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Why Your Vacation Home May Not Be Your Retirement Home

Joanne Cleaver

It's warm and breezy. You rise late, have a leisurely brunch and stroll on the beach. Then you walk to the local coffee house, where you are greeted by a barista who hands you a fresh cup of coffee to sip while you watch the waves roll in.

You're on vacation, but you wish you lived here.

Actually, you can. It's called retirement, and if you buy a house right here, right now, this charmed moment will last forever. Right?

Not quite, seasoned real estate agents say.

Take off the vacation goggles before you start seriously pursuing a home purchase in a locale you love to visit, advises Sheelah Clarkson, a partner with the Sheelah Clarkson Asheville Real Estate Agency in Asheville, N.C. "Enjoy the vacation, but do the research when you plan to be there permanently," she says.

If trends continue, there will be an increase in vacation home sales this year. The National Association of Realtors' latest figures indicate that vacation home sales rocketed 29.7 percent last year over 2012, to 717,000 purchases. That's still lower than the all-time high in 2007. Currently, 13 percent of all home sales are vacation homes.

[See: 6 Tips For Boomers Leaving Big Homes Behind.]

So clear the fog from your sunglasses and crunch some numbers at your year-round home.

"We don't recommend that people look at houses for retirement while they're on vacation. A vacation is a great time to audition an area, but not a good time to look for a retirement home," Clarkson says. Make your vacation fun, then dedicate a separate trip to the gritty realities of house hunting, she advises. "It seems that economically, you can combine the two, but you need to be in the mindset of looking at the house as to where you'll live," she says.

Don't assume you can afford to retire there because you can afford to vacation there. Rental and hotel rates are often out of sync with home values. "Some people say, 'I could live here!' and then they check out the prices and say, 'No, I couldn't,'" Clarkson says.

It's important to understand the market. The NAR attributes last year's surge in buying to low prices. In 2013, the median vacation home purchase price was $168,700, an increase of 12.5 percent from 2012. Also, don't be snowed by rosy month-to-month vacillations in selling prices. Seasonal demand drives destination home prices, so be sure to analyze changes in sale prices at the same point in each year, recommends Sherry Irvin, a broker with Premier Plus Realty Co. in Naples, Fla.

Financing vacation homes is especially problematic in this post-recession era of stringent lending standards, Clarkson notes. Thirty-eight percent of vacation homebuyers paid for their houses with cash. Clarkson says it's the norm for buyers who do need mortgages to arrange financing with their primary bank so they approach the vacation market with a preapproval in hand. If your goal is to buy the second home and quickly pay it off to enter retirement mortgage-free, work out several fallback financial scenarios so you have a backup plan.

[Read: How to Budget for Health Care Expenses in Retirement.]

Take a good look at all the amenities and the health care infrastructure in the area you're considering, recommends Teresa Dentino, CEO and founder of The Financial 411, a wealth consulting firm based in Woodside, Calif. Vacations are all about indulgences, whether your version of luxury is a spa, golf, boating or another once-a-year splurge. Retirement health and resource management requires the opposite qualities: an easily accessible place with affordable healthy activities, such as walking and biking trails, and a local hospital. You might be able to find a less-expensive town near the marquee vacation destination and get the best of both worlds. "People are looking at less-costly locales, and in tandem with that, what they like to do, such as outdoors pursuits," Dentino says.

Go off the tourist-beaten path to really get to the know neighborhoods at all times of the day and year, agents say. Where are the flight paths? Is there a lot of commuting and school traffic? What about upcoming construction projects? Can you easily access the stores and entertainment venues you need? "Don't pull the trigger until you have experienced the area in every season," Irvin says.

The upside of being a local is residents-only fees and access to coveted recreational opportunities like marina slips and golf courses. Drop by the municipal offices (in real life or virtually) and scope out the potential savings for fun activities that usually cost visitors more.

[Read: 5 Ways to Fund Your Passions.]

Work with an agent who has a full-time practice and can accommodate condensed, intense house-hunting trips. Once you decide to pull the trigger, you won't want to waste any time with part-time agents who can't devote concentrated time to your schedule.

Finally, carefully analyze the resale market, especially if you want to ease into the market with a smaller condominium or house, Irvin says. "Go into every property thinking you'll have to sell it," she says. "That's hard to do because you chose to be there on vacation, and it's so pretty. But once-in-a-lifetime real estate deals come along once a week. There are always great opportunities."

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