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As the valley floor heats up this summer and you hug your air conditioner while weeping over your mounting electric bills, a cool lakefront getaway in the Sierra foothills might sound especially enticing.
But before jumping in, take the time for some "soul searching," advises Diana Foyil, a Realtor with Prudential California Realty in Sonora. "You need to understand why you want a second home," she says. "Before you make the commitment, you need to figure out what you want to use it for and how long you are going to keep it." Ask yourself: Are you interested in a summer home for fishing, or do you want a ski cabin for winter use or a home you can enjoy all four seasons?
Another question to ask is whether or not you plan to rent out the home. Approximately 70 percent of Foyil's clients buy their second homes for recreation and their own use. But the other 30 percent buy them with the idea that they can rent them out during the popular months and use the extra income to help pay off those second mortgages.
One of the biggest mistakes potential buyers make is overestimating how much they can earn from a vacation rental, says Mark Craft, a broker and co-owner of Coldwell Banker's Twain Harte and Motherlode offices. "In reality, certain properties do make ideal vacation rentals. But you cannot count on more than 25 to 30 percent of your actual costs to be absorbed by vacation rental use," he says.
It is important to decide whether you will use the home for personal use or as a vacation rental, according to Gary McKinsey, a tax consultant with Grimbleby Coleman CPAs Inc. in Modesto. If you plan on classifying it as a vacation rental, then you can only stay in it 14 days or fewer each year. For a lot of people, this isn't realistic.
Tax breaks vary depending on how you use the home. For example, only the mortgage interest and property tax are deductible on second homes owned for personal use. For those qualifying as vacation rentals, the mortgage interest, property tax, as well as the operating expenses, property management fees, insurance, utilities and maintenance are deductible.
A lot of Craft's clients buy their second homes with the idea that when they retire, they will sell their valley or Bay Area houses and move to the foothills full-time. "They can sell their million-dollar bungalows to be here in paradise," he says. In those cases, it is especially important to find a home that will work for you both as a part-time residence and as a full-time one down the line, he says. Does it have everything you need? Is there enough space?
Tax consultant McKinsey sees a similar trend. "As baby boomers begin to look towards retirement, we'll see more and more individuals exchanging their rental property for vacation rental property," McKinsey says. "With the idea that sometime in the future, perhaps five or 10 years down the road, they will sell their principal residence and move into their vacation rental and begin to use it as their retirement home."
About 25 percent of Foyil's business is in second homes, she says, and many of her clients are from Modesto. "People use them to get out of the heat of the valley." For many clients, a common requirement is that a second-home getaway be situated no more than a couple of hours away from their primary residence. That way, they will actually get to use it on a regular basis and make it a regular weekend trip. "You don't want to buy something up in Washington if you never go there," Foyil says.
Of the foothills' many picturesque towns, Twain Harte has the most pull, because it works as both a summer and winter getaway, say veteran agents. "Twain Harte is hands down the most desired destination," according to Foyil. Second are Mi Wuk Village and Sugar Pine. While Pinecrest is popular with renters, most people don't think about looking for homes to purchase there because much of the land is leasehold and eventually will go back to the federal government.
"The ski season is the better rental market. In the summertime, you just don't get many renters," Foyil says. Twain Harte is the one exception. "People see it as a year-round destination." While Twain Harte does receive occasional snow, it usually melts by midday, and the roads are always cleared. In many of the surrounding towns, four-wheel drives are essential in winter.
Due in part to its popularity, Twain Harte is no longer a bargain. The current average price of a home in Twain Harte is $419,900, according to Rob Beery, an agent in Twain Harte's Prudential California Realty office. But, for that, you get a lot of house. For example, one of Beery's current listings has an asking price of $469,900. Close to 2,000 square feet, the contemporary home features three bedrooms, two baths, open beam ceilings, a home office, Corian counters in the kitchen and an extensive garden. "It would be the perfect place to telecommute to Modesto," Beery says. "Or, it could make a really nice vacation home."
Increasingly common are people from the Modesto area and the San Francisco Bay Area who buy second homes in the foothills and within a short time, decide to turn them into their primary, full-time homes. "They just love it here and don't want to leave," says Foyil, who grew up in the area."