In 2007, is it better to build or buy a vacation home? (Please Read Details - No "point snatchers")?

Question

I am looking in to purchasing raw land on a lake with the plans to build a log cabin for a vacation property.

However, with the requirement for 50% down on land loans and the current housing market (buyers market) and interest rate plus the fact that the down payment can be as low as 10%, I wonder if it is more cost effective to buy a used cabin on a lake. I am thinking of renting out the property (new or used) to weekly vacationers while I am away in order to help offset the additional mortgage. I am looking for some advice from someone who has expereince in vacation rental property.

Point snatchers: Please don't waste my time with your simple "build" or "buy" opinion - that doesn't help. Tell me WHY.

Answer 1

That is such a great idea. I love Log Cabins and we are thinking about building one too, we are just waiting until Hurrican Season here is over.

I am a Realtor in SW Florida since 15 years and i deal quiet some with vacation homes. As a Realtor i would tell you pick one of the newer existing homes, because it will be ready to rent out in no time. You can remodell and modify the existing home and make it your style in your own time and in your own budget - you can do it piece by piece. Everytime you get there in your vacation you can try to start and finish one project. You are not loosing any tenants by doing that.

If you can find an existing log home in a location you like and a style which works for you - i would say that would be the most efficient way to go. Specially if you plan to rent it out.

As a privat person (not from Realtor stand point) i would probably like to build. Find my "dream location" and my "dream floorplan" and do it from scratch.

Answer 2

If you've always had a dream vacation home in mind and can afford to build, then build. It may be your chance to design and develope your own viewpoint architecturally. But recognize that building takes time and means that you cannot look at the place as rental income for at least 2 years.
An option to save for building is to put a mobile home (like a cool airstream) on the land and build in sections. You can rent the airstream, especially if you market to artists and cool folks.
If you buy, you could use it as rental right away, usually. You'll need someone to manage, unless you're close by. (Renters can be heck on property.)
But if you go that route, you can pay the property off sooner, be saddled with less mortgage quicker and then consider saving to build your dream home.
Once again, either way, rental properties are a lot of work. You either need to be in the area so you can check it each time a tenant leaves or hire a manager, and that cuts into your profits.

Answer 3

If you are strapped for cash you need to buy one already built. You won't get a construction loan if you don't own the land outright before building.

Also, you need to keep in mind that you can't claim the house as vacation property (second home) if you rent it out. You have to get an investment loan and lots of insurance, as well as pay additional property tax to the county it is in, to make it a vacation rental. Unless you can keep it rented all of the time (like at Lake Tahoe) it is better financially to just claim it as a second home and not rent it out.

Answer 4

buy but delay

all indicators are that the mortgage mess will get tougher before it'll get better and thus prices should become depressed (or depressed further) in another 6 to 18 months.

you'll know the time is right when the price of existing property falls below the replacement cost [after accounting for a decline in land costs, too.].


GL