Investors fuel second-home boom

0 Comments | Oakland Tribune, Apr 1, 2005 | by Alec Rosenberg, BUSINESS WRITER

WHOLESALE distributor Tony La Monica of Clayton bought his first investment home 10 years ago — a condominium in Las Vegas. He has since sold the condo, upgraded to a nearby 4,000-square-foot home and expanded his portfolio to include houses in Concord, South Lake Tahoe and Bullhead City, Ariz.

Now retired, La Monica travels with his wife, Regina, to vacation at their homes in Tahoe and Vegas. But they don't just own the properties for pleasure. They hold them, gain rental income and then sell at a profit, including a Tahoe house, which appreciated $215,000 in five years to $500,000.

"It's a wise investment," Tony La Monica said. "If you can buy at the right price in California, you better grab it. The real estate is unbelievable, and it's only going up."

The La Monicas are part of a growing trend of investment-home buyers.

In California, investment and vacation homes were 16 percent of all homes purchased in 2004, up from 10 percent in 2001, according to the California Association of Realtors. It's

even more popular nationwide, where 36 percent of all homes purchased in 2004 were investment or vacation homes, the National Association of Realtors said.

Baby Boomers are driving second-home demand. They are looking for a place to vacation or retire. Also, they want to diversify their investments and take advantage of low interest rates, tax benefits and rising housing prices.

The typical second-home buyer in California last year was 50 years old, made $150,000 annually and bought a 1,550-square-foot house for a median price of $420,750, or $271 per square foot, the state Association of Realtors said.

Bay Area residents are buying hundreds of second and investment homes each month, led by the Tahoe area and then the Palm Springs area, DataQuick Information Systemsanalyst John Karevoll said.

"The second-home market is much more volatile because it is a discretionary part of the market," Karevoll said. "If you've hit on hard times, you'll sell your second home first. It's a much bigger roller-coaster market."

But the second-home market also can be rewarding.

"Real estate has performed extremely well over the past five years, while the stock market has declined or been stagnant," said David Hehman, chief executive of EscapeHomes in San Francisco.

Second-home buyers should understand why they want to buy and how they are going to use the property, Hehman said. It's important to include costs such as insurance and maintenance and property management fees for those who rent.

"If people do their homework ... that's going to lead to a great purchase with enjoyment and hopefully a great return," Hehman said.

EscapeHomes (www.EscapeHomes.com) matches second-home buyers with real estate professionals, with options for searching by city, state and area of interest.

In addition to Tahoe and Palm Springs, popular second-home spots for Bay Area residents include the Wine Country, Bodega Bay and other Western states. Bodega Bay residences can range from $500,000 to $1 million, but you can still buy a house in Boise, Idaho, for $200,000 to $300,000, Hehman said.

For lower-cost options in Northern California, consider Bear Valley, Lakeport and Truckee, EscapeHomes spokeswoman Amanda Sturges said.

In Lake Tahoe South Shore, the median home price has doubled over the past four or five years to $500,000, said Realtor Deb Howard of South Lake Tahoe.

"We have lots of wonderful properties still available and relatively affordable, especially compared with other resort areas," Howard said. "The starting prices are around $300,000 — and those are becoming fewer and farther between. They go up to our lakefronts, which range to $5 million and up."

Visitors can view all Lake Tahoe real estate listings at her Web site, www.realtordeb.com. Second-home buyers should determine what they can qualify for comfortably and what is in their best interest as an investment, she said.

A vacation rental haven, Tahoe attracts Bay Area buyers because they can drive there and enjoy recreational activities from skiing to gaming, Howard said.

Veterinarian Baljit Chahal of Milpitas bought a duplex five years ago in Tahoe for

$275,000 so his family could vacation there and earn rental income. With Howard's help, he recently sold it for $560,000, using the profits to expand his veterinary practice.

"It's amazing how much (home) values can appreciate in that area," Chahal said. "If you've got the money in your pocket, invest it — there's nothing like real estate."

In Palm Springs, a fixer-upper can cost under $300,000 and finding a $400,000 house is "no problem," said Realtor Allan Joy of SunFirst GMAC Real Estate. "My first question is, 'How do you want to spend your time?'" Joy said. "Do you play golf? Do you want to go hiking? Why are you coming here? The answers to those questions will help dictate which direction I will take them."

Location is the top influence on an investment house's value, said real estate appraiser Karen Mann of Mann & Associates in Fremont.

"If you're looking for an investment, you want to be in the path of growth," Mann said. "You should be looking at it as a long-term investment. The rapid appreciation that we have had of late is not a guarantee. We have seen over the last three decades that prices can decrease as well as increase."