Second Home Purchases for Investment are on the Rise

A National Association of Realtors' (NAR) study of second home purchases recently revealed a wave of new speculators in the real estate market. With investment home sales making up 23% of the real estate market, homebuyers are turning to real estate more and more as a vehicle for financial investment to diversify their portfolios. According to NAR's chief economist, David Lereah, "Given the size of the market, we can assume that many individual owners have more than one investment property." NAR's subsequent e-mail survey supports these initial findings revealing that 21% of second homes are occupied by renters and not by owners.

While vacation homes comprise 13% of the second home market, there are some key demographic differences between the homebuyers that purchase for investment purposes versus vacation homes. Most second home purchasers fall within the Baby Boomer generation with investment purchasers having a median age of 47 and earnings of $85,700 and vacation home-buyers having a median age of 55 with earnings of $71,000. Thirty-eight percent of the survey participants indicated that they would probably buy another home within the next two years (with 47% for investment and 16% vacation). Since Baby Boomers are still peaking in their earning years and second home properties are still consistently appreciating —12.8% for vacation and 25.4% for investment — according to the NAR, it is likely that second-home sales will remain high over the next 10 years.