Columnist shares secret of buying your dream home

  • By Mike Benbow / Herald Writer
  • Saturday, May 15, 2004 9:00pm
  • Business

I’m always leery of real estate investment books because I’ve seen too many late-night infomercials.

You know the ones I mean – commercials selling books and tapes with “powerful strategies” that will allow you to become wealthy in just a few hours a week without using any of your own money.

Investing in real estate can be pretty hard work. And the people who are successful at it typically have learned a few things the hard way – losing some money by dealing with psychotic tenants, choosing the wrong property or simply not doing the math before they finished a deal.

“How a Second Home Can Be Your Best Investment” is not one of these get-rich-quick schemes.

In the introduction, it notes that buying a vacation or retirement home “requires study and knowledge.” And it describes a process that can take quite a few years.

The book, written by Herald real estate columnist Tom Kelly and John Tuccillo, a former chief economist for the National Association of Realtors, has lots of that required knowledge.

The basic theory of the book is that people who already own a main home can use their equity to make a down payment on a second property and rent it out to get some or all of the money to pay off the mortgage.

It’s an interesting method, because Kelly and Tuccillo are not suggesting that people go out and buy the second home of their dreams immediately. Instead, they recommend buying whatever you can afford now, renting it out for income and then trading up once or twice until you do get the vacation or retirement home you really want.

The final step calls for you to sell your primary home and retire to your dream property.

As Kelly points out, real estate investments have lots of advantages over stocks.

They’re typically less volatile, you can buy them by putting down a fraction of the value and paying over time, you can deduct your interest payments from your taxes, you can trade up to more expensive properties without paying any capital gains taxes and you get to avoid paying a big chunk of taxes when you do sell your main residence.

The book shows how to take advantage of all of the tax breaks, how to select the right vacation home in the right place and how to market and rent it.

The writing is conversational and easy to follow, with lots of specific examples to explain how things work and tips to make the steps easier to follow.

It also contains a lot of practical information on such things as which renovations will add the most value to the property and a big list of resources you can find on the Internet.

My only criticism of the book is that it may make things sound a little too easy.

The book talks about how “The house has become as much of a piggy bank as any other asset.”

That’s true, but people who are using their main home to finance the second are putting their house at risk. If bad things happen, you could not only lose your second home, but also your first.

I wish the book had spent a little more time on that, stressing the point that it’s a risk and that buying a second home is not for everyone. If you’re not the kind of person who has the time and inclination to keep an eye on the property, to maintain it well and to swing a few deals here and there, this method is not for you.

That said, the book is a great one for people who have weighed that risk and who want to have a clear path to follow to eventually wind up with a great vacation home or the house of their dreams.

Herald Writer Mike Benbow: 425-339-3459 or benbow@heraldnet.com.

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