You don’t have to be Donald Trump to make money in real estate. Anyone can be a mini-real estate mogul if you have both the temperament and money to make it work.

With the right real estate investment, other people will increase your equity while you’re taking advantage of tax depreciation and price appreciation.

The key to success is to start small, move sensibly and gain experience. So we will begin with the easiest, least expensive investments and move up to the most speculative, most complicated.

Your Own Home
A good way to test the water is with your own home. Rent out a bedroom and bath on an annual basis. Or, if you prefer a shorter term, rent to a professional who has been transferred into the area for a short-term assignment or who needs a place to stay while looking for a house to buy. Teachers often rent. So do writers and artists seeking a Virginia Woolf style “room of their own”—one that is quiet and away from the everyday distractions of their own home.

Don’t overlook your garage or storage space.

Or, if you have a very spacious house, you might do what Florence Griswold did in Old Lyme, Connecticut, in the early 1900s. She housed talented painters and sculptors, turning her mansion and carriage house into an art colony.

Before you rent, check your homeowner’s insurance policy to make certain you are adequately covered in case your renter has an accident, is injured or for some reason decides to sue you. You may need to take out an umbrella policy.

Avoiding the tenant from hell. Interview prospective renters with someone else present to get a second “take” on the person. Check at least three personal and three business references and then draw up a clearly written lease in which you require one or two months’ rent as a security deposit.

A Rental Property
Next on our list of options is buying a two- or three-family home, living in one part and leasing the rest to tenants. Or, if you have adequate resources, you could move directly to buying a single-family house for rental purposes.

Begin by looking for property in your own neighborhood—you know that market best. Other premium rental areas are middle income family neighborhoods and properties near military bases and colleges and universities—people with transient lifestyles usually rent rather than buy.

$Tip: Housing for people with disabilities is always in great demand. Widen doorways to accommodate a wheelchair. Put grab bars in the bathroom, kitchen and elsewhere. Install railings. Even out all floors. Add ramps throughout the house and to the backyard, deck, driveway and front sidewalk.

Expect your lender to require a bigger down payment and a slightly higher interest rate on a rental property than on a primary residence. Compare local offers with those available from Freddie Mac at www.freddiemac.com.

Your property should rent for at least 5 percent, preferably 10 percent, above your total costs. Determine your PITI (monthly principal payment, interest, taxes and insurance), plus the cost of yard and pool service. That’s the amount of rent you will need just to break even, provided the renter pays the utilities. Add to that enough to cover repairs, renovations and upkeep. You will also need an emergency slush fund—money for those down times in between renters.

$Tip: Study the “For Rent” section in the paper for several weeks to see what comparable properties are renting for. Visit several. Find out what the competition is offering and charging.

Legal restrictions. In New York City, a building with three or more residential units is considered a multiple dwelling. Owners must register these buildings with the Department of Housing. These owners, however, are not bound by the rent laws and can charge whatever they want. Find out what your community’s laws are for residential property, including any rental caps, your right to evict tenants, to reject pets, to turn away someone with children.

Investing to Sell
If you’re handy with a hammer, or someone you know is, then buying a single-family fixer-upper and selling it is an option. Start with an inexpensive single-family home, preferably in your neighborhood or within a short drive. If you and hammer and nails don’t mix, read our article on how not to get stung by a contractor.

$Tip: Join a real estate investment group. You’ll not only learn about local lenders, contractors and real estate agents—including those to avoid—but also how others have made (or lost) money.

Investing in Land
Buying beachfront property with a lake, mountain or river view is often very profitable—after all, there are only so many acres with views left in the country. You or someone else will eventually want to build a house, restaurant or resort on such a choice piece of land.

Nevertheless, land, our most speculative choice, is the one in which many investors get burned. Knowing the potential pitfalls, however, helps clear the way for making smart decisions. Here are the four key things to watch for:

Zoning. You buy land with the idea of eventually building a house or houses or an office building, and the town fathers change the rules, rezoning the area.
The market. The area you anticipate being “hot” several years from now never even gets to lukewarm. In the meantime, your capital is tied up and you’re stuck with an annual tax bill.
Disasters. Local officials approve a nearby power plant, dump site or strip mall.
Roads. A major (and noisy) highway is constructed, ruining a bucolic area.
Study the zoning rules carefully. What is the long-term plan for the community or county? Find out about current and future easements, as well as access to water, sewage and electricity.

If you plan to build your own house on the land, be sure you plan to remain in the area and that your employer won’t be transferring you across the country.

Land loans. Financing land is expensive. Lenders regard land loans as far riskier than regular mortgages. Because the property isn’t being used, the owner is more likely to walk away, leaving the lender stuck with a piece of non-income-producing acreage. Because of this added risk, down payments and interest rates are higher than with traditional mortgage loans. Be prepared to make a down payment of 20 to 50 percent. The most difficult type of land to finance is “unimproved” or “raw” land—land with no plans for sewers, utilities, streets or structures.

$Tip: Local lenders, familiar with the property, are more likely to grant a loan than a lender unfamiliar with the area.

If you find the loan terms too onerous, consider a home equity loan or refinancing your current mortgage. You should wind up with a lower rate since you are securing the loan with your home. But first, read our previous columns on Home Equity Loans and Refinancing.

Finally, be sure you can afford to pay the taxes on the land long term. You may not be able to re-sell or build as quickly as you initially anticipated.

Before you go down this path
To be successful as a real estate investor you must:

Have access to cash. No matter what type of property you invest in, you will need deep pockets. You must have plenty of income—from a steady job, a trust fund or other investments. And your credit rating should be impeccable.
Be entrepreneurial. You should enjoy negotiating and making business decisions. Being a mini-real estate mogul is not for the timid.
Enjoy research and fact finding. You’ll need to study zoning laws, and trends in housing and interest rates. Many communities have an association of landlords or real estate investors. Join to learn about local laws and regulations governing rental property. Being a member will also keep you in the loop about prices, landlord liabilities and eviction procedures.Nancy Dunnan

Encompass Realty, Arizona real estate, www.encompassrealty.com, www.encompassmortgage.net, Encompass Mortgage LLC, phoenix real estate

You don’t have to be Donald Trump to make money in real estate. Anyone can be a mini-real estate mogul if you have both the temperament and money to make it work.

With the right real estate investment, other people will increase your equity while you’re taking advantage of tax depreciation and price appreciation.

The key to success is to start small, move sensibly and gain experience. So we will begin with the easiest, least expensive investments and move up to the most speculative, most complicated.

Your Own Home
A good way to test the water is with your own home. Rent out a bedroom and bath on an annual basis. Or, if you prefer a shorter term, rent to a professional who has been transferred into the area for a short-term assignment or who needs a place to stay while looking for a house to buy. Teachers often rent. So do writers and artists seeking a Virginia Woolf style “room of their own”—one that is quiet and away from the everyday distractions of their own home.

Don’t overlook your garage or storage space.

Or, if you have a very spacious house, you might do what Florence Griswold did in Old Lyme, Connecticut, in the early 1900s. She housed talented painters and sculptors, turning her mansion and carriage house into an art colony.

Before you rent, check your homeowner’s insurance policy to make certain you are adequately covered in case your renter has an accident, is injured or for some reason decides to sue you. You may need to take out an umbrella policy.

Avoiding the tenant from hell. Interview prospective renters with someone else present to get a second “take” on the person. Check at least three personal and three business references and then draw up a clearly written lease in which you require one or two months’ rent as a security deposit.

A Rental Property
Next on our list of options is buying a two- or three-family home, living in one part and leasing the rest to tenants. Or, if you have adequate resources, you could move directly to buying a single-family house for rental purposes.

Begin by looking for property in your own neighborhood—you know that market best. Other premium rental areas are middle income family neighborhoods and properties near military bases and colleges and universities—people with transient lifestyles usually rent rather than buy.

$Tip: Housing for people with disabilities is always in great demand. Widen doorways to accommodate a wheelchair. Put grab bars in the bathroom, kitchen and elsewhere. Install railings. Even out all floors. Add ramps throughout the house and to the backyard, deck, driveway and front sidewalk.

Expect your lender to require a bigger down payment and a slightly higher interest rate on a rental property than on a primary residence. Compare local offers with those available from Freddie Mac at www.freddiemac.com.

Your property should rent for at least 5 percent, preferably 10 percent, above your total costs. Determine your PITI (monthly principal payment, interest, taxes and insurance), plus the cost of yard and pool service. That’s the amount of rent you will need just to break even, provided the renter pays the utilities. Add to that enough to cover repairs, renovations and upkeep. You will also need an emergency slush fund—money for those down times in between renters.

$Tip: Study the “For Rent” section in the paper for several weeks to see what comparable properties are renting for. Visit several. Find out what the competition is offering and charging.

Legal restrictions. In New York City, a building with three or more residential units is considered a multiple dwelling. Owners must register these buildings with the Department of Housing. These owners, however, are not bound by the rent laws and can charge whatever they want. Find out what your community’s laws are for residential property, including any rental caps, your right to evict tenants, to reject pets, to turn away someone with children.

Investing to Sell
If you’re handy with a hammer, or someone you know is, then buying a single-family fixer-upper and selling it is an option. Start with an inexpensive single-family home, preferably in your neighborhood or within a short drive. If you and hammer and nails don’t mix, read our article on how not to get stung by a contractor.

$Tip: Join a real estate investment group. You’ll not only learn about local lenders, contractors and real estate agents—including those to avoid—but also how others have made (or lost) money.

Investing in Land
Buying beachfront property with a lake, mountain or river view is often very profitable—after all, there are only so many acres with views left in the country. You or someone else will eventually want to build a house, restaurant or resort on such a choice piece of land.

Nevertheless, land, our most speculative choice, is the one in which many investors get burned. Knowing the potential pitfalls, however, helps clear the way for making smart decisions. Here are the four key things to watch for:

Zoning. You buy land with the idea of eventually building a house or houses or an office building, and the town fathers change the rules, rezoning the area.
The market. The area you anticipate being “hot” several years from now never even gets to lukewarm. In the meantime, your capital is tied up and you’re stuck with an annual tax bill.
Disasters. Local officials approve a nearby power plant, dump site or strip mall.
Roads. A major (and noisy) highway is constructed, ruining a bucolic area.
Study the zoning rules carefully. What is the long-term plan for the community or county? Find out about current and future easements, as well as access to water, sewage and electricity.

If you plan to build your own house on the land, be sure you plan to remain in the area and that your employer won’t be transferring you across the country.

Land loans. Financing land is expensive. Lenders regard land loans as far riskier than regular mortgages. Because the property isn’t being used, the owner is more likely to walk away, leaving the lender stuck with a piece of non-income-producing acreage. Because of this added risk, down payments and interest rates are higher than with traditional mortgage loans. Be prepared to make a down payment of 20 to 50 percent. The most difficult type of land to finance is “unimproved” or “raw” land—land with no plans for sewers, utilities, streets or structures.

$Tip: Local lenders, familiar with the property, are more likely to grant a loan than a lender unfamiliar with the area.

If you find the loan terms too onerous, consider a home equity loan or refinancing your current mortgage. You should wind up with a lower rate since you are securing the loan with your home. But first, read our previous columns on Home Equity Loans and Refinancing.

Finally, be sure you can afford to pay the taxes on the land long term. You may not be able to re-sell or build as quickly as you initially anticipated.

Before you go down this path
To be successful as a real estate investor you must:

Have access to cash. No matter what type of property you invest in, you will need deep pockets. You must have plenty of income—from a steady job, a trust fund or other investments. And your credit rating should be impeccable.
Be entrepreneurial. You should enjoy negotiating and making business decisions. Being a mini-real estate mogul is not for the timid.
Enjoy research and fact finding. You’ll need to study zoning laws, and trends in housing and interest rates. Many communities have an association of landlords or real estate investors. Join to learn about local laws and regulations governing rental property. Being a member will also keep you in the loop about prices, landlord liabilities and eviction procedures.Nancy Dunnan

Encompass Realty, Arizona real estate, www.encompassrealty.com, www.encompassmortgage.net, Encompass Mortgage LLC, phoenix real estate

If you’ve been shopping to buy a home or refinance your mortgage, you’ve probably heard about a trend that’s making history: Interest-only loans are as hot as the Atlantic City boardwalk in July. In 2004, the latest numbers available, lenders sold a larger proportion of these mortgages, in which the borrower repays no principal until several years into the loan, than at any other time.

Yet despite this trend the good old 30-year, fixed-rate mortgage remains king. About two-thirds of all mortgage loans are fixed-rate and most have a 30-year term, according to Frank Nothaft, chief economist for the Federal Home Mortgage Lending Corp., called Freddie Mac, the congressionally chartered corporation that buys many of the country’s home loans.

Still, it’s a new world out there in home financing. Borrowers can easily get confused. To help make sense of it all here’s a primer on the most-popular loan options:

30-Year Fixed-Rate
The 30-year fixed-rate loan was good enough for Mom and Dad, and it’s good enough for most of us. Get a good rate and you lock in a low payment.

The upside: Security and certainty. If interest rates rise, you’ll be sitting pretty with today’s rates.
The downside: Thirty years is a long time. The average stay in a house is just six to 10 years, analysts say. If you plan to sell soon and are willing to bet that your home’s value will increase, you might consider a riskier loan to get lower payments.

15-Year Fixed-Rate
Next most popular is the 15-year fixed-rate mortgage, the choice of many refinancers, according to Freddie Mac’s Nothaft. Many people approaching retirement choose this loan.

The upside: Borrowers capture a low rate and own their homes free and clear in half the time.
The downside: Payments can be high, particularly compared with low-payment ARMs.

ARMs
The third most popular loan type is the ARM, or adjustable rate mortgage. ARMs come in many shapes and sizes, but in all, after an initial term, the interest rate can change with the ups and downs of a designated index, such as the Treasury bill index.

Some ARMs begin with fluctuating rates. Hybrids start with a fixed rate then convert to an adjustable mortgage, with an interest rate that can change annually. Hybrid ARMs (including interest-only ARMs) are now 35 percent of the mortgage market, according to Freddie Mac.

Most popular is the 5-1 ARM, with a fixed-interest rate for five years, followed by an adjustable rate. Some two-thirds of all hybrid loans are 5-1s, says Nothaft. Other common hybrids are the 3-1, 7-1 and 10-1.

The upside: Introductory hybrid ARM rates can be wonderfully low. Rate fluctuations during the adjustable periods should be somewhat muted by a lid on how much change is allowed in each adjustment period.
The downside: Since interest rates are at record lows now, adjustable rates may have nowhere to go but up. The inability to anticipate the size of your mortgage payment is risky, especially for those who live close to their income limits.

Interest-Only ARMs
“Most of the excitement these days is about interest-only loans,” says Bob Visini of LoanPerformance, a San Francisco-based firm that studies the market. “In a high-priced market like the California market, [interest-only] loans are being used a lot to just get into a home.”

These have become increasingly popular during the last two years. These loans require that borrowers only make payments on the interest for the initial term, deferring principal payments for down the road. When the initial term is over, monthly payments spike up considerably. Most interest-only ARMs are sold in terms of three, five or seven years, with the five-year leading the pack.

The upside: The interest-only loan can leverage buyers into a home in an expensive area for a small monthly payment. If all goes well, borrowers enjoy cheap monthly payments while equity builds with a rising market. Before the big payments kick in, the house can be sold for a profit or refinanced. Interest-only ARMs appeal to buyers who expect their earning power will increase by the time the interest rate rises. These loans are also attractive to sophisticated, disciplined investors. Visini says he knows double-income couples who pick these mortgages so they can defer making big house payments while front-loading 401(k)s.
The downside: Interest-only loans have the same risks as other ARMs, plus borrowers’ payments build no equity in the interest-only phase. If house prices drop—not impossible in a hot market—and rates rise, borrowers could be stuck with high, rising payments on a house in which they have no equity and whose value has sunk. At worst, the loan could be higher than the home value.

Option ARM
The option ARM—also called a flexible-payment ARM—is finding more takers, too. It offers an array of payment options each month: a minimum payment, an interest-only payment, a payment as if the loan were fully amortized over 30 years or over 15 years.

The upside: These loans have low initial rates. The flexibility is nice. Those with the discipline to make the fully amortized payments may enjoy occasionally choosing a lower payment during holidays or a tight spot. Also, borrowers can pay off an option ARM early by consistently choosing the 15-year payment.
The downside: Option ARMs are complex. Buyers should thoroughly understand them. The risk depends on the payment borrowers choose. The interest-only payment carries the same risk as an interest-only loan. The minimum payment is even riskier: Since option-ARM interest rates are adjusted monthly, but the payment amount is adjusted yearly, it is possible by choosing the minimum payment that payments won’t cover the interest. The difference is added to the loan, putting the borrower deeper in debt (called negative amortization). Thus, big payment increases are possible—bigger than with conventional ARMs.

Other Mortgage Types
Forty-year fixed loans are sold, but only rarely, says Visini. With balloon loans, payments are calculated as if a mortgage were being paid over, say, 30 years, but the remaining balance comes due in five or 10 years. These used to be common, but now lenders are more likely to offer 15-year ARMs instead.Marilyn Lewis

Encompass Realty, Arizona Real Estate, www.encompassrealty, www.encomapssmortgage.net, arizona mortgage, residential, phoenix real estate, arizona real estate

Finding a home to buy and negotiating the purchase contract are the toughest parts of the home buying process for most people. But, if you don’t plan ahead and carefully monitor your home purchase transaction, you could run into trouble.

Always review your contract
The first thing you should do after your offer is accepted is review the contract and make a list of important dates. These will include such things as the contract contingency deadlines and the actual closing date. If you and the seller countered back and forth before arriving at a mutually acceptable contract, these dates may have changed from the original draft.

Most home purchase contracts include an inspection contingency. It’s wise to complete a home inspection as soon as you can. This way you’ll have time to order further inspections if necessary. When the real estate market is active, you may have difficulty lining up an inspector quickly. It helps if you’re working with a real estate agent who has established relationships with local inspectors.

Make sure insurance is in place
Homeowner’s insurance can be difficult to obtain in some areas, so you should start working on this right away. This used to be one of the last items on a buyer’s closing checklist. But, these days, it should be at the top of the list. In some states, like California and Texas, some big insurance companies are not currently writing new homeowner’s policies. But a mortgage lender will require that you have a homeowner’s policy before they will commit the money to close the sale.

Insurance companies scrutinize both the buyer and the property. The buyer must have good credit. The insurer would also like the buyer to be someone who does not have a history of submitting a lot of insurance claims. Ideally, the property should have had no insurance claims made against it in the last five years. Insurers are particularly sensitive to claims that have been made for water damage.

It’s recommended that you investigate the insurability of the property during your inspection contingency time frame. This way, if you find out that it’s going to cost more than you expected to insure the property because of the seller’s past insurance claims, you will have the opportunity to try to negotiate some form of compensation from the seller. Even if the seller won’t give a dime, at least you have full knowledge of what the purchase will cost before you proceed.

Double check financial arrangements
When a closing is delayed, it usually has something to do with the buyer’s mortgage. In order to ensure that this doesn’t happen to you, be diligent about providing your lender with all the documentation needed to give you final loan approval. A lender won’t prepare the loan documents for you to sign until all the lender’s conditions for approval have been satisfied.

As the closing date approaches, you’ll need to arrange for the transfer of any remaining funds that are necessary to close the sale. Many buyers wire closing funds to the closing agent. This may be an escrow office or an attorney, depending on where you’re buying.

Take one more look
It’s a good idea to schedule a final walk-through of the property to make sure that it is in substantially the same condition as it was when the seller accepted your offer. If possible, ask the seller to do an informal walk-through with you to show you all the idiosyncrasies of the house. It might take years to discover these on your own.

The closing: Ask the closing agent to provide you with copies of all the documents that you will need to sign in advance of your signing appointment. This may not be possible due to time constraints. But if you can review the documents in advance and take care of all outstanding issues, the signing will go more smoothly. Dian Hymer

Encompass Realty, Arizona real estate, www.encompassrealty.com, Phoenix, Arizona

A few weeks ago, I received an e-mail from a son concerned about his 80-year-old mother’s home, which includes a driveway that extends a few feet onto a neighbor’s vacant lot. He reports his mother has owned her home about 40 years and the driveway was installed by the builder.

A new owner has purchased the adjoining vacant lot and wants the driveway moved. Can the 80-year-old homeowner be forced to move the driveway she (and her late husband) used for more than 40 years?

Almost Every Property is Subject to Easements
Even if your property is out in the boondocks, it probably has one or more easements affecting it. The definition of an easement is the legal right of another to use part of your property.

Examples include utility easements, above or below ground, for power lines, phone lines, water pipes, sewer pipes, gas lines and TV cable lines. Without these free easements, most utilities would not agree to serve individual properties.

More easement examples include the legal or implied right of individuals to pass over a neighbor’s property, such as for a driveway. Most of these easements were created when the subdivision was developed or the lots were subdivided.

Although very rare, an easement by necessity can be created to reach a landlocked property that has no access to a public road. Creating such an easement usually requires legal action against an adjoining neighbor. But it creates tremendous increased property value for the owner of the landlocked property.

Here are the principal types of easements:

The prescriptive easement
If you use part of your neighbor’s property without permission or someone uses part of your property even after you tell them to stop, a prescriptive easement for permanent use might arise. This is the situation described in the first paragraph, in which the homeowner used her driveway over the adjoining property more than 40 years without permission.

The legal tests to acquire a prescriptive easement over the property of another owner are (a) open (obvious, not secretive), (b) notorious (clearly visible), © hostile (without the landowner’s consent) and (d) continuous (without interruption) for the number of years required by state law. The minimum prescriptive easement hostile use time is just five years in California. But it is 30 years in Texas. Other states have varying time tests.

However, a prescriptive easement need not be exclusive. It can involve shared use, either with the property owner or with another prescriptive easement user.

Clearly, the homeowner in the example above meets the tests. If the new owner of the adjoining vacant lot attempts to terminate her driveway use, perhaps by erecting a fence, the legal action to perfect a prescriptive easement is called a “quiet title lawsuit.” A local real estate attorney should be consulted.

The easement in gross
The most common type of easement, affecting the largest number of properties, is the easement in gross. Only one property is involved. It is the property subject to the easement.

Most easements in gross benefit public utilities or government agencies. They are usually recorded in the public records when a subdivision is created or a lot is subdivided.

If an easement in gross is not properly recorded, it might be invalid, and the property owner could force its removal or payment for continued use. However, if the easement in gross is obvious, such as overhead power lines or a public biking path, the property owner might have no legal recourse.

Because many easements in gross are underground, especially for water and sewer lines, it is extremely important for property owners to always obtain an owner’s title insurance policy at the time of property acquisition.

When the title policy fails to disclose a properly recorded underground easement in gross, the title insurer can be required to pay either (a) the cost of moving the underground easement or (b) the diminished value of the property.

To illustrate, suppose you want to construct a swimming pool but you discover a city sewer easement in your backyard, which was not disclosed on your title insurance policy. Turn the problem over to your title insurer to resolve by removal or payment.

Easements appurtenant
When an easement benefits an adjoining property, such as for a driveway or walkway, that is an easement appurtenant.

The property that benefits is called the “dominant tenement.” The property that is burdened by the easement appurtenant is called the “servient tenement.”

To be valid, an easement appurtenant must be properly recorded against the servient property that is burdened. Such an easement is also usually recorded on the title to the adjoining dominant property that benefits from the easement.

Easements appurtenant are most frequently recorded when a subdivision is created or when a large property is subdivided into two or more smaller lots.

For example, if a lot is subdivided into two lots but one is not located on a street or road, the rear property is usually called a “flag lot.” The reason is it has a driveway for an easement appurtenant over the front property and it looks like a flag on a property map.

Easements by necessity. A special variety of an easement appurtenant is called an “easement by necessity.” Such an easement can be created to reach a landlocked property, which does not have access to a public road.

The common law theory is all properties should have access to a road, either directly or over an adjoining property. Sometimes property is subdivided along roads, but the result is there are millions of landlocked properties where owners “forgot” to provide access.

Because landlocked properties have virtually no value, an easement by necessity can usually be created over an adjoining property if, at sometime in the past, it had common ownership with the landlocked property.

Extensive title research might be required to prove past common ownership. A court “quiet title” action is usually needed to create an easement by necessity unless the adjoining owner is willing to cooperate to create the easement access.

Summary
Because virtually every property is burdened by an easement, or might benefit from an easement, property owners should understand these three types of easements.

To prevent a prescriptive easement from affecting your property, you should periodically inspect it and interrupt anyone who might attempt to acquire a prescriptive easement. However, if you don’t object to a neighbor’s use of part of your land, granting permission in writing will usually prevent a prescriptive easement from arising. For full details, please consult a local real estate attorney. Robert J. Bruss

Encompass Realty & Investments LLC
Arizona real estate, Tucson, Scottsdale, Phoenix, www.encompassrealty.com, www.encompassmortgage.net

The appeal of second homes is universal. Russians have their dachas, Swedes their stugas and the French their pied-à-terre. And Americans want second homes. For many, the second-home dream has some predictable On Golden Pond components: kids squealing and splashing in golden summer light, family and friends hanging out together, taking long walks between even longer naps.

But many folks aren’t motivated by romantic notions, per se; they just want a home away from home—a place to golf, ski, swim, sail or a change of scenery. Suburbanites and country mice are getting condos in the heart of the city. City dwellers are buying second homes in the mountains, at the shore or down a country lane. Last year, thanks to aging baby boomers and changes in the tax code, second-home sales made up a quarter of the residential real estate market.

Today, middle-aged Americans are transforming rural areas, small towns and resort communities in their pursuit of recreational havens, landing pads for retirement and investments to diversify stock-heavy portfolios. Yet folks from the 77 million-strong baby boom generation aren’t the only buyers. Gen-Xers and even 20-somethings are getting second homes, too.

The question is: How?

The cash option
For a surprising number, the “how” is simple: Pay cash. In St. George, Utah, where home prices shot through the roof a year ago, real estate agent David Ellis estimates half his clients pay cash.

“There is a limited number of people who, crazy as it is, are financing their second homes,” Ellis says. St. George’s relatively low prices, red rock vistas and proximity to the Grand Canyon and other parks draw urban refugees, many of whom have cashed out longtime family homes in expensive Southern California markets.

Walter Molony, spokesman for the National Association of Realtors, explains the big picture: The second-home market is being driven largely by a 1997 change in the tax code that allows a couple to exclude up to $500,000 ($250,000 for singles) in profit on the sale of a home from capital gains tax.

“For the first time, this freed people to make housing choices based on their needs and desires rather than on avoiding that tax consequence,” Molony says. Before, the incentive was to “trade up.” Now, downsizing is popular with boomers’ selling big family homes that have appreciated mightily. With pockets full of cash equity, many can buy both a smaller home and a vacation house or investment property.

In 2004, about 29 percent of residential property buyers who financed were using proceeds from sale of a primary residence, according to a survey by the National Association of Realtors.

Financing your second home
Not long ago, when financing second homes, mortgage bankers demanded heftier down payments and higher interest rates and insurance fees. Today, says David Hehman, president of EscapeHomes.com, which helps people buy second homes, these extra costs have mostly been erased by competition. Some lenders may still charge an eighth point extra because lenders see risk in a home that’s not constantly monitored by the owner. Still, in years past, Hehman says, a second-home borrower would have paid a quarter or a half point extra.

Robert Jangaard, a Whidbey Island, Wash., resident, recently financed the construction of a recreation home at Lake Wenatchee, near Leavenworth, Wash. He and his family escape there to ski, golf and hike the mountains. Jangaard says that his bank didn’t ask for anything special for the second-home loan—no extra points or fees or a bigger down payment. “It’s not harder. In fact, it gets easier the more you borrow,” Jangaard quips. “It’s all based on how well you know the banker and how familiar they are with your situation.”

But, points out Dave Martin, a mortgage banker with First Horizon Home Loans in the Seattle area, you must have enough income to qualify for both your principal residence and your second home if you are financing both. Martin recently financed a vacation home in Chelan, Wash. He, too, he found no difference in the requirements or costs of the loan.

You will pay more, though, if you plan to rent out the second home. Investment property, as it is considered, is financed and insured at higher rates.

Financing advice
For those financing a second home David Hehman, from EscapeHomes.com, offers these tips:

Identify your primary motive. Is it relaxation, retirement or investment? There’s nothing wrong with, say, renting a second home out until retirement. But get clear on your main goal. Don’t stretch so far for a vacation home that you’re forced to rent it out, or buy an investment property where you want to retire but the market is stagnant.
Apply for financing in the town where you are buying; bankers there may give better terms because they appreciate the market.
Caution: You’ll be paying for two of everything: new roofs, yard maintenance, appliance repairs. Budget wisely.
Don’t kill yourself financially, especially on a vacation place. “The most important thing is pure enjoyment and peace of mind; that’s why you’re buying a second home,” Hehman says.
Try Internet loan sites to get lenders bidding on your mortgage. A few to try include E-Loan, Lending Tree, The Loan Page and Total Move.

The friends-and-family plan
A number of people who can’t foot the whole bill are doing what their parents and grandparents have done: Going in with family or friends on a vacation home.

The big issue is figuring out how you’ll share. There are as many ways to divide up the pie as there are opinions in the group. By brainstorming and negotiating, invent a system that reflects your philosophies, resources and needs. A cash-strapped partner could throw in more labor than others; older family members with more means might pay a larger share and be spared some of the more intensive chores.

The important part is putting your agreements down on paper. Make contracts to cover financing, maintenance and even how the house will be shared. You can always ease off later if these feel too formal. But tightening up a sloppy, unhappy situation can cause pain and resentment. Marilyn Lewis

Encompass Realty, Arizona real estate, residental real estate, commercial real estate and more, Arizona