The results of a newly released study of nearly 2,000 American baby boomers -- those born between 1946 and 1964 -- commissioned by the National Association of REALTORS® (NAR), show boomers should continue to push sales of second homes in the decade ahead.
Baby boomers have dominated the real estate market for years. Nearly four out of five already own homes. So it’s not surprising that now, having reached their peak earning years, many are regarding another investment in real estate as a good way to diversify their portfolios.
Ten percent of those surveyed said they are considering buying real estate in the next 12 months and 15 percent of those respondents said they were considering buying vacation property. In addition, baby boomers are already extremely active in the second home market, owning 57 percent of all vacation/seasonal homes.
Many boomers also opt for a place they can both enjoy now and where they can eventually retire to live year round.
Three of the key reasons baby boomers buy second homes are:
1. To take advantage of a smart investment strategy
The fact that the government provides a generous capital gains tax exemption on profits from the sale of primary residential property allows property owners a unique benefit. Most boomers who own property are well aware that when they sell their primary residence, they can claim a capital gains tax exemption on up to $250,000 worth of the profits if they’re a single homeowner or up to $500,000 if they’re married. If they purchase a second home which they subsequently convert into their new primary residence, and live in that home for at least two out of the five years before they put it on the market, that property will also become eligible for the same preferential tax treatment as their first home. That’s a clever way to both build and shelter funds for retirement. (Consult an accountant or financial advisor for more information on the capital gains tax exemption and how it may impact your own personal tax situation.)
2. To obtain quality time with their family
Baby boomers are healthier and can expect to live longer than their predecessors. They are also more likely to continue working beyond the traditional retirement age, placing them in a position where they’re more likely to be able to afford to purchase a second home. Many baby boomers view an investment in a vacation property as a way to provide them with a place where they can share quality time with their children and grandchildren.
3. To purchase a retirement property at today’s low mortgage rates
Three out of five boomers surveyed said they’d prefer to retire to a small town or rural area. Buying a second home now in an area they’d like to retire in the future can be a smart move. By borrowing at today’s low mortgage rates -- and buying before property values in certain popular retirement regions increase further -- boomers can potentially buy more than if they wait until they reach retirement age. In many cases, they can also cover some of the expenses involved by renting the property out as hopefully its value appreciates.
While the current real estate market in much of the country may be flat, the NAR study indicates that baby boomers continue to have an influence on the second home market. Over the next decade, vacation properties in prime retirement or Sunbelt areas will likely continue to be in high demand.