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Cabin Fever

Don't let a vacation home become the perfect place for your cash to get away.

If in springtime thoughts turn to love, by late summer hearts yearn for real estate. After a week watching the sun set over the Gulf of Mexico or red-tail hawks soar over Big Sur, it’s only natural to dream of doing it all again next year. And over the holidays. And long weekends. Heck, why not every weekend?

It’s little wonder that August kicks off the prime season for buying vacation homes. More than 1 million people did so last year, making 2005 a record-setter for vacation-property sales. As the real-estate market cools, many would-be buyers sense the time is right to make a deal. But realtors and financial planners caution that vacation-home purchases are often motivated more by emotion than sound judgment, and that buyers need to factor in several key differences between a primary residence and a vacation home in order to assess the true cost of that lakeside cottage.

As a model of fiduciary due diligence, John Leinart would be hard to top. The director of human resources at John Deere in Moline, Illinois, Leinart was an economics major at Notre Dame, and it shows. He and his wife own a vacation condo on the Alabama coast and are currently building a second vacation home in eastern Tennessee. In both cases, he says, “we used a scoring system that assigned points to every potential property based on capital outlay, maintenance costs, and future value. And we broke the maintenance category into four areas: taxes, insurance, fees, and general-maintenance expenses.”

That approach, Leinart says, allowed them to rank various options, but he admits that the system goes only so far. “The numerical score accounts for 50 percent of the total,” he says. “The other half includes everything from the beauty of the surroundings to access to services like health care and an airport.”

Such analysis, Leinart says, revealed that ongoing costs for a condo on the Gulf Coast of Alabama would be only half those for a unit in neighboring Florida. Ditto for the house now under construction at the Estates at Norton Creek in Tennessee as compared with nearby North Carolina. “We looked for 2 to 3 years before we bought in Tennessee,” Leinart says, “and for 10 years before we bought in Alabama.”

Your search may not take years, but don’t reach for the checkbook without asking some hard questions. First, of course, is whether you can afford it. While there is no magic metric, the National Association of Realtors says the typical vacation-home buyer was 59 years old and earned $120,600 in 2005, suggesting that accumulated assets play a big role in a purchase. Given current market conditions, some experts are sounding an alarm against being overinvested in real estate. “It’s been hard to make a mistake in real estate over the past 5 to 10 years,” says financial planner Doug MacGray of Andesa Strategies Inc. in Wilmington, Delaware, “but that may be changing. I caution people primarily against having an unbalanced portfolio and jeopardizing retirement goals.”

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