DEL.ICIO.USCOVER STORY
How to swing that second homeFor the Journal-Constitution
Published on: 04/06/08
Preparing to buy a second home is much like planning that perfect vacation. It takes research, setting a budget and envisioning days spent in the mountains, along the coast or in another country.
With today's market, buying a vacation property might be more affordable than you think.
 Steve and Rochelle Lewis | ||
| Steve and Rochelle Lewis built a log home on 1.3 acres about 13 miles from Gatlinburg, Tenn. It's rented out about 210 days a year.people [writing] in the guest book, 'We never left this place,'' he said. | ||
 Christopher Oquendo/Special | ||
| The Wilsons used proceeds from the sale of another second home to buy a commanding view in Toccoa. | ||
 Christopher Oquendo/Special | ||
| Freddie and Barbara Wilson found a getaway on the golf course in Currahee Club, a Toccoa community near Lake Hartwell. | ||
 Chris Hornaday | ||
| Three hundred Tuscan-themed homes make up Montaluce Winery and Estates, a Dahlonega community with 35 acres of vineyards. | ||
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Second-home owners and mortgage brokers shared tips for making it work.
FINDING FINANCING
Tim Ash, president and chief operating officer of Stephens Federal Bank — which has offices in Toccoa, Clayton, Hiawassee and Cleveland — and Angie Bennett, a mortgage loan officer with BB&T Mortgage in Dahlonega, offered their thoughts on the current market and financing.
Q: What's the environment like now for second-home buyers?
Ash: Right now is probably not a bad time to look at one. We may see that, as things get a little tighter in the next few months, [buyers] might find someone who really needs to sell. There are some distressed sellers out there.
Bennett: Real estate is still a very, very strong investment. In Dahlonega, property values continue to appreciate.
Q: How do they show they can afford the home purchase?
Ash: The market is a little bit stricter than it's been in recent years. If you're going to try to finance a second home, you need to demonstrate an income stream that would readily support that.
The guideline for residential debt is somewhere in 25 [percent to] 30 percent of income range on a monthly basis. If they have a good reserve in their bank accounts or stock portfolio, they can draw upon it if they need to.
Bennett: You don't want to overextend yourself. A second home is a luxury.
Q: What stage are most of the buyers you work with in?
Ash: A lot of these borrowers who are really interested in doing a second home are pretty affluent or financially savvy. They would have other factors offsetting pure debt ratio. They may have considerable liquid assets. They may only owe a small amount on their first home.
Q: What other factors should people consider?
Ash: You've got to be prepared for the higher level of expenses ... two sets — utility bills, property taxes, etc. They have to find someone to maintain the yard, those kinds of things that just add up. Make sure you have discretionary income. You won't enjoy your second home if you're a slave to it.
Q: What should they consider if they're planning to retire to their second home?
Ash: That's a pretty common scenario where we are. A lot of those folks may want to do an adjustable rate mortgage set for a certain period of time – a 3- or 5-year window. It minimizes the interest rate, if they're planning on selling a primary home in a 3- to 5-year period. It allows them to pay the loan down or off.
Q: What's another strategy?
Ash: If they don't owe a lot on a primary home, they can refinance that and get cash out because the rates may be a little better for primary residence. Use that as a financing vehicle for a second home, or a chunk of it.
Bennett: You can pull the equity from a home equity line out of a primary residence to use for whatever you want. If you want to use that as your down payment for the second home, that's easily done.
Q: What should they know about buying a second home?
Ash: Once they buy it, they've bought it. They better really like where it is, really like the town, really like the area it's located in. It may not sell quickly if they grow tired of it.
BUYER SPOTLIGHT: CURRAHEE CLUB
Owners: Dr. Freddie and Barbara Wilson
What: Five-bedroom, 41/2-bath home on the fourth hole in the 800-home Toccoa community, which is near Lake Hartwell. Homes are $695,000 to more than $1.8 million; home sites range from the high $100,000s to more than $700,000.
When purchased: August 2007. The couple initially planned to build a home, but changed their minds when they found a spec home they loved.
How far from their primary home: About one hour and 15 minutes from Greenville, S.C. They grew up in Atlanta, which is about 90 miles away, and have children and grandchildren in the metro area.
How often they're there: Typically every week. They come up on Thursday and return on Sunday evening or Monday morning.
How they financed it: The couple sold their house in The Cliffs at Glassy, in South Carolina, to buy the home in Currahee Club, so they do not have a mortgage.
Advice for affording a second home: Remember the extra expenses involved, Barbara said. Currahee Club association fees are $1,300 annually, and homeowners report electric bills averaging $100-$150 a month and gas and water expenses averaging $125 a month. "It's just double utilities, double taxes, everything. You have to furnish it. So I guess you just wait until you're old enough to afford it," Barbara said. "We were just fortunate that we had sold our home at The Cliffs and were able to purchase it without going into debt, which is good."
BUYER SPOTLIGHT: MONTALUCE
Owners: Bill and Gina Frisbey
What: Three-bedroom, 3 1/2-bath cottage at Montaluce Winery and Estates, a 400-acre Dahlonega community with 300 Tuscan-style homes and 35 acres of vineyards. Lots range from the $70,000s to mid-$600,000s, cottages from the mid-$300,000s to high $400,000s, and villas from the high $700,000s to more than $1.3 million. Their 2,000-square-foot home has details including 15-inch-thick stucco walls and an imported barrel tile roof from Italy. In the kitchen, there are a Wolf range and a SubZero refrigerator. The master bedroom has a walk-in shower and claw foot tub. Two porches overlook the vineyard, and there's a gazebo and a courtyard with a stone fireplace.
When purchased: They just closed last week. Their primary residence is a 24-acre farm in Hiawassee. "We enjoy food and wine, and this is just a very sophisticated Italian neighborhood with a lot of just regular kind of folks," said Bill, who is a real estate broker.
Rental or not? The couple are planning to rent the home, which sleeps six. In fact, a wedding is already booked there. "We love the Italian architecture and the quality of the homes, and we thought, 'Well, this would be someplace that someone would want to rent,'" Bill said. He expects it will command average rental rates of about $350 a night. They plan to use the home a couple of weekends a month.
Financial strategy: The couple, who have owned other second homes, are financing about 25 percent of the home. Even with that, Bill advises that people shouldn't expect rental income to pay the entire mortgage and expenses. "You should be able to make your mortgage payments and cover your expenses if you've never rented it a day. If you can do that, you'll come out way ahead," he said. "You've got to say, 'This is something we want to do as a long-term investment in real estate. By renting it, we can defer some of the expenses, certainly not all of them,' " Bill said. "The most important thing is I'm going to enjoy my investment."
RENTAL POTENTIAL
Owners: Steve and Rochelle Lewis
What: Log home on 1.3 acres, located about 13 miles from Gatlinburg, Tenn.
Moved in: Fall 2006
Distance from primary home: About 210 miles from DeKalb County.
Past experience: Steve and his wife previously owned cabins but were looking to build a second home. The proceeds from other homes paid for the Tennessee cabin.
The process: "We kind of stumbled on a piece of land that overlooked the Smoky Mountains," Steve said. With a sketch on a piece of paper that resembled a home he saw in a magazine, Steve worked with Russell Bryant, owner of Greenbrier Builders, to build the $315,000 home, which came in $75 under budget. "He really guided me along. I've never built a house before. It really came out nice," Steve said. The home has about 3,200 feet of finished space. Steve said his favorite detail is the size of the rooms, with a 16-by-16 kitchen, 25-foot master bedroom and 25-foot great room. "I'm getting itchy to build another one."
Counting on the income? Rental proceeds may help cover utilities, insurance and taxes, but they're not going to bring in a ton of money, Steve said. "All I want to do is pay the bills," he said. The rental potential in that area of Tennessee, with the mountain views, attractions such as Dollywood and location near other vacation spots such as Asheville, N.C., means the cabin is usually booked 210 days a year. His average nightly rate is $205, which is split 60-40 with Fontaine Cabin Rentals, which also provides supplies and maintenance for the property. "People say, '40 percent, that's a lot.' Yes and no," he said. When a windstorm blew down two pine trees, the company helped clean up his property before he could get there. "I couldn't have done that [from Atlanta]." He said the company gives him the confidence that it will keep an eye on his cabin.
Why it's rentable: It has a view, for starters. "You've got to have some kind of view of something. So many people up there make the mistake of buying cabins that have no view. Trees are pretty but ... you can be in trees in Atlanta," he said. "I want to see mountains; I don't want to see a thousand other cabins." Other outdoor amenities include a hot tub. Inside, there's a pool table, gaming system and DVD player. "We get a lot of people [writing] in the guest book, 'We never left this place,'" he said.
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