Best of both worlds…but with only one home

    When things were nice and flush in the stock market, some people bought a vacation place that we intended to use as a permanent second home during retirement.  With their investments throwing off anywhere from a conservative 5% to 12% returns, they could follow the advice of the worldly philosopher Alfred E. Neuman, who famously said, “What, me worry?”
     But quicker than you can say “Lehman Brothers,” those days ended.  Today, two homes seem like a luxury to those buffeted by stock portfolio and 401K losses.  And although we have regained some of our stock market losses, and prices of vacation homes may have plummeted to Y2K levels, the market chaos of the last few years and the financial frailty of many planned developments are still fresh in our minds, making us skittish about additional real estate investments.
    Yet, as another philosopher, Woody Allen, once said, “The heart wants what the heart wants.”  Therefore, as we retool our expectations and plans, we contemplate if there is a way for us to get as much pleasure (and flexibility) out of one retirement home as we intended out of two, and without spending all the inheritance our kids expect.
     One of our dedicated readers, Mike Tower, and his wife Sandy have found a way to have it all, without risk.  Mike explains below:

    Over the past several decades it seemed that, for many, the American dream retirement would include two residences -- perhaps even more for the ultra wealthy -- that would permit enjoyment of ideal weather year-round.   The few perfect-climate locations – think Rancho Santa Fe in California, for example – have always been well beyond the reach of any but the wealthiest.  For the rest, the two-home solution split the difference between summers up north and winters down south.  The prime benefit of second-home ownership is that you always do have a place to go to seasonally.  If your primary home is in New England, for example, a winter place in Florida is a great escape from the burdens of shoveling your driveway or suffering intermittent power outages.  
    Yet with the recession of the last five years, people are shelving their plans for two homes in retirement.  Second-home ownership ties up significant amounts of capital, including for maintenance, mortgage interest (if you finance the purchase), homeowner association fees, and utilities.  And never forget that you are paying taxes and other costs for both your primary and vacation homes, even when you are not using one or the other.

Owners, renters and intersecting interests

    Another consideration is the location you choose.  Your second home might be in your dream place today, but will it always be?  During the irrational exuberance of the late ‘90s and early ‘00s, it was easy to think of these properties as investments because their values were a straight line up.  Now many of them are challenged by the escalating costs associated with amenities that seemed much more easily sustainable just six years ago.   What once seemed a sure thing now feels like speculation to many of us.
    Over the past few years, we have seen a confluence of those who own second homes and need to generate some income from them, and those who are reluctant to make an investment in vacation home ownership.   The result is a brisk vacation rental market, fueled especially by the creation of many Internet sites that specialize in helping connect renters with owners or property managers.
    There are too many sites to list here, but they include such popular addresses as www.homeaway.com, or www.vrbo.com (the latter an anagram for “vacation rental by owner”).  Both sites specialize in properties of just about every type throughout the world.  The sites are easy to navigate; you can literally just pick a spot on a map and focus on that area, nearby towns and even local neighborhoods.

Tips for a successful renting experience

    Our own experience leads us to offer the following advice about online renting:  

• Make sure the owners show lots of pictures of every room and every view.  If they don’t show you a picture of the master bath or views from the home, they may very well have a good reason.  If you like the pictures, ask the owner when they were taken.  I prefer those sites that actually show a 360-degree rotating picture of every room and view.  You may choose, of course, to rely on local rental/property managers, but in most cases you will pay a lot for the middleman role these folks provide.
• If you prefer features such as HDTV, ask if they have it.  You will find dozens of listings that will suit you, so don’t be shy about your specific interests.  
• Ask the owner for the address of the property; then access Google or Bing maps that show you the exterior view of the home and the surrounding neighborhood.  This is one way to ensure that, for example, a “golf course view” is truly that.  
• Try to find renters who will accept payment by credit card; it is a lot easier to dispute a credit card charge than if you paid by personal check, although many of the rental websites offer protection against owner fraud (best to stick to those sites).  
• If you really want to play it safe, do what we have done on some trips: Arrive in the area in which you intend to rent, check into a hotel, and then spend two or three days driving by the places you researched on the Internet.
• If you are renting in a private golf community with the intention of playing the golf course, make sure the owner of the home you rent has playing privileges that are transferable to you for the duration of your stay.  Ask about any restrictions, and about how you pay for things like meals and other extras (many private clubs do not accept credit cards or cash; they bill members directly).  We have stayed in golf communities in which all I could do was look at the golf course, like the kid outside the candy shop.

How to live in South Carolina…and Paris, Greece, Australia

    One of the big bonuses to renting rather than owning a vacation home is that you can select a different destination location every year.  My wife and I have rented in three different locations in the Palm Springs area of California and two in Florida for three months each winter over the past five years.  In all cases we were very satisfied with the property we selected.  We enjoy the process of deciding each year where we want to go next and then spending a few weeks looking through all the sites for options.  For us, it really has enhanced our ability to deeply explore local cultures.
    I have a friend who is planning to retire in the next two years.  He and his wife have a vacation home in South Carolina and are going to shed their primary home and use SC as their base.  They are planning to spend a couple of months each year renting apartments in places like France, Greece, Ireland and Australia, as well as New York, Boston and Chicago.  They think they can fetch about $600,000 for the home they have owned in New England for 20 years and which is fully paid for.  They plan to “bank” the proceeds and use the earned interest to finance their overseas stays.  For the equivalent of a modest 2% interest, or $12,000, they believe they can squeeze out two months in, say, Paris, where comfortable apartments are currently renting for about $5,000 per month.  That is a fine financial alternative to owning a second home, and they will have the extra opportunities to explore other places in-depth, instead of the standard “appetizer tour.”
    The real bonus today is the housing market slump or, as I like to think of it, a perfect example of speculation gone awry.  It is simply amazing to see the number of homes and condos for rent (or sale) in all the most popular seasonal destinations.  Pick your dream location and prepare to see an amazing array of residences for rent at incredibly low prices.

$2 million home for less than $90 per night

    Last winter we rented a beautiful new 4,000 sq. ft. penthouse condo right on the beach in Destin, FL, that sold new in 2007 for just under $2 million.  We were there from January through March.  Our total cost to rent, including taxes, came out to less than $90 per day. Admittedly it was the off-season for this area, but the winters there are very mild with no crowds.  This same condo in the summer rents for $3,000 per week.  
    Next year we are considering going back to Destin for the same time frame, and I just found a two-year old 24th floor penthouse with amazing views.  I contacted the owner via email and asked for his best price.  He quoted me $4,995 all-inclusive for the three months.  That turns out to be around $55 per night.
    The final piece of advice is that you have to remember that for now -- and likely for the next few years -- it is an absolute renters’ (and buyers') market.  There are far more properties for rent than there are renters.  For that reason I suggest that you wait until you are closer to your desired travel dates before you negotiate a rental; an un-rented residence, after all, is like an empty airplane seat.  I always tell the property owner that we are a married couple in our mid-60s , non-smokers and with no pets.  I also tell them that we are interested in their property if they can make the offer as attractive as possible.  So far nobody has been offended, and they have always reduced their prices.
    This strategy to rent rather than buy a vacation home obviously is not for everyone.  But for my wife and me, this is the way we will “own” our second home for the foreseeable future.
Happy travels,
Mike Tower

Mike Tower was born and raised in the Indianapolis area, was graduated from Indiana University (BS degree) and Purdue (MS) and spent the majority of his career with Indianapolis-based pharmaceutical maker Eli Lilly Company.  Mike and his childhood sweetheart, Sandy, have been married for 46 years and have a son and two grandchildren.  The Towers have lived for five years at Champion Hills in Hendersonville, NC, where Mike claims he may be “the worst 10 handicap golfer ever.”  Of course, there are millions of golfers who would love to make that same claim.