National Real Estate market and how does that affect us here in Summit County, Colorado?

Question: Allison, We’re considering buying an investment condo in Frisco and wonder what the National Association of Realtors has to say about the National Real Estate market and how does that affect us here in Summit County, Colorado?

Answer: If you’re worried about investing in a sluggish real estate market, relax. Recent reports indicate housing is on the rebound. Last week the National Association of Realtors® reported that, “The Pending Home Sales Index (PHSI), a forward-looking indicator based on contracts signed in August, jumped 7.4%…and is 8.8 percent higher than August 2007.”

- Pending home sales are up strongly in vacation home-heavy areas like Arizona and Florida.
- The PHSI jumped 18.4% in August. It’s now 37.8% above what it was a year ago.
- Home prices are projected to increase 2 to 3% next year.

According to Lawrence Yun, NAR chief economist: “Home buyers in July were hampered by overly stringent lending criteria in the months before the government takeover of Fannie and Freddie,” he said. “August shows some unleashing of pent-up demand before the credit crisis accelerated in September.”

“If you’re anxious about your ROI, these statistics should put your mind at ease,” notes Christin Karpinski. “But always remember to think of real estate as a long-term investment. It doesn’t really matter whether the market starts picking up steam right away. Your home will appreciate slowly over the years, and that’s all that really matters.”

If you choose to rent your property out, you can use your rental income to offset your mortgage. (And then some!) Karpinski is a huge proponent of renting by owner (rather than using a property management company). Rent it out only seventeen weeks out of the year and your new vacation home could pay for itself. When your monthly mortgage payment is less than or equal to one peak week rental, twelve weeks of rental will cover your mortgage payments for the entire year. Other costs, including bills for your phone, power, cable, and association dues, may be paid out of your earnings from approximately five off-week rentals.

“Most owners tell me that their average weekly rate is around $1,500 to $1,600 and that their property is rented out twenty weeks or more per year,” says Karpinski. “Do the math and you’ll see that that comes out to around $30,000 or more in rental revenue each year. And here’s something interesting: While most people admit that the cost savings is the primary reason they rent by owner, they often add that the sense of control it gives them is equally important. They feel they can take better care of their property than anyone else and like to know who is renting their homes.”

It’s never been easier to market rental properties. Websites like HomeAway.com have made it easy and inexpensive for homeowners to list their properties. Plus, says Karpinski, as more and more people realize the benefits of staying in vacation homes rather than hotels, the pool of potential guests grows by leaps and bounds.

“There are lots of markets for renting vacation homes besides the usual leisure traveler,” notes Karpinski. “Business travelers are one example. If you’re a homeowner, you can approach local businesses and invite them to have clients and associates stay at your vacation home instead of at a hotel. Just make sure your house is properly equipped and you might find yourself with a self-replenishing stream of guests.”

If you’re rushing out the door to head to the bank right now, Karpinski doesn’t blame you. (She owns several vacation homes herself and knows what a fantastic investment they can be.) But she does want you to temper your enthusiasm with a word or two of caution.

“It’s not as easy to get a mortgage as it once was,” she warns. “But if you have strong credit, you can find a lender who’ll work with you. Also, don’t rush into a decision. You may be thinking, ‘Well, if I do this before the end of the year, I can get a nice tax write-off.’ That’s true. But it’s more important to take your time, make sure the property is right for you, and make sure the rent-by-owner lifestyle is right for you. It’s not for everyone-but if you know what you’re getting into, you may well decide it’s the best financial decision you could make.”