FrontDoor.com

KNOXVILLE, Tenn. (September 2, 2008) -- Since one-third of all the homes sold in 2007 were vacation homes and investment properties, it's clear that the demand for second homes remains healthy despite an ailing housing market. With homebuyers enjoying an advantage in many markets, now may be the time to buy that second home. Whether you're dreaming of a weekend paradise or profitable property, here are FrontDoor.com's 10 tips to make your second home investment a smart one. See FrontDoor's current Top 10

1. Resist the urge to impulse buy. Don't come back from your vacation with the keys to a new house without having thoroughly researched your purchase first. If you buy on a whim, you may end up with a second home you can't afford or that doesn't fit your needs.

2. Evaluate your needs and long term goals. Be realistic about what type of second home suits your lifestyle. If you're looking for a weekend getaway, staying within a day's drive of your primary home could be a good move. If you'd like your second home to someday serve as a retirement spot, assess the home's accessibility and check out health care available in the area.

3. Get to know the area before buying. Even if you've been visiting the same vacation spot for years, it's important to get to know the area from a non-tourist perspective before you buy. Visit the place off-season and talk to locals to get their take on the area.

4. Hire a local real estate agent. Buying a vacation home outside your area can be tricky, as residential real estate is extremely localized. A local agent can help you get to know the market.

5. Choose the type of home that's right for you. Think about how much time you're willing to devote to maintenance when deciding between a condo and a single family home. Condos are a good choice for buyers who only plan to use their homes occasionally and don't want to deal with year-round maintenance. But if you don't want to sacrifice privacy, stick with a single family home.

6. Shop around for a mortgage. The market changes constantly, so resist the temptation to take whatever terms your lender on your first home offers you. See what else is out there to get the best deal possible.

7. Calculate additional expenses. Don't forget about insurance and maintenance when adding up the costs of your second home. Some of the most desirable areas are at a higher risk for hurricanes, floods or forest fires, so insurance for these areas can be pricey. Get several insurance quotes before making an offer. For maintenance, a good rule of thumb is to set aside 2 percent of the home's value per year for upkeep and repairs.

8. Consider fractional ownership to cut down on costs. You can end up shelling out a lot of money for the amount of time you actually spend in a second home. Pool your resources with friends or relatives and enjoy a vacation getaway for a fraction of the cost. Sounds like a timeshare right? Not quite. Fractional ownership offers longer time intervals and involves different pricing, financing and fees.

9. Look into tax benefits. You don't have to pay taxes on rental income if you rent out your home for less than 15 days a year, but you can't deduct any rental expenses. If you rent out your home for more than 15 days a year, you have to report the income, but you can deduct expenses like maintenance and cleaning.

10. Rent your home out for extra income. If you need extra cash to supplement your monthly mortgage payment, renting out your second home could be a good option. Being a landlord comes with more responsibilities than many people realize, so familiarize yourself with landlord/tenant laws and the Fair Housing Act before renting out your home.