An Amazing Summer

Fall has arrived and there’s a lot to look forward to, but this past summer has been an exciting ride.

From the start, I knew that the summer held two fishing trips to Alaska – my first two Alaska fishing trips ever.

What I didn’t know is that I’d also have leg surgery and then purchase a house on Lake Almanor, a dream I’ve had for many years. I wasn’t sure I’d ever get Linda to go along with the idea.

The fishing trips were great and I’m almost completely healed from surgery. I’m grateful for my good fortune. The house at Almanor is the most exciting event of all.

It was mid-June when Linda and I decided to look at lake-front properties on Almanor. Our agent showed us just about every house on the lake under $1.3 million dollars. I concluded that in order to afford a home, it would have to be under a million.

We had most of that in the bank, some anticipated income and a home equity line of credit of our primary residence. We made a $950,000 offer on a house listed for $1,050,000 and they countered at $975,000. We accepted the counter and began inspections.

The house was nice, but had its flaws and as the inspections continued we began to have our doubts. Not only was the house in poor condition, but a western exposure and a steep incline to the water discouraged Linda.

We decided to exercise our right to withdraw.

Another house came on the market. The price was over our limit, but I told Linda we could figure out how to afford it. I knew in my guts that the house would sell quickly and I didn’t want to experience the pain of failing to make a solid offer and losing out on this rare find. After much debate, we made an offer and it was accepted.

I was ecstatic about our luck in finding this house. We could afford to buy it, but could we afford to own it? We closed escrow on about August 1. After consulting with my accountant and attorney, I decided to consider several options for owning the property and holding title.

My accountant believed that I should make the house a rental and take advantage of the two weeks per year that I could stay in the house. This option would be best if we wanted to get the most out of our money. But, I wanted to be able to stay in the house a couple months out of the year – not two weeks.

My attorney suggested creating an LLC, but he wasn’t sure about our ability to make the house a rental and also gain more time on site.  An LLC could be a  partnership, but the house would still end up being a rental – limiting personal use.

There was a posible Trust situation that would allow Linda and I to use the property as much as we wanted, but we would have to committ the property for our life time. I decided not to look further into that idea.

Another option would be to find a partner, get some of our money back and have somebody who would share in the expenses. I’ve been in many partnerships, but never on a vacation home. Ultimately, Linda and I have chosen the partnership route. We haven’t closed the deal, but it looks like we have found our partner. I’m happy with this plan and financially it is definitely a good option. We are in the process of creating a parthership agreement that defines how the property will be shared.

The view from the Lake House

This panoramic shot shows the back of the house, the deck where we spend time, the back lawn and the key feature – Lake Almanor.

The Search – Vacation Home

For years I’ve wanted to own a second home at Lake Almanor in Northern California. As a kid, my brother and I experienced the outdoors while staying with my grandparents during summers.

After they passed away, my folks decided it was too difficult to manage a home several hours away and sold my the home they inherited, which was located on the East Shore of Lake Almanor. At the time I didn’t think about it much.

Still young and able to camp and fish in the Almanor area, I didn’t need a house to slow me down. Later on marriage came along and the needs of my wife entered into the picture. She was and is not a camper and needed a house when we visited Almanor – we rented.

Renting is OK, but it’s different from owning and I’ve always preferred to be an owner. The problem? Owning a second home doesn’t create the same return as other real estate investments. Hence, we put off purchasing while investing in other real estate.

On the other hand, a good real estate investment is a good way to retain capital. That conclusion can reasonably be reached with the assumption that you are not forced to sell.

About five years ago Linda and I began to seriously search for a solution. We looked at many homes, but nothing really seemed to fit – until we checked out a house on the Lake Almanor West golf course.

It was a nice home with a good exposure, big trees and a nice view of the open space of the golf course. We made an offer. The asking price was $560,000. We thought the right price was $425,000 based upon our understanding of the market. The offer didn’t fly so we raised our offer to $450,000. Still no interest from the seller.

We let go of it and moved on. We began to remodel our home in Livermore and that ate up our money and energy. We didn’t get serious again until this spring. Ironically the same house came on the market. It had not sold.

We tried again, this time offering $475,000. The seller was still stuck on $560,000, but indications were that $535,000 might work. We passed.

We recently took a week’s vacation and revisited the entire program. This time we had saved up additional funds and had more options. After a few days we found a home I really liked and Linda could live with. It’s in escrow.

We concluded that nothing short of a lake-front home would motivate us to purchase. I had money in the bank that I’d been planning to invest in stocks, but I was having a hard time making that decision. As a real estate guy, stocks were not working for me.

So, our money market funds will be used to purchase a home at Lake Almanor West. It will cost just under a million dollars. The property will rent out for about $3,500 per week during the height of the summer season. Taxes will be about $11,000 per year. Insurance and HOA dues will be about $3,000 per year. Looks like we’ll need to rent it out for about five or six weeks each summer to break even.

We’ll come up with a management plan that, at least in theory, allows us to pay the major expenses and still have use of the property. The home will not require major work and it will probably meet our needs as is.

I’m fired up. Here’s a photo from the street. Not very good, but all I have for now.

109 Kokanee IMG_5306

View from the street. The house is about 200 feet from the front property line. Nice setback.

There will be more later. I’ll also post some info  related to escrow. We’re lining up septic, home and termite inspections. Most of the deferred maintenance is related to sun damage. At Almanor’s  4,500 foot elevation, the sun really beats wood up. There will be more later.

I’ll also post some info  related to escrow as things move along. It may be helpful.