cape Cod, is that more people are paying cash simply because there are no investment opportunities,” Brennan says. “Money market funds are paying nothing; the stock market’s up and down. I’m hearing from realtors that people are saying, ‘I might as well take the money out of my portfolio and pay cash or put down a very large down payment.’ ”

If you don’t have a sizable amount to put down, you might find a seller who is willing to carry part of your mortgage for a fixed period, allowing you to ask a smaller amount from the bank. “There are a lot of older people who’ve held these properties for a long time and are looking for consistent income in their retirement,” says Kelly. “You can make a lower down payment, and their qualifying standards won’t be as stringent as the bank’s.”

When figuring out how much you can afford, remember that your carrying cost, or the amount you’ll pay monthly, includes not only your mortgage, taxes, and insurance, but also maintenance, which can include unexpected surprises during the seasons you’re not watching over the place, and any extra insurance you may need because of the location – that flood insurance, for example, or additional homeowner’s insurance because your place is in a remote location far from a fire station or hydrant.

Go With Your Gut

While some realtors recommend taking your time to buy – after all, this is a discretionary purchase – just as many say you should grab the place you want when you see it. “I can’t tell you how many people say, ‘That first house was perfect for our needs, but we felt like we shouldn’t make an offer because we hadn’t done our due diligence,’ ” says Ferent. “And then they regret not making an offer because someone else buys it.”

To avoid longing for the one that got away, Ferent recommends being ready to take the leap once you do know what it is you’re looking for. “If it’s in your gut that you like the place and it’s in your price range, take it,” he says. “If you don’t, and someone else does, you’ll feel awful, and then on the rebound you might buy too quick. I’ll tell you how you know: If I call you in a week and tell you it’s sold, will you be sick?”

Elizabeth Gehrman, a freelance writer in East Boston, is a frequent contributor to the Globe Magazine. Send comments to magazine@globe.com.