Retirement Communities Chicago IL

One way to check out a community where you are considering buying a second home, in terms of location, traveling time and available amenities is to use free or discounted timeshare promotional vacations.

Home equity to burn, favorable tax laws, and record-low mortgage rates are all converging at an opportune time to make buying your vacation home a dream come true, but getting to know your vacation's home is crucial before you move to finance the deal.

"Try-before-you-buy" mini-vacations offered by timeshare developments offer getaways for no more than a nominal fee, if that, provided you spend a couple of hours with the developers to learn about the development. (If you don't like the idea of a sales pitch, then see if a timeshare can simply be rented for a few days.)

"Most are mini-vacations of two nights and three days. You check in Tuesday and leave on Thursday and you have an obligation to take a tour of the property, but you've got the rest of the time on your own," said Carl G. Berry, principal with Resort Development and Advisors a San Francisco-based resort developer.

You may even wind up deciding a timeshare is a better fit for your budget now and later buy a vacation home.

"It goes both ways. At different times in life it may be time for a timeshare or it may be time for a vacation home. It's common in places like Lake Tahoe and Hilton Head Island to first buy a home because you have kids and as the kids get older cash out of the house and buy a timeshare for a couple of weeks. Write your own scenario," said Berry.

Alamo, CA-based real estate investor John T. Reed, says it's also a good idea to talk to some of those long-time timeshare and vacation home owners to learn first hand of their experiences.

"Talk to some people who've been doing it for 10 to 15 years. People buy a vacation home and they are all excited and they are going up every weekend, they are working on the home, their kids are enjoying it, they are playing the tax deduction game, they are renting it out. Then maybe the kids don't want to go up, then the parents aren't going up because it's too far away or they are aging and they don't want to go where the snow is hip deep. It's hard to predict what can happen over time, but it's good to get input from long-time owners," says Reed.

To help you shop for your vacation home and to explore it's community, also hire another set of eyes and ears -- a neighborhood real estate agent familiar with the area's vacation home market and who is generally knowledgeable about such transactions.

"You need someone who is not only knowledgeable about the area you are interested in, you also need someone who can steer you to other areas. Even though they might not sell to you in their area, it behooves them to be knowledgeable about other popular areas," said Jan Tarnow-Hope, a manager with NAR in Chicago.

There's help on the Web too. EscapeHomes.com can not only help you find good agents, bu...

If you buy a second home now for retirement later, you could give yourself a hedge against home price hikes as well as a relatively low-cost retirement shelter with an equity cushion.

That assumes during ownership you can find tenants who'll pay enough rent to cover your investment costs. You'll also have to be able to actually use the property when you retire.

"Buying a retirement home while you're still employed is a wise investment, if you can keep it rented until you're ready to move in," says Valerie Patterson, senior producer of RealEstateJournal.com .

That means you'll have to find a property you can rent for an amount that will cover not only the principle and interest but also the bulk of property taxes, insurance, property management and maintenance costs, home owner association dues and any other costs, actual and estimated, associated with property ownership.

Patterson says if you can't secure a tenant, or if the rent you collect doesn't cover your monthly payments, even locking in a low interest rate now may not be wise unless you've got the extra income to cover the difference.

Don't forget to consider tax benefits that can help offset costs.

In addition to mortgage interest deductions on owned home values up to $1 million, tax deductible passive losses on rental properties are as much as $25,000. The passive loss amount does begin to phase out once your modified adjusted gross income reaches $100,000 and is completetly phased out once your income reaches $150,000 says Marie Sternberger, an enrolled agent from Sunnyvale, CA.

Sternberger says don't overlook non-financial considerations related to buying a retirement home now to live in later. Your heath, the climate, some unforeseen event or change could prevent you from moving into your second home at retirement time.

"You would have to sell and pay taxes on the gain, but you could take any passive losses you had not been able to take advantage of. You could do a tax-free exchange of like property somewhere else. You would have some options, but I would be leery of buying a retirement home way in advance of retiring. That's just my opinion," Sternberger said.

Patterson said the upside to buying your retirement home now is that you can count on having someone else paying your mortgage for as long as you rent it. You'll inherit a home with at least a part of the mortgage already paid and a relatively low interest rate locked in.

"It's a good idea to get a head start on retirement living. Your favorite location might be a lot more expensive in 10 to 15 years when 73 million baby boomers begin retiring," said EscapeHomes' CEO David Hehman.

Appreciation may also help offset some of your costs, but to maximize your investment as a retirement nest egg, you probably don't want to tap your home's equity unless it absolutely necessary for some dire financial need.

"However, if home prices fall, you might wind up paying more for your house than you needed...