The Entrust Experience
As summer returns each year I am reminded of the opening line from the famous Gershwin song, "Summertime, and the livin' is easy…" A local publication, The Philadelphia Magazine, adopted the "summer livin' is easy" theme for a recent article. They did an in-depth report on shore homes in their article titled, "How to Buy a Shore House Now".
Not surprisingly, shore or other vacation properties attract a lot of interest at this time of year. We at Entrust think of a vacation property or second home as an investment—a luxury investment, to be sure. Therefore one criterion we apply to the economic wisdom of a possible purchase is timeframe. For how long do you plan to own the home (investment)?
Vacation home investments require the long view, too
Fortunately early in the "How to Buy a Shore House Now" article the writers indicated shore homeowners take the long view. They reported that owners think in terms of ten years or longer before expecting appreciation in the value of their investment. It was reassuring to see a specific timeframe used to define "long view".
Too often we have seen buyers swept up into believing the purchase of real estate is a pathway to immediate profits. Such overconfidence may be particularly acute when prospective buyers can point to the classiness and panache of a particular vacation home location. For example, along the South Jersey shore, Avalon is one such location.
Well, for the past ten years home ownership in Avalon has not been a pathway to immediate riches. Quite the reverse. Avalon is one of the shore points where values remain underwater by twenty percent over the past ten years.
Think about this. This is equivalent to looking at minus signs on your portfolio performance statements--year after year after year for ten years. Ouch! And the tide for Avalon property owners has not turned positive yet.
Protect, protect, protect
While not raised as a concern in The Philadelphia Magazine article, we encourage vacation homeowners to consider wealth protection. For instance, you may need to preserve the equity in your vacation property against potential creditors, litigants, children's spouses and/or ex-spouses. In fact, a variety of forms of protection could be required to keep you and your property safe.
We sometimes run into resistance from clients regarding the need for wealth protection, especially personal liability protection. Their thought seems to be, “I am a good, honest person who is unlikely to need extreme measures of protection.” But consider this true story:
Liz is an heiress and is married to a successful cardiologist. They retired a few years ago. Their lifestyle is not extravagant, especially considering their affluence.
But Liz does allow herself one expensive indulgence. She maintains a second home—a spectacular horse farm--about ten miles away from the condo in which they live. While she rides only occasionally, Liz still wants her wonderful farm and pastures to be used and enjoyed.
So she developed an arrangement for riding instructors to conduct lessons there. And they can board their own horses there as well.
One delightful summer evening an instructor chose to use the pastures for an encounter with her boyfriend, rather than for riding lessons or to exercise her horse. Well, a horse that happened to be out grazing ended up stepping on them. The instructor subsequently claimed all manner of injuries for which she demanded compensation.
You guessed it. Liz was aggressively and successfully sued. If you have questions about protecting your wealth or owning a vacation home, contact us now to start the conversation: 610-687-3515 or email@example.com
For more summer reading, click: How to Buy a Shore House Now