Best Places To Buy A Vacation Home

Renting a vacation home has its perks. You're not wedded to one area for longer than a few weeks. There's no dealing with frozen pipes, property taxes or scraping together that down payment.

But if you're tired of sitting on furniture from the 1970s and looking at peeling paint, buying might be in the cards.

The only question is where.

In Pictures: Best Places To Buy A Vacation Home: Northeast

In Pictures: Best Places To Buy A Vacation Home: West

In Pictures: Best Places To Buy A Vacation Home: Midwest

In Pictures: Best Places To Buy A Vacation Home: South

"The main thing motivating a vacation-home buyer is utility," says David Hehman, president of EscapeHomes.com, a San Francisco-based second-home research site. "They want to maximize their purchase around a recreational activity."

Still, whether that includes sitting surfside or skiing down double black-diamonds, no one wants to buy a property that will decrease in value. The safest bets are luxury homes in blue-chip locales. While a Jackson Hole ski lodge or a Martha's Vineyard beach house probably won't explode in short-term value--unless snow stops falling on the Grand Tetons or the Massachusetts shoreline disappears--both are highly desirable, heavily supply constrained areas which have done nothing but appreciate in the last 20 years.

They're also extremely expensive.

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Another route is to go for the undiscovered gem. ( In Pictures: Undervalued Vacation-Home Spots.) Here, buy-in prices will be significantly lower than the blue chips. Picking a quality unknown is a way for buyers to build memories and still be able to afford to send the kids to college.

How It's Done
In compiling our list, we picked the five fastest-appreciating regional blue chips, as well as 10 hidden gems nationwide, all of which offer many of the same geographic advantages as the blue chips, without the high price tag.

But calculating appreciation rates for second-home spots can be tricky. That's because many of these destinations, like Tahoe City, Calif., or Sun Valley, Idaho, have a very distinct property-value divide between the housing stock for full-time and part-time residents, the latter set owning primarily luxury vacation homes.

The key is to track values on a granular level. To do that, NeighborhoodScout.com, a Rhode Island-based real estate research site, developed an index designed to pinpoint vacation-home spots. The firm looks for neighborhoods with desirable locations, near beaches, lakes or mountains, for example, and with amenities and services that cater to a vacationing crowd, which, according to its research, are typically high-net-worth renters. Property value spikes within a vacation home area are also examined. The data is then cropped to study which locations had the fastest median home price appreciation over the past five years.

Of the Northeast's most expensive summer destinations, the village of Water Mill, N.Y., in Bridgehampton, appreciated fastest. The median home price there is $1.38 million; it increased in value at an average of 21% a year over the last five years. In the Midwest, Victoria, Minn., which is surrounded by many of the state's trademark lakes, grew an average of 18% a year.

The north end of Key Largo, Fla., has appreciated at 27% a year, on average, according to NeighborhoodScout, making it the fastest-growing vacation spot in the South. Moran, Wyo., situated between Grand Teton and Yellowstone National Parks, has seen 35% average increases in annual value since 2002.

What's Driving Prices Up?
Nationwide home sales are down 4.1% from this time last year. And sales of investment properties, which, unlike second homes, are generally urban properties rented for profit, fell 28.9%, according to the National Association of Realtors (NAR) Investment and Vacation Home Survey.

But vacation buyers aren't sweating. Vacation-home sales were up 4.7% last year to a new record of 1.07 million, according to the NAR.

"We expected the drop in investment sales, because speculators left the market in 2006," says David Lereah, NAR's chief economist. "The rise in vacation-home sales is based on strong demographic and lifestyle factors, with only modest interest in renting their properties."

In other words, if the sun is shining on the shore, or the powder's falling on the slopes, vacation-home buyers don't mind short-term market fluctuations very much.

This makes more sense when you consider that the average vacation-home buyer had a median household income of $102,000 last year, according to NAR, far out-pacing the national average of $44,000; and second-home buyers had a median age of 44, down from 52 a year ago, suggesting that the market has shifted hands to a new generation, one that has time to wait out market volatility.

Money matters, however. And long-term return on investment is important. In that regard, the best bets are blue-chip locales like the Hamptons in New York, or Aspen, Colo., where historical market appreciation has been strong but prices can be prohibitively expensive. Other such spots include Nantucket, Mass., and Jackson Hole, Wyo.

But "finding a top quality home that's still affordable can take a lot of effort," says Andrew Schiller, founder of NeighborhoodScout. "Good places to look are quality places near blue-chip vacation destinations."

Take Kamuela, Hawaii, on the north shore of the Big Island. A bit up the road from Hilo, the median house value is $487,188, modest by Hawaiian standards. Or look to Blue Hill, Maine, up the coast from Kennebunkport, where a four-acre equestrian estate runs just under $300,000. If the Southwest is more your style, the Cochiti lakeshore in Pena Blanca, N.M., outside Santa Fe, has pristine views of the Sandia Mountains--and the median price is only $209,000.

But those hidden gems don't stay secret for long.

"In [December 2006] you could get an ocean-view lot in Captain Cook, Hawaii, south of Kona, for $70,000," says Schiller. "When we called in late March on behalf of a client looking to purchase in Captain Cook, the prices had gone from $70,000 to $150,000."