mortgage

2nd-home market offers bargains

You many also have a better chance of scoring a bargain by shopping for older homes.

Some people shopping for vacation homes may be tempted to consider condominiums. A potential buyer should be aware of the special dangers in this market.

It can be difficult to differentiate one condo from another. This means the shopper needs to look more deeply to make sure the building is healthy, especially in today's deteriorating housing market.

Right now, many condos bought as vacation homes are foreclosing because the owners had no intention of using the units as anything other than rental properties. With no commitment to the property, these owners are more likely to walk away from their mortgage commitments.

Also, many condominium communities are experiencing and epidemic of owners who have stopped making their monthly maintenance payments. In such cases, the remaining owners often must dig into their own pockets to make up for any shortfall.  

"The condo market is a complete disaster because of the amount of inventory out there with all the overbuilding that came to the market late," Newman says. "The first market to come back will be the single-family detached house."

Weigh the value of amenities. Ask yourself how important amenities -- golf courses, swimming pools, spas -- or design features are to you.

Amenities and extras are an emotional part of the purchase. It's important to put a tangible dollar value on those emotions.

If you are especially fond of an amenity or feature, figure that into your calculations. In some cases, two appealing homes may be similarly priced. If only one of the homes has a prized amenity, buying that home means you are essentially getting the amenity for free.

Remember that many important extras can be found in the neighborhood surrounding the home.

"When people buy a property, they are really buying four walls and a roof," Twisdale says. "The view, bike trails, great arts, kid-friendly environments, the distance to the ocean and other amenities establish its value."

At the same time, don't overestimate the importance of amenities and extras. A lot of older properties don't have as many amenities, but are better products. Meanwhile, some newer properties are overloaded with extras.

Amenities can turn into a detriment in some cases -- such as when large numbers of people walk away from their homes and stop paying country club dues in an area with many golf courses. 

The last thing anybody needs is a home on a golf course that's gone out of business.

"Then your house won't be worth anything," Boomsma says.

When weighing amenities and features, try to avoid paying extra for something you don't want or need.

"It's only a deal if it's something you want," Boomsma says. "If you buy something that has put way more into finishes than you would have chosen, then you're not getting much of a deal."

Factor in the new tax law.  Finally, be aware that new tax laws went into effect Jan. 1 that make owning a second home less attractive.

Capital gains on the sale of a principal residence are eligible for an exclusion of up to $500,000 for married couples and $250,000 for singles. However, second homes converted to a primary residence no longer get the full exclusion, even if the seller meets the two-year-ownership-and-use test.

The capital gain subject to taxes, called the non-qualified use, will now be based on a ratio factoring the amount of time it was a vacation or rental property after 2008 divided by the years of total ownership, according to Sara Turner, a tax research specialist at the National Association of Tax Professionals.

For instance, if you own a second home for a total of 12 years, make it your main residence in 2012 and sell it two years later, the three years between 2009 and 2012 are the "non-qualified use" period. So, 25 percent of the gain will be taxed, with the rest qualifying for the full home-sale exclusion of up to $500,000.

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