Home sweet retirement home

With prices down by a third in many markets, it may be time to start shopping for the house you want to end up in.

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By Dan Kadlec, Money Magazine contributing writer

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Dan Kadlec is co-author of The Power Years, a guide for boomers. E-mail him at boom_years@moneymail.com.
Discount Territory for Retirement
Since 2006, home values in many retirement areas have fallen 30% or more vs. a 23% average drop in house prices nationwide.
City Average home price Drop since peak
Naples, Fla. $350,843 -38%
Las Vegas $215,542 -36%
Phoenix $203,151 -32%
Source:SOURCES: S&P Case-Shiller; Zillow.com.

(Money Magazine) -- My wife and I recently swallowed hard and bought a tiny cabin on a prime lake-front lot near the Berkshire hills in western Massachusetts where we'd like to retire one day. (At a later date, we'll build a bigger house.) Were we early, buying before housing prices hit rock bottom? Almost certainly. Are we losing sleep over it? Absolutely not.

We love knowing we've locked up a fantastic piece of property at 20% below the asking price - the price it might have fetched a few years ago. Now we're enjoying planning for our retirement in specifics - and meanwhile, spending as much time in our Berkshires retreat as we are able to.

If you also dream of retiring to an idyllic waterfront locale, a country plot or an active-adult community, you may similarly find that now is the right time to buy - or at least to start looking in earnest. Prices in once frothy retirement havens like Las Vegas, Naples, Fla. and Phoenix have tumbled more than 30% since peaking in 2006.

Sure, values may go lower still, given forecasts that the housing market will stay soft through 2009. Picking the exact bottom is a dicey game, however. And in any case, the question that matters most to retirement buyers is not what price the house you want will sell for next year but whether it will be worth more than what you paid for it in, say, 10 or 15 years.

Framed that way, the values in retirement homes right now are compelling in many areas. The following steps can help you decide if you're ready to make this leap and, if so, how to land the best deal.

Know what you can afford

Before you spend time and energy scouting properties, make sure you can clear the hurdles that buying now may present. Financing remains tight, so you'll need stellar credit (740 or higher) to qualify for the lowest mortgage rate. Then too, spending money on a second home isn't wise if your job could be in jeopardy because of the recession. And if your nest egg has been seriously dented by falling stocks, you'd be better off putting extra cash into rebuilding it, not carrying the costs of two properties. If these aren't obstacles for you, let the shopping begin.

Pick your sweet spot

The current downturn has hit virtually every corner of the market. So you can find deals almost anywhere; the trick is to home in on locales where the houses also have a good shot at maintaining their value going forward and eventually appreciating. Your best bet: areas with large employers in growth industries such as health care and technology or that offer other extras that will help fuel expansion. Examples include the new airport planned for Panama City Beach, Fla. and the Goldilocks weather (not too hot, not too cold) in the Carolinas, which have seen a recent influx of new residents from the Deep South, typically former northerners who are coming partway back up the coast to recapture a taste of the four seasons.

If you prefer an active-adult community, you'll find the best values in complexes completed more than five years ago. "You won't get the very latest and greatest amenities," warns Rebecca Stahr, a consultant to adult-community builders at LifeSpring Environs in Atlanta. But that's why prices of these homes have fallen more than those of newer ones - other buyers are likely to favor newer developments that offer lots of on-site facilities like restaurants and spas. Warning: Stay away from projects that aren't finished, no matter how many free upgrades the developer offers. Builders' struggles mean that construction sites may stay in the construction phase for quite a while.

Drive a hard bargain

Many second-home owners are speculators who got trapped when the market tanked, or folks who lost income as the economy went bad and can no longer support two residences. That makes them particularly eager sellers who may accept a below-market price to clinch a quick deal.

How low can you go? Adorna Carroll, a real estate agent at Realty3 in Berlin, Conn., suggests this strategy: First determine what similar properties have sold for recently (find out from a broker or an online tool like Zillow.com). Then bid below that, negotiating with intangibles such as terms and dates, not price. Offering 10% less than recent sales is a good starting point; a 20% haircut is okay if you're worried about further drops in the market. If you get a cold response, you can always raise the offer and possibly still walk away with a good deal.

Work with an ally

Normally, real estate agents are legally bound to work on behalf of the seller to land the highest price. But you can choose instead to work with an agent accredited to represent the buyer; in this case, the legal obligation is reversed and the broker is compelled to use her understanding of the seller and the property to extract the lowest price on your behalf. (Find a buyer-agent through referrals or at rebac.net.) True, the agent still draws her fee from the sales commission so her loyalties, unofficially, may be divided. But given the turbulence of the market, you gain an advantage by working with a knowledgeable partner. Says Carroll: "At times like these it pays to have an advocate."

E-mail Dan Kadlec, co-author of "The Power Years," at boom_years@moneymail.com.

Need help with a financial dilemma? In an upcoming issue, Money magazine will be answering reader questions. Email money_letters@moneymail.com
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