Wednesday, March 19, 2008

Is the Sub Prime Crisis Good for Vacation Rental Home Owners?

At first glance, it would appear that the sub prime mortgage crisis is bad news for owners for vacation rental homes. Many people may have bought vacation homes, relying on overly optimistic projections on rental income to fund a mortgage that they might otherwise not have been able to afford (and which more prudent mortgage lenders might not have approved). Surely, many of these people will have no option but to sell or foreclose on their vacation home?

But wait, it is not all gloom and doom!

For a start, particularly in popular areas such as Florida, there have been too many vacation home owners chasing too few renters. As a result, rental prices and occupancy rates have dropped for many vacation rental owners, even those who have been renting their homes successfully for a long time. A reduction in the number of renters might not be a bad thing in the long run and might help increase the prices that vacation rental properties can command.

Secondly, for most people, their vacation home is a second home and these vacation home owners tend to be financially secure, with good credit histories and enough resources to qualify for regular mortgages and hence may have avoided the sub prime bullet.

Thirdly, vacation home owners can take advantage of the aggressive cuts in interest rates that are happening to keep the US economy out of recession as a result of the sub prime mess. For those in the vacation rental business for the long term, this is good news.

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