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Investing in second homes

Posted Oct 23 2008 6:19pm

Baby Boomers are still seeking a second, third or even a fourth home for investment purposes.

And despite talk of an impending break in the housing market bubble, those who own or want to own a second home are steadfast in their decision.

House1_1 In 2004, nearly 23 percent of all homes purchased were for investment purposes, while 13 percent were purchased for vacation use.  And between 2003 and 2004, there was a 16.3 percent increase in second-home purchases.

“A number of people who are buying second homes for investment purposes are disenchanted with the stock market,” said Dolores Conway, an associate professor at the University of Southern California Marshall School of Business. “And some of the creative financing has made it easier for people to get into second homes.”

Zero-percent-down home loans and relatively low interest rates have contributed to the popularity of owning a second home.  Cash-laden Baby Boomers are yet another reason why second-home sales are strong despite an otherwise flat-lined economy.

Many boomers are coming to a point in their lives where sinking more money into mutual funds and 401(k)s isn't as appealing as owning something tangible.  Such is the case for John Dorio, 44, who recently plunked down $1.25 million to buy a 3,000-square-foot home on the water in Lake Arrowhead.

“I don't want to sound materialistic, but it's nice to have something tangible after working so hard for years and years,” said Dorio, a mortgage broker from Orange County. “I also did it for the investment. Meaning, it's something the kids will be able to use in the future.”

Baby Boomers are prime candidates for 1031s because many already own second properties.  And if they don't now, Realtors are confident they will in the next decade.  When Baby Boomers start retiring, we're going to see the largest amount of money spent in the history of our economy.

Source: The Day Publishing Co. October 21, 2005

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