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Tips for Purchasing that Second Home Away from Home; Fractional Ownership Growing Trend; Protecting Your Home Against Burglars

Aired May 20, 2006 - 09:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

(COMMERCIAL BREAK)
BETTY NGUYEN, CNN ANCHOR: And update now on the breaking news that we've been telling you about out of eastern Kentucky. According to the "Associated Press," three miners have been killed in a mine explosion there, two are still missing.

One miner was able to walk out of the mine after the explosion. But investigators are on the scene and of course we're going to bring you the latest on this. It's happening at the Darby Mine Number 1, which is in Harlan County. And as you know, rescue operations are underway as we speak. We'll keep you posted on that. "OPEN HOUSE" is next with Gerri Willis, stay tuned.

GERRI WILLIS, CNN ANCHOR: Find your home away from home for cheaper than you think. Plus learn how to protect your home when you are away and how to own your own dream vacation home, boat or even an RV for a fraction of the price. Good morning everyone. I'm Gerri Willis and this is OPEN HOUSE.

Memorial Day weekend is just one week away and many people have dreams of owning a second home. You know, the place you get away from it all, whether it be at the beach, the mountains or somewhere in between. But before you go there, here are some things, very important things, you need to keep in mind.

(BEGIN VIDEOTAPE)

WILLIS (voice-over): Stress is starting to show in the second home market with some sellers slashing prices and buyers looking for deals. While this could be your opportunity to buy, tread carefully. First, the good news. You no longer have to put down 30 to 40 percent of the purchase price to buy that dream place on the beach.

The bad news? You can expect to pay as much as one full percentage point more than you would if you were purchasing a primary home. Adjustables and key locks used to be attractive to finance a second home, but with rates on the rise, these products have lost their luster.

Second realize upkeep can punch a big hole in that vacation dream. Not to mention your time. Expect to spend as much as two percent of the purchase price per year to maintain your place in the sun. And don't forget you'll need to have someone check the place on a regular basis to be sure that all is quiet on the vacation front. Also be aware that you can spend more on insurance if you live near any body of water. Flood insurance costs an average of $450 per year. And if your home is located in a remote area far from fire and police services, expect to pay more for homeowners insurance.

And beware, if you are looking forward to a big tax break on your second home, the good news is you can still deduct your estate taxes and mortgage interests. But if you're using a second home as an investment and renting it out, tax rules can be tricky. So plan carefully. Best case scenario, you will be able to write off your rent income but check with your tax professional.

(END VIDEOTAPE)

WILLIS: I don't care, I still want a second home. But if you're not quite ready to buy that second home, why not rent one on your next vacation. The villa rental market is growing at a strong pace and because of that, you now have more choices for every kind of budget. Amy Farley from "Travel & Leisure Magazine" is here to help us find a perfect villa without breaking the bank.

I cannot help it, I still hear that word and I think -- I got to get a second mortgage to be able to afford it. What's going on out there?

AMY FARLEY, "TRAVEL & LEISURE MAGAZINE": Well the market is expanding, so you can now find the classic villa, you know the big palatial home in Tuscany or Provonce. You can also find really affordable cottages, lakeside cottages, Caribbean cottages. So it can be an inexpensive way to get to a destination.

WILLIS: Great idea. OK, but am I too late this year?

FARLEY: You might be. The first step of villa rental is planning ahead. You have to think most agencies recommend about five to eight months in advance. Sometimes for popular properties, at least a year in advance.

WILLIS: Wow! So you want to get in line early obviously if you're getting something that's really wonderful.

FARLEY: Yes.

WILLIS: Where do I do this? I mean is it any travel agent? Are there special places to go?

FARLEY: Well you can go to one of three type of agencies. The first one, are boutique agencies. So if you're a novice booker and you want somebody to really hold your hand, lead you to the property that fits you best, you can go to a small boutique agency, which maybe doesn't represent a lot of villas but can match you to the perfect one.

WILLIS: Let's talk about the one in Tuscany. That sounds like a really beautiful villa in Italy. I'm thinking send me there. How much is it? FARLEY: This villa is called Villa Galleto and it's in Tuscany. It is $2,300 a week, which works out to about $320 a night. It's a one bedroom villa.

WILLIS: It's gorgeous, oh my goodness.

FARLEY: And it puts you right in the center of Tuscany.

WILLIS: I have housekeeping with that? I can get a maid, I don't have to clean it up myself?

FARLEY: Housekeeping, maid, it comes with a pool, a private garden and it's a perfect base for exploring all of Tuscany.

WILLIS: Oh my gosh, that's gorgeous. OK I have to ask you though. Insurance, is that a big deal here? Should I have trip insurance if I'm doing these?

FARLEY: You should. We tell people that you should protect yourself by getting trip insurance because you're going to have to pay in full before you go. So if anything happens this is your way to get your money back. You also should get a contract that details everything. This is particularly true if you go directly with the homeowner and don't go through an agency to book your villa.

WILLIS: So you don't have to go through an agency, you can actually book directly.

FARLEY: You can, yes. There is a Web site, Hideaways International is a great one to go to. You can save a little bit money if you go directly to the owners.

WILLIS: I'm still scared though that I'm not going to get what I think I'm getting though. Are there ways to check the place? I mean are there pictures, are there details that I can rely on?

FARLEY: There are always pictures available but we tell people to use those as just a jumping off point for more questions. Because you never know what's hidden just outside of the frame of the picture. So you have to ask the details of the rooms, as to how big they are, whether they get sunlight, how recently the home was remodeled. And also ask about the surrounding area, because there might be a construction site next door.

WILLIS: Good point.

FARLEY: The beach might be right across a big highway. So ask everything that comes to mind because you don't want any surprises.

WILLIS: Keep them on the phone a long time. Now, you have a villa in the Caribbean that we want to see, right?

FARLEY: This one is great. This one is called Terustin Mera. And it is on St. Maarten, which is an island that people might think is out of their price range. But this one is extraordinary. It's a three bedroom villa which can have four bedrooms if you have children there as well. It's $5,500 a night, which works into about -- I'm sorry, $5,500 a week, which works out to about $260 a night.

WILLIS: All right. Let's go to Sri Lanka. Because you got a fabulous property there as well.

FARLEY: This is great. Well people are getting more adventurous and where they want to go with those villas. And this is property ...

WILLIS: This is exotic.

FARLEY: Yes this is very exotic. It's called Villa Dubur and it's in Sri Lanka.

WILLIS: Look at that.

FARLEY: This is a two-bedroom cottage that literally was, it's a 200-year-old house that was rebuilt in Sri Lanka, it was move from Indonesia, it's a Japanese house. And it has colonial furnishings, and it has a pool, so you have private pool boys, you have a chef, you have security while you're at the house.

WILLIS: Awesome. OK let's go to South Africa quickly because we don't have a lot more time and this is an amazing property. Right?

FARLEY: This is a stunner. This is called the Murakura (ph) Bush Lodge, and it is in a private game reserve, 7300 acre game reserve that's right on the border of Botswana. You get your private safari guards, you get two safari trucks a day, you get a chef that cooks you three meals, three bedrooms, a private pool. This is a stunning and it's a stylish property.

WILLIS: What's all this I hear about a ranger on this property?

FARLEY: You get a private ranger that will take you on bush walks and safari drives.

WILLIS: Amy I'm telling you that is going to be a ton of fun. I've got to do that, that's exciting. Thank you for being with us.

Straight ahead on OPEN HOUSE, make your dream come true at a fraction of the cost. We'll explain. Plus some must-have information on protecting your home when you leave home. But first your tip of the day ...

(BEGIN VIDEO CLIP)

WILLIS (voice-over): Before you hit the road with your pet this summer, make sure your four-legged friend is travel ready. Get a clean bill of health from your vet and pack all vaccination records. And don't forget to bring proper ID. Your pet should wear a name tag that includes its name, your name, as well as an address and phone number.

And remember not all rooms are created equal. Pet vacations.com gives you the inside scoop on pet friendly hotels. Just type in your destination and fetch the results. You can also check with the convention and visitor's bureau in each state. And that's your tip of the day.

(COMMERCIAL BREAK)

WILLIS: Let's face it, owning a second home in today's market can be tough going. But you could own a piece of one for just a fraction of the purchase price. Richard Ragatz from Ragatz Associates is here to talk about the growing trend of fractional ownership. OK Richard, what is fractional ownership?

RICHARD RAGATZ, RAGATZ ASSOCIATES: Fractional ownership is a way to buy a piece of a very high quality resort home at a fraction of the price. It's more than a week of time share but less than whole ownership.

WILLIS: But so how does that work exactly? I mean do you slice and dice the property up into many pieces and sell shares?

RAGATZ: Well, you do, you can sell anywhere from a 1/15th share which gives the owner three weeks of ownership and three weeks of use a year all the way up to a one-quarter share which gives the owner a quarter of the home. Both in use in an ownership and points in between.

WILLIS: So it sounds like you're saying this is very different from time shares, because that as you know, time shares got a very bad reputation out there, people didn't like them. They had the hard sell on those, is this different?

RAGATZ: Well, it's still a form of shared ownership but the consumer profile is quite different. Time share owners have an income of about 85,000, a fractional interest consumer has an income of maybe 250,000.

WILLIS: Wow, that's very different.

RAGATZ: The price of a time share is maybe $15,000 per week and the average price of a fractional is perhaps around $225,000 for a share.

WILLIS: Well now that is different, so how do you finance that?

RAGATZ: You can finance it, consumer financing is available, as it is with any form of real estate. Typically 20 percent down over a 10-year period.

WILLIS: Over 10 years, so I am getting a very short loan? We are not talking about a 30-year mortgage, right?

RAGATZ: Or longer. You could probably get a much longer term than that, you could probably get 20 years.

WILLIS: One of the things that's confusing to me, is, OK who takes care of the maintenance? I mean if we're sharing this with maybe only three other people and holding it for over a year, who cleans up and who's responsible for that? RAGATZ: Well typically, you have annual dues, and that's one of the advantages over whole ownership that owning a fractional is really hassle-free. You don't have to worry about maintaining it yourself. You have a professional management company who takes care of it for you and you pay annual dues and part of it goes to a furniture reserve, maid service, to the landscaping, to everything else that takes care of your home.

WILLIS: All right so Richard I think one of the fun things about this topic is you don't have to own a house, you could own an RV through fractional ownership, right?

RAGATZ: They are fractionalizing just about anything that a person uses for a discretionary time. You can fractionalize a jet, any type of airplane, a motor home, a yacht as well as traditional real estate.

WILLIS: Wow, a yacht? Now you're talking my language. OK. So let's talk about insuring these properties, because this could be tricky because you have so many owners. Is there anything special to know once you buy one of these things, how you get them insured?

RAGATZ: No it's typically done through the management company, it's very easy to insure. Typically what happens is that you don't buy a share of a specific home, you more typically buy a share of a set of homes in a resort development. So you may have 200 owners with 10 homes. So it's not typically one off home.

WILLIS: OK Richard, well we appreciate your time today, thanks so much for being with us.

RAGATZ: You're welcome.

WILLIS: Still ahead we'll show you a house that is actually on the market for $75 million. And sound the alarm, "Weekend Project" is next, with a way to take care of your home when you're not there.

(COMMERCIAL BREAK)

WILLIS: If you're planning on spending any time away from home this summer at all, listen up. Burglary is the second most common serious crime, that's according to the Department of Justice. And burglars, well they're known to target homes that are vacant for long stretches of time. But you can protect your home and everything inside of it. Michael McCann is the former chief of security of the United Nations and currently runs McCann Protective Services. Michael welcome.

MICHAEL MCCANN, FORMER CHIEF OF U.N. SECURITY: Thank you Gerri.

WILLIS: OK, let's start with the basics, what part of my house is most vulnerable to burglars? Where are they most likely to come in?

MCCANN: They're going to come into the weakest spot. So what you're looking to do is set up multiple perimeter. Outside the house have adequate lighting, make sure the newspapers aren't left there while you're away, the mail is picked up and the shrubs are trimmed. And then when you get to the house, make sure that the windows and the doors are properly secured, and in inside have an adequate alarm system.

WILLIS: OK so it's layers of protection, it's not just one thing, everything from a security system inside to doing things outside the house as well. If I'm trying to take some kind of inventory of my house might fare if it was attacked by a burglar, is there anything specific you would recommend that the average homeowner do?

MCCANN: Well I think what's very important is to do some of the basic things, make sure the lock is adequate, that it's a lock that has a deadbolt. You have control of the key ...

WILLIS: Let's do some of that right now. Because we have a deadbolt here. Now you say this is the most important kind of lock, right?

MCCANN: What's important with this lock is that it's a deadbolt lock and it's not a lock that can easily be opened by sliding something through the doorjamb.

WILLIS: So I can't open it with a credit card.

MCCANN: You can't open it with a credit card.

WILLIS: Yes. Let me show the back of it so that people can see, just, you're probably familiar with this, this is pretty common, a lot of people have deadbolts but they are critical.

MCCANN: Yes and then the key is also important that it's a -- There are different kinds but medico is probably the most well-known, a medico key and licensed locksmiths are the only ones that can make this and they have control of it so you can't just walk in with a key.

WILLIS: I found this out, yes, the hard way, it's not everybody can copy them. You have a really great security system here, we just installed one in our house, it's gone off three times in a month and it was all false alarms. We've had cops at my house, we've had the fire department. You say this could solve my problem?

MCCANN: Yes, what this does is it tries to make it simple for the homeowner. It's cutting edge, and your entire alarm system of your house, the motion detectors. The windows, and the doors, any other kind of alarm that you have in the house is connected to this panel.

WILLIS: OK, so it all goes through this. Now, where do I plug in the code?

MCCANN: All right, so what this is, there's no code.

WILLIS: There's no code?

MCCANN: Yes. So this is something that was developed by Napco. And what it does is, there's no code, right now we have it on, so [ siren ]

WILLIS: So there's the alarm right there.

MCCANN: So now it's disarmed and it's just marked ready. So if you're home and you're going to bed for the night or you're not going out, and all you do is you set the alarm by pressing "stay." Then you lock the door. And it's armed.

WILLIS: OK. How much? Is this expensive?

MCCANN: Well, it's probably comparable to any other kind of basic panel. So it's going to run a couple hundred dollars.

WILLIS: At least a couple of hundred dollars to have this installed and get the equipment in the house.

MCCANN: Just for this part. That's not for the cameras, or for the window and door alarms.

WILLIS: That will cost you extra? OK and this, obviously is not that expensive?

MCCANN: This is not but a good lock is still going to run you about $100. What's important here again is the installation. The door, the lock is only as good as how it's installed and how it's mounted, and that's the purpose of showing the screws that it has to be well mounted and that it's secure where the bolt goes in that someone can't push it open.

WILLIS: Now speaking of locks we have safes here as well. And we have a couple of safes. They're kind of surprising. Like this looks like a bottle of water, but you say it's not, right?

MCCANN: Right.

WILLIS: Now, what is this for?

MCCANN: It's not really to provide you with any kind of high- level security, because the bad guys, they know it's out there, and there is -- they are as smart as the good guys sometimes. But this is just something basic that if you have a couple of dollars in cash or some jewelry, that you want to put it away and just put it some place where it's not secured, it's not locked.

This is a coffee can, looks like a coffee can, weighs like a coffee can, there's even coffee in it. But what it does is you can put some items in here and just secure it and put it on the shelf. But if it's something that's of high value or something that you really don't want to ...

WILLIS: You would want something more like this if you've got something that's really, really valuable?

MCCANN: Right.

WILLIS: This is a conventional safe and you say that a lot of safes really aren't worth the money? How do you know which is a good safe and which is a bad safe?

MCCANN: Well a good safe is going to cost you $500, at least $500. It's probably going to weigh quite a bit. And it's made of steel. So you want something that people cannot cut through. And again, you have to make a decision what you want it for. If you are just looking to put some items away when the cleaning person is there, or someone else has access.

WILLIS: This is overkill right?

MCCANN: That's overkill, but if you want something ...

WILLIS: You say that some of these safes can be broken easily, and if you have a portable safe is that a bad idea.

MCCANN: The portable they might pick up the safe and carry it away. So it has to be -- if it weighs -- some of them will weigh a couple hundred pounds and people can't take it out of the house, but you want it secured, bolted into the floor or into the basement to make sure that they can't carry it away. Because what they do, which is unfortunate, sometimes they'll take the safe and even if it's a couple of hundred pounds, they'll roll it down the stairs to try to break it open and now they've damaged ...

WILLIS: Damaged the house and stolen your goods.

MCCANN: Right.

WILLIS: Michael McCann, fabulous information, thanks for sharing the products. We appreciate your time.

MCCANN: All right thank you very much.

WILLIS: As always, if you have an idea for a weekend project, send us an e-mail at openhouse@cnn.com. And you can watch past weekend projects on our Web site, CNN.com/openhouse. You now know how to protect your home. Up next protecting you, when you leave home. All you need to know about travel insurance and exactly when not to buy it. That's coming up on OPEN HOUSE.

(COMMERCIAL BREAK)

WILLIS: To insure or not to insure. Travel insurance isn't cheap. It can cost about eight percent of your trip, believe it or not and you really have to read the fine print. Once a hurricane is named for example, you can't even get travel insurance if you have already booked a trip.

And even though the area may be in complete ruin, if flights and hotels are up and running, well you're still on the hook. And don't forget your own health insurance usually pays for emergency care when you are out of the country. Now if you're going on an expensive vacation in a foreign country and you just wanted added cushion of comfort, go for it, buy the insurance.

But make sure you shop around for the best price. Check out insuremytrip.com to get some estimates. And remember, we want to hear from you, send us your comments, your questions to openhouse@cnn.com. And you'll find more on today's guests and topics on our Web site CNN.com/openhouse.

Finally for $75 million you could buy 287 houses in Dallas or 223 houses in Denver. Or you could buy this 30,000 square foot mansion in southern California. What do you get for $75 million these days? Well, eight bedrooms, ten bathrooms, three pools with of course a swim-up bar and a winding tunnel slide. A home theater with rows of lounge seats, a two-story grotto and a gym.

Oh, and don't forget the 16-car subterranean parking lot. That is, if you have any money left over after spending $75 million on a house that critics say is priced less for the actual value of the house and more for the ego of the seller.

As always, we thank you for spending part of your Saturday with us. OPEN HOUSE will be back next week with a special Memorial Day weekend project show. Don't go anywhere. Your top stories are next on "CNN SATURDAY." Have a great weekend.

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