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Buy Now, Regret Later?

If you're thinking about a retirement home, don't buy too soo. Your dream could become a nightmare.

April 26, 1998|CAROLINE GRANNAN | Special To The Times

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."

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