It's important for the real estate industry to understand what motivates homebuyers and sellers which is why the National Association of Realtors has worked hard in recent years to understand the differences between types of homeowners, including those who buy more than one property. To help its members obtain more insight into clients and their needs, and thereby improve their services to those clients, NAR has heavily researched the phenomenon of second-home owners.

According to the preface of the 2006 National Association of Realtors Profile of Second-Home Owners, second-home owners are defined as those who "own one or more residential properties, in addition to a primary residence, and who use these properties either for vacation or investment purposes. Although both types of properties share several attributes, vacation homes are properties owned primarily for recreational use by the owner or their family, while investment properties are owned primarily to rent to others."

Ownership of more than one home is increasingly common, notes NAR, due to peak earnings of the baby boomer segment of the population, less-than-stellar returns in other financial assets other than real estate, and popular tax incentives (including capital gains exclusions) and loan programs that favor buying property over other investment instruments. For example, between 2000 and 2005, the value of homes nationwide rose over 50 percent, while the Standard & Poor's 500 Index returned just over 2 percent for the same period, says NAR.

Older baby boomers dominate the second-home market as vacation-home owners (age 59) and investors (age 55) and most own multiple properties. About six in ten survey respondents own two or more homes in addition to their primary residence.

Observes David Lereah, NAR's chief economist, "Boomers believe in diversifying their assets, and most second-home owners see their purchase as being a better investment than stocks. A surprising majority of survey respondents hold multiple properties, and they are interested in purchasing additional homes."

While the U.S. Census Bureau data shows there are 6.8 million vacation homes in the United States and 37.4 million investment units in addition to 74.6 million owner-occupied units, the line appears to be blurring between how owners define themselves:

• Twenty-one percent of vacation-home owners own two or more vacation homes. In addition, 34 percent of vacation-home owners report they own two or more investment properties. Lifestyle figures prominently in their choices with half of vacation homes located in resort areas near water or sports features. Distance is about 220 miles; most owners say they drive to their vacation homes. Most homes were in the $300,000 range, less than the value of their primary residence.

• More than half of investment property owners, 53 percent, own two or more investment homes and 12 percent own two or more vacation homes.

Financial gain is the motivator, with most rental properties chosen to generate income and within easy access -- 10 miles. Most homes were in the $200,000 range, lower than the investor's primary residence.

"We've always known that a certain segment has invested heavily in the rental market, and some people earn their living simply by holding and managing investment property. What we see now is a crossover between largely vacation- and investment-home owners, with people recognizing the value of those investments and pouring more assets into real estate," says Tom Stevens, president of NAR.

Since 2003, two-thirds of second homes have been purchased through a real estate agent, while over four out of five primary homes are purchased using an agent. Thirty-two percent of all vacation-home owners and 24 percent of investment owners paid cash for their property. Combined with mortgages that have been paid-off, 82 percent of vacation homes and 75 percent of investment properties are owned free and clear.

Of owners who purchased with a mortgage, the median downpayment on a vacation home was 27 percent and the median downpayment for an investment home was 23 percent. When asked about the source of downpayment funds for more recent vacation-home owners with loans, who purchased since 2003, half said savings, 23 percent from the sale of other real estate, and 19 percent identified equity or sales proceeds from their primary residence.

For more recent investment owners who purchased with mortgages, half said downpayment funds came from savings, 28 percent from equity or sales proceeds of their primary residence, and 18 percent from the sale of other real estate.

Surprisingly, considering that one in three buyers in 2004 and many more were second-home buyers in 2005, that the most recent property was purchased a median of six years ago. Most second-home buyers have held additional properties for longer periods.

Some believe investors are fleeing the marketplace, that may apply to speculators, but not for buy-and-hold investors. Thirty-five percent of all investment-home owners said they were planning to buy another home within two years. For those who currently own four or more investment units, 64 percent said they planned to buy another property within two years, and 17 percent said they planned to purchase five or more additional properties. Under a third said they planned to sell a property within the next two years.

Published: May 15, 2006

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