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Summer rental guide 2005

These days the mantra in the real estate world is: Buying beats renting. And when it comes to vacation homes, Americans have been in a buying mode--but that doesn't mean the rental market is taking a dive.
/ Source: Forbes

These days the mantra in the real estate world is: Buying beats renting. And when it comes to vacation homes, Americans have been in a buying mode--but that doesn't mean the rental market is taking a dive.

Second-home sales swelled last year, according to a study released recently by the National Association of Realtors. Sales of vacation properties rose nearly 20% from 2003 to 2004, to a total of 1.02 million. Nevertheless, Washington D.C.-based Travel Industry Association of America predicts that the vacation rental market overall will grow 67% in the next decade.

That means rental prices will only continue to rise. Years ago, a beach house in the Hamptons or Nantucket could be rented from Memorial Day to Labor Day for several thousand dollars. That same house this summer will probably fetch between $100,000 and $300,000. Think that rent is going to come down anytime soon? Short of a complete economic collapse--and even then--don't count on it.

What makes the rental market so attractive? For home owners, the reason is obvious: fat rent checks that cover the costs of their properties and feather their bank accounts. Renters get to enjoy a grand lifestyle at a fraction of the cost--or hassle. After all, what seems like a better deal: renting a mansion for the high season for $300,000 or buying it for $10 million? You do the math.

Still, this summer--with Wall Street ticking over better than it has in years--plenty of investment bankers, lawyers and other members of the big bonus club are buying anyway. These purchases are for either personal or investment reasons and are further reducing the inventory of rental properties in the most popular resort communities. This is causing aspiring renters to scramble more than they have in years.

"The real estate market keeps going up. Demand keeps going up," says Nancy Borino of Chase International in Lake Tahoe. "But our rental demands just keep outpacing it."

It's not just Wall Streeters who are pumping up the prices of rentals, though. The weak dollar is making U.S. vacation real estate especially attractive to Europeans, who in the past were typically not buyers because the currency exchange rates went against them for so long. Interest rates, which still remain relatively low, are also spurring many people to buy now, while they can still lock in favorable rates.

The upshot is that renters will find it harder this year to get the kind of properties they want without paying a small fortune--or, for people who are looking for better value, going off the beaten path. "We're starting to take some of the Jersey Shore and Hamptons business," says Sarah Murcko, rental manager for Kennebunk Beach Realty in Maine. "We're just an hour and a half from Boston, and the prices are more reasonable."

As renters get farther away from epicenters of wealth such as New York, prices and inventory get better. Maine is still a relative deal, but so are places like Long Island's North Fork along the Hudson River Valley, Wisconsin's Lake Geneva, the Adirondacks, Canada's Murray Bay, Nova Scotia and Michigan's Upper Peninsula. The problem with many of these places is that rental properties are historically scarce and that they are hardly practical as a weekend getaway--unless you have access to a private jet.

Even well-heeled renters who don't flinch at the thought of dropping several hundred grand for the season will find it difficult landing their dream houses. "We have way more buyers than we have inventory," says Diane Saatchi, a senior vice president for The Corcoran Group in the Hamptons. "Generally the kinds of houses people want to rent are not on the market for renting."

Saatchi believes that means renters will have no choice but to compromise. Do they want the beach or lakefront house, or do they want something with eight bedrooms and a tennis court? It won't be easy to find all these things. "People think it's a lot of money to spend on a rental--and it really is--so that can be a horrible blow."

So does that mean that people will stop renting in the Hamptons, Martha's Vineyard or Aspen? Not as long as these places are blessed with cooling breezes and beautiful views. But the high prices they will be forced to pay may make them angry enough that they may eventually decide to buy instead.

The only two things for certain are that prices--for buyers and renters--in the most desirable summer communities are unlikely to come down anytime soon...and that it is a good time to rent your beach house.