You’ve decided you want to enjoy your vacation time in the Hamptons and you’re ready to look at second homes. But before you call your real estate agent with news that you’re in the market, consider this: home prices in the Hamptons are on the rise. It might be wise for you to weigh out whether you want to rent or buy your house in the Hamptons.

Fun fact: Jana Partners founder Barry Rosenstein shelled out $147 million for his new residence, making it the most expensive home sale ever in the United States.

It’s probably not coincidental that this record-breaking home sale occurred in the Hamptons, where the value of real estate is climbing at a very rapid pace. According to New York real estate giant Douglas Elliman, the average price of a home in the Hamptons in the first quarter of 2014 was $1.7 million. That’s a 40% increase over the average price in first quarter 2013.

 

The Most Important Factor

Hamptons real estate agent Diane Saatchi, Associate Broker at Hamptons luxury real estate agency Saunders & Associates, says that when you’re making the decision to rent or buy in the Hamptons, you need to look at mortgage rates rather than sale price. “When rates are low, it makes sense to buy,” she explains.

An Investment or Vacation Spot?

When determining whether to rent or buy a second residence, many people consider the length of time they’d need to retain the home before selling it to make it worth their while.

In the case of a second home in the Hamptons, Saatchi says, “A second home often turns out to be a good investment. If return on investment is the only consideration and you’re not in the real estate business, there are probably better ways to invest. But none of those other investments come with a home in the Hamptons!” Good point!

So, purchasing may well be a wise longer-term choice, but if you’d be making your Hamptons second home purchase mainly as an investment, renting might be a better idea.

Benefit of Both

Both renting and owning have benefits. Saatchi points out that purchasing comes with pride of ownership and potential monetary returns over the long term.

However, renting can be a wise choice as well. You’re not stuck with your second home if you rent. Perhaps it turns out that the location — or even the home itself — is not the best fit for you. That’s okay! As soon as your lease is up, you’re out of there.

Additionally, Saatchi points out that your rental dollar will score a pricier home than your purchase dollar. “Using the estimated 5% rent price to sale value for a season rental, one can rent a better — as in more expensive — house than what it would cost to own,” Saatchi says.

She explains it well with a simple scenario: You can rent a $1 million house in the Hamptons for as little as $50,000 a season. But to purchase a $1 million home in the Hamptons, you’ll need a $200,000 down payment. And don’t forget the estimated $20,000 in closing costs.

“At 5% interest and a 30 year term, the annual cost of the monthly payments is $51,535,” she says. “Adding in property taxes, insurance, annual maintenance, furniture, and landscape, you can rent for seven or more seasons for what it costs to own for the first year.”

Bottom line: “If the If the maximum allocated for a second home is that same $50,000 a rental would cost, the purchase price would have to be way less than $1 million.”

Other Factors to Consider

When making out the rent vs. buy decision for a Hamptons home, Saatchi also points out the the following for consideration:

  • Long-term plans. Real estate isn’t a liquid asset. Be as certain as you can that you want to stay for a while if you’re inclined to buy.
  • Personal taste. Most rental homes in the Hamptons come furnished. If you cannot live with someone else’s items and décor choices, renting might make you unhappy.
  • Capped expense. “A 30-year fixed rate mortgage caps annual costs in a way that renting cannot, “ Saatchi notes. “And, many think paying rent is akin to wasting money.”

The Hamptons Life

If you’re really having a hard time deciding, Saatchi says that “it is never a bad idea to rent for a season before buying. Or rent for a short term before committing to a longer one.”

And at the end of the day, whether you rent or buy in the Hamptons, you’ll be spending your free time in a wonderful place, so it’s a win either way.

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Laura Willard

Laura Willard

Laura Willard is an adoptive mom, a law school grad who has successfully avoided using her education for eight years and counting, a writer, a curator and an editor. She cares deeply about social justice issues. Laura enjoys spending time with her family and friends, walking on the beach - something that's become quite difficult since she left San Diego and returned to Arizona a year ago - and a good glass of wine. She loves to spend hours on end writing, but avoids doing math at all costs. (She loves her accountant dearly.) Laura's certain sarcasm is a language, so she's totally bilingual.  Follow Laura on Twitter and Google+ and Facebook

1 Comment

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Reena Esquieres · November 23, 2015 at 9:36 pm

If you are planning to buy a real estate property from free property listings, they say summer is the best time to do it because you get to see how beautiful the house you are planning to buy really is. I would also advise to have the property rented over one summer season to get a feel of it before you make the decision to buy it. This is one great article. http://prelist.org/

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