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TRADING UP TO A NICER PROPERTY
November 26, 2004

After you have owned a vacation home for several years, it may be time to consider trading up to a larger and nicer property, using the equity and appreciation gained from your investment.  In the Incline Village / Crystal Bay market, most property owners hold onto their house or condo for 5 years or less before selling.  The are many reasons for this relatively rapid turnover of properties.  Here are a few of the more common reasons for selling a vacation property at Lake Tahoe:

Desire to trade up or down to a more suitable property
Change in the owner's personal financial situation
Property tax increases 
Desire to own vacation property in another part of the country
Investment goals have been achieved, so assets are being repositioned into other investments
Death of a key family member
Lack of use of the property

If you have owned a property in Incline Village for at least 5 years, very likely you have experienced substantial upside appreciation in relation to the initial purchase price.  This means you probably have a significant amount of equity that is not being fully utilized from an investment perspective.  Whether you choose to keep building equity in the same property, refinance and pull out some cash, or sell the property outright is a decision based on your personal situation.  There is no "one size fits all" solution to this situation.  Rather, each property owner needs to analyze their investment portfolio taking into account the intangible benefits enjoyed from owning a vacation home at Lake Tahoe.

At the present time there is an anomaly in the pricing structure in the Incline Village real estate market.  There is a large surplus of unsold homes above $1.2 million and there is an extreme shortage of quality condos under 900K.  This means that condo owners are in the unique position of being able to sell their property for top dollar in a "seller's market" and buy a luxury home for a very fair price in what has become in that market segment a "buyer's market".  Rarely do you ever see such a divergence of pricing structures in the same local market area.  The reasons for this are essentially ones of supply and demand plus the fact that as the asking price rises there are fewer eligible buyers out there at any given price point.

So, if you have owned a condo in Incline Village for 5 years or more and have always wanted to trade up for a nice single family residence, there is a window of opportunity to maximize your selling price while buying at a discount one of the nicer homes in the village.  This disparity in the market will not last forever.  As the leading edge of the Baby-Boom generation begins to retire in the coming year, there will be upward pressure on prices of all types of properties in our local market.  The reason for this is very straight-forward; in all the world there is only one Lake Tahoe, and at the lake the nicest community is Incline Village.  With a limited supply of properties and 77 million "Boomers" getting ready to retire over the next 2 decades, the present softness in the high-end homes will eventually end.  When that happens, bargain hunting in our village will become a thing of the past, limited primarily to older fixer-uppers and tear downs.

Another option is to refinance your property and use the equity to purchase another property that you can put on a rental program.  Generally speaking, investors buy in Incline Village for appreciation, not cash flow.  If you can tolerate some negative cash flow, the tax benefits and appreciation will normally offset any short term out pocket expense.  And with the favorable tax treatment of long term capital gains, it's possible to achieve handsome rates of return over a 3 to 5 year period even if you have to absorb some negative cash flow along the way.

This is a great time to consider trading up to a nicer property if that is your desire.  As the inventory of quality single family homes starts to shrink, prices will firm and this window of opportunity to take advantage of a "seller's market" on the condo side and a "buyer's market" on the house side will disappear. 

Questions?  Call Don Kanare at 775-745-5820.

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