Buy Now, Regret Later?

It seemed like a good idea at the time.

The wooded lot with its serene views and invigorating pine-scented air was just what any outdoors-loving couple in their late 30s would envision as an idyllic spot for retirement one day. So she and her husband jumped at the opportunity to buy the half-acre Oregon lot, recalled Jeanne Zimmerman. It was 1989 and the couple, then both 38, figured they couldn’t lose.

“We thought Bend looked like a very nice place to live, especially because we had friends who lived there,” Zimmerman said. “We thought it was a good investment, and we thought we might be able to retire there.”

It didn’t quite work out that way.

The Zimmermans’ new lot started sucking up money right away in property taxes. Then other financial disadvantages began to appear: high building costs, a stagnant real estate market.

Real estate experts say that’s one of the pitfalls of buying a piece of land ahead of time, expecting to build a retirement dream house there years later. And a retirement advisor warns that planning for the needs of old age involves more than finding a pleasant location.

“Sometimes dream houses in dream environments don’t have anything to do with your needs as an older person,” said Ann Von Essen, a Woodside, Calif., retirement consultant who specializes in housing options. “You don’t really know what course your total retirement is going to take.”

Buyers don’t always know what course the real estate market will take, either. Real estate columnist Robert J. Bruss keeps his advice simple: “Never buy any real estate you won’t use within the next six months. If you buy years ahead, something is probably going to change your plans.”

Zimmerman and her husband, both Los Angeles natives, say their mistake was skipping the homework. “We didn’t research it well enough in regard to the taxes,” she said. “We were on vacation and this was a real rush-rush-rush thing.

“We had $10,000 and thought we might want to invest in land. We listened to our friends who lived there, and they said lots of Californians were moving in and values were going up.”

But after they bought, they discovered that property taxes on the $65,000 lot ran $1,200 a year and that they’d underestimated the cost of building a house in Bend.

And Zimmerman and her husband, Chuck, had other tax issues to consider because they live in Carson City, Nev., where there’s no state income tax, as there is in Oregon. They’re now aware that returning to California would also mean paying state income tax.

They decided to sell their investment property and made another unpleasant discovery: “We’d bought it at the peak of the market.” And a new subdivision nearby had opened up many attractive lots for sale, reducing demand for theirs.

After a long effort to sell, the Zimmermans found a buyer last year for $68,000. After the real estate commission, the couple lost $1,500 on the property. “We’re just glad we’re out of it,” Jeanne Zimmerman sighed.

The Zimmermans--lulled by coming of age during the California boom of the late ‘70s, when no real estate investment could go wrong--assumed that any land purchase would pay off, whether they used the lot or resold it.

That’s a risky basis for an investment, real estate insiders say. “The danger of buying a piece of land and waiting to build a house on it is that land is not a liquid asset,” observed Bob Le Fever, president and chief operating officer of Coldwell Banker Southern California.

“You’ve got to be very careful not to use your life savings. If there’s a financial crisis or a health crisis, you can be in trouble if all your assets are in a piece of land.

“Buying land and waiting to build on it works out very well for people with a very good financial portfolio.

“I’ve known people who’ve built their dream houses and it’s worked out beautifully, but it has to be a part of their overall investment portfolio.”

Still, there seems to be a human instinct to pursue the vision of a utopian hideaway, far from freeway meter lights and work-station cubicles.

One 57-year-old corporate graphic artist has devoted six years to turning 40 acres on a Northern California ridge-top into his retirement paradise. The landowner didn’t want to be identified because he’s having some permit technicalities.

He has nearly finished a solar home and he plans to move there full time when he finally retires, but he added: “I’ve been planning to retire next spring for five years.”

Still, he loves his remote retreat. “There’s nothing like sitting in front of the fire up there, reading,” he said.

Retirement consultant Von Essen pointed out that such rural paradises don’t always meet older people’s needs. “A remote site could have its problems,” she said. It can be difficult to hire help for people who need an attendant or skilled care, and medical services may be far away. “People don’t think about what will happen if they become frail,” she said. “A lot of denial goes on.”

Von Essen, who’s based in the San Francisco Bay Area, sometimes sees clients who plan to move to havens as distant as Costa Rica. Among other considerations, she said, “people have to evaluate their tolerance for medical care that’s different from what they have.”

Living conditions can be an issue at some recreation paradises. “This may not be an ideal place for late retirement,” said Tim Hauserman, a real estate broker at Lake Tahoe. “We get lots of snow and ice.” That doesn’t deter the vigorous 70-year-olds he sees on the ski slopes, he added.

For sun-lovers, there’s no utopia like Palm Springs, with its desert warmth, retirement recreation and excellent hospitals, should the need arise. But eager investors who have bought years ahead, anticipating dizzying land appreciation while they dally with plans to build or sell, have gotten a rude shock, said Palm Springs real estate broker Jack Geaslin. “A lot of people have done that and found it’s a mistake.”

The words “Palm Springs real estate” trigger a vague association with “stupendous profits” in the minds of unsophisticated buyers. That’s because of one of history’s fabulous opportunities, Geaslin said.

“In the ‘50s, Riverside County was trying to improve its tax base and homesteaded a lot of property out here. You could get five acres free if you built a little cabin on it and met certain conditions. A lot of people made big money on that deal.”

But that was then, and “those were the lucky ones,” Geaslin said. It’s the ‘90s now. “Many buyers have lost money speculating on land out here.”

He advises buyers who know Palm Springs is the retirement spot for them to buy a home already built. “They could come out and buy now, and rent the place out,” he said. “They’re not going to make a profit renting it, but they’ll break even, and there are depreciation breaks when you rent.”

He hastens to add that he’s talking about buying two or three years before retirement, not decades before. “The market was going down for much of the last seven years. It was a bad time to buy a lot to build on in the distant future.”

The graphic artist who’s building in the redwoods cheerfully dismisses such warnings in the case of his own remote paradise.

“My feeling is that rural land like this is going to go through the ceiling because even more people will be able to telecommute in the future,” he said.

One possible complication in his plan is that he and his wife of several decades have been discussing divorce. Along with health problems, this is the kind of life change that can derail a cherished plan.

Other entirely different snags can alter plans too, another reason to be wary of buying land without immediate plans to build. At such places as Lake Tahoe, new land-use policies have made building considerably tougher since a construction boom there in the ‘70s. “There are people who bought lots years ago that are not ‘buildable’ now,” said real-estate agent Hauserman.

He appreciates the restrictions, believing that “if they’d kept building at the rate they were in the ‘70s, the lake would have been wrecked.” But they require a cautious attitude toward building plans. “I wouldn’t buy a lot and think 10 years down the road you can build,” he said.

One Central California resident bought land in Tahoe City in 1977 and found it took him 13 years to start building. The restrictions increased delays and the delays increased costs.

Jim Tognazzini, a 45-year-old Santa Maria beverage distributor, intended his Tahoe place as a second home for now and through retirement. He thought he was ready to start building in 1985, when the expected cost was $225,000. But after more delays, “when we finally built five years later, it cost more than $300,000,” he said.

Unexpectedly high building costs such as those Tognazzini and the Zimmermans confronted are one negative in taking on a construction project. Another is simply the difficulty.

“If someone has never built their own home, I’m not sure that the best first home is your retirement home,” one real estate insider said.

But it works for some people, says Von Essen. “The people I know who have built retirement homes and have done it wisely have built houses that are going to be senior-friendly, with things like wheelchair access and big bathrooms.

“You haven’t downgraded your house by doing those things,” she insists. “The money you put into a house to make it more senior-friendly will also make it more salable.”

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Caroline Grannan is a San Francisco freelance writer.

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Resources

* The American Assn. of Retired Persons offers a free brochure titled “Planning Your Retirement.” To request it, write AARP, 601 E St. N.W., Washington, DC 20049. Ask for “Planning Your Retirement,” Stock No. D12322.

* Retirement housing consultant Ann Von Essen, Woodside, Calif., (650) 851-3829.