Small Town USA: A Second Home Gold Mine

For months now, clients and visitors to our website, www.fun1031.com, have asked, “what exactly do you do?”  Well, it is time to put any questions to rest.  I will first start with my philosophy and then explain our strategy; that way you will understand the method to our madness.
 After years of promoting Oregon real estate as a good investment, I was forced to reconsider my position several years ago.  I worked off a very simple model that required a 20% down payment and a rental income that would pay the bills and generate an 8% cap rate.  That worked well when homes with three bedrooms with two baths were selling for $165,000.  Now that same house is selling for $325,000 and it doesn’t pencil unless you rely exclusively on the appreciation as your return on your investment.  My philosophy has always been, “the numbers have to make sense at the time of acquisition (not on the come) and any appreciation in value or rental income is your reward.”

• they wanted to diversify their investments     (30 %)
• to earn rental income        (28 %)
• they wanted a personal retreat      (14 %)
• they wanted a place to vacation       (06 %)
• they bought a second home because they had the extra money  (05 %)
• It is likely they would buy another home within 2 years  (38%)

A typical person buying investment rental property is 47 years old and earned about $86,000 in 2003, according to the NAR, while the typical vacation-home buyer is 55 years old and earned $71,000.
The typical vacation home bought between mid-2003 and mid-2004 sold for $190,000 and is 1,290-square-foot single-family home about 50 miles driving distance from the owner's primary residence. The typical investment property was 1,700 square feet and sold for $148,000.”
While the sales of personal residences and investment homes dropped last year, sales of vacation homes rose nearly 5 percent to a record 1.07 million from 1.02 million in 2005.  With 10,000 people turning sixty every day for the next twenty years, we can be assured this trend will continue.  Nevertheless, when senior economist, David Stiff, compared the 2000 Census Bureau statistic on seasonal housing units where at least 10% of all single-family homes were seasonal, the medium appreciation was nearly 60% by the end of 2004 while in areas where seasonal homes were less than 10%, the appreciation was only 33%.  Sound investing of vacation homes or future retirement homes is clearly warranted in the research available to us.
So here is what we are all about.  We think we can live with 33% appreciation.  We think that the formula for good investments still falls in the $148,000 to $190,000 range, plus or minus appreciation since the report by the NAR above.  After all, it only makes sense, if areas are appreciating 59%, so are their market values, putting most of us out of the market. 
We invest in second home markets that are on the rise and are still affordable.  We purchase them in whole or in part with percentage ownerships that conform to our investment strategy.  When they don’t make sense as a whole purchase, we consider how it could pencil similar to a typical TIC.  Our belief is that if you can buy 9% in an office building in Houston, Texas, why not buy a 16.6% share of a 2,900 square foot home on a private wooded acre with a separate art studio accessible only by a foot bridge over a meandering creek in Tualatin, Oregon.  Do you think this property will hold its value or go up in value based on it’s uniqueness?  We don’t believe you have to invest in Florida or Arizona to find a retreat that will leave you with lasting memories.  Our Magic Moments program provides an opportunity for our clients to declare their wish list on our website; we pull together enough people with common interests and we go buy the affordable second homes that meet our criteria:

• Affordability
• Location, location, location
• Uniqueness, uniqueness, uniqueness
• Upside appreciation
• Access to an airport
• Stable community
• Can accommodate two families
• Offers two master suites
• Availability of management services

        The NAR further reports from a study conducted that “21 percent of second-home buyers use the equity in their primary home to finance the purchase of a second home. The financial strategies include securing a home equity loan or refinancing the mortgage on their primary home, using the excess cash for the down payment or purchase of the second home.”  It has also been reported that second home buyers purchased a property that was about 215 miles from their primary residence. To support our theory, nearly 30% considered their second home purchase as a primary residence in the future. 
        Our Fun1031 program promotes the combined downsizing strategies offered with a 1031 exchange and the principal residence exclusion.  We can help our clients, over time, downsize out of their investment properties without paying exorbitant capital gains tax and transition their equity into second homes both domestically and internationally.  See our article, “Free Cash or The Principal Residence Exclusion. What Does that Spell? 
The Good Life.”

       So, have I dispelled the myth about fun1031?  I hope so.  However, if I have fallen short, please don’t hesitate to contact me at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it or visit our other website, www.virtuositypro.com.  We look forward to taking you home.

Mark C. Hughes is President and CEO of Virtuosity Unlimited, LLC which operates with a team of advisors to help those with highly appreciated assets or lucrative businesses to downsize or transition their equity into viable options without paying unnecessary taxes in the process.  Mark can be reached at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it or visit www.virtuositypro.com.  Mr. Hughes and Virtuosity Unlimited, LLC publishes the VirtuosityPro eNewsletter as a service to its clients and their advisors. While we make every effort to ensure the accuracy and reliability of the information published, we do not warrant or guarantee the accuracy of the information or its fitness of purpose.