Hot properties – Investors add spice to fiery real estate market
Most people think of a house as a home, but an increasing number of home buyers in western Nevada County view that three-bedroom, two-bath rancher as an investment, tax shelter, or second home.
Many investors seeking better returns than they can get from the stock market are going after low-priced houses that typically provide an entry point for first-time buyers.
People who want to avoid the capital gains tax on a house they just sold are buying western Nevada County properties they have no intention of living in for several years.
And then there are the urban dwellers who just want to get away from it all for two or three days. With increasing frequency, they are retreating to a second home in Alta Sierra or Penn Valley.
With less than 450 houses currently for sale in the west county, investors looking for a greater return on their money creates upward pressure on the cost of housing.
The median price of a house in western Nevada County was $395,000 in February, according to the Nevada County Board of Realtors. That price is significantly higher than in surrounding counties. But that hasn’t slowed down investors.
“I know more agents that have investor buyers than I know agents who don’t have investor buyers,” said Tom Dykstra of Coldwell Banker Grass Roots Realty in Grass Valley. “I’m amazed at how many people are interested in finding their first little rental house in our county.”
A look at the numbers explains why. The median price of a house in western Nevada County has increased about 30 percent in the last 12 months. During the same period, the Dow Jones Industrial Average, a leading measure of stock market performance, increased 6.94 percent.
“People are being risk-averse,” said John Karevoll, an analyst with DataQuick Information Systems, which compiles statistical data for the real estate industry.
“Instead of parking their money in an investment like the stock market, they’re putting it into something with tangible value, or in this case, a roof over their head,” he said.
People consider real estate an attractive investment even when they can’t charge enough rent to cover the mortgage, taxes and other overhead, according to Mimi Simmons, owners/broker of ERA Cornerstone Realty Group.
“That’s a gamble some people are willing to take in this market because they’re seeing what the prices were last year and they want to get on the bandwagon before it gets away from them,” she said.
People with the money are also buying second homes in the area, including the Granite Bay couple who recently purchased a house in the Lake Wildwood area “just to play golf,” Simmons said.
“We are seeing a lot more second-home buyers,” she said. “They love living up here in Nevada County, but they can’t move because of their job or their children, so they’re buying a second home for recreation, time off with the family. We’ve seen a bigger push with that than ever before.”
Some investors are also acquiring property in the county through so-called 1031 exchanges to avoid capital gains taxes on properties they sold elsewhere. Some will eventually move here; in the meantime, they’re renting the property.
Lenders are also making it easier to invest in real estate by loosening loan requirements. Not too many years ago, rental properties required a 30 percent down payment.
“We can do 100 percent financing on investment properties now, believe it or not,” said Susanne Voter, owner of five Delta Home Loan offices in Nevada County.
“Real estate is going up so fast in so many different areas, and there doesn’t seem to be a slow-down any time soon,” she said. “People are putting their money into real estate for fast appreciation.”
Nobody expects the double-digit appreciation of houses to continue forever, but no investor wants to get out of the market too soon, either.
“The market is very strong,” Simmons said. “I still think people are going to buy in Nevada County. It comes back to that quality-of-life issue.”
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