Tips for retirement home buyers

(Linda Stern is a freelance writer. Any opinions in the column are solely those of Ms. Stern. You can e-mail her at lindastern@aol.com.)
By Linda Stern
WASHINGTON (Reuters) - Real estate prices have taken a tumble in the most favored vacation and retirement home markets.
South Florida? Prices are down 27 percent from a year ago, according to the Standard & Poor's Case-Shiller home price index. Hawaii? Big Island prices are off 18 percent. Vegas, Phoenix, Southern California? Off more than a 25 percent.
That's mighty tempting to folks who are scouting for that sunny retirement home or always wanted a weekend getaway. To add to the temptations, there are fat inventories in many of those markets: lots of houses from which to choose, and sales-minded owners getting antsier by the minute.
The icing on the cake comes from continued low mortgage rates, with 30-year fixed rate loans now at 6.3 percent, according to bankrate.com.
So it's definitely a good time to go shopping. But don't feel like you have to rush: Some housing analysts see prices falling further, and even those who don't aren't expecting any big price jumps soon. And today's prices may be bargains by last year's standards, but they are still significant compared to vacation home prices five years ago.
Take your time, and keep these issues in mind while enjoying all those open houses.
-- Where do you want to be? If you're looking for a vacation home, calculate how much it will cost you in gas and hours on the road to get there for a weekend. You may want to limit your hunt to places closer to home. If you are shopping for a second home you intend to retire to, that raises a whole other set of criteria to consider -- including but not limited to items like proximity to airports and hospitals, local tax treatment of pensions and more. Remember, the three key parts of a real estate deal remain location, location, location.
-- Will you rent it out? That can save you a bucket of money, as tenants and renting vacationers can effectively make your mortgage payments for you. But they can also wreck the carpeting, scratch the kitchen counter and cause general wear and tear on your dream home. They can also fail to show up: This year's killer combo of weak home sales and high gas prices has resulted in a soft vacation rental market. If you're looking to rent out your place, evaluate it as a renter would. Is it a short walk to the beach or lake? Is it in a community with amenities like a pool and tennis courts? If the property you're looking at has already been used as a rental, ask to see the rental history.
-- Can you insure it? Talk to a local insurance agent before you go too far down the road of buying a vacation property, especially if it's on the water. Flooding risks have made some properties impossible -- or impossibly expensive -- to own.
-- What kind of mortgage can you get? If you've got the cash for a down payment and a good credit score, getting a mortgage on a second home is not a big deal; rates correspond to regular home mortgages. But if you need to count rental income on the home in order to qualify for a mortgage, expect to pay more in fees and interest to get the loan.
-- What are the tax implications? The sweetest deal on a vacation home is renting it out for 14 or fewer days during the year. You can pocket the income without telling Uncle Sam. If you make your home into a rental property and run it like a business, you can deduct all of your costs to keep up the place, including depreciation. That can help you produce a loss that will offset your other taxable income. To take those losses, you have to use the house for 14 days or fewer yourself. A third alternative: rent it whenever you want and use it whenever you want: You can still deduct expenses but only to the extent that they reduce the rental income to zero. You can't take losses. Even if you never rent out your second home, you can deduct mortgage interest for it.
-- Will you get a good price? Work with a local agent as a buyer's agent, representing only you. It's even better if you can get an agent who is exclusively a buyer's agent and doesn't work in an office full of people who are listing agents in the same market. Many resort areas have lots of homes for sale, so you can compare properties and actual sales before pitching your low ball offer. Don't forget that you may have to pay monthly condo fees, too, so find out how much they are and how often they go up. You may not catch the deepest bottom of the market, and you may be squeezed for a while. But 10 years out, you may be very glad you made your move during the dismal summer of '08.
(Editing by Phil Berlowitz)