To Buy or Not To Buy? That is the question.

To Buy or Not To Buy? That is the question. Sept. 1. 2006

Q: So let’s say we are looking for a good buying opportunity in the Mammoth real estate market. In fact, we’ve been looking for a couple of years. We’ve seen the market oscillate and we know that this summer the market has been pretty flat. But we really are ready to buy and ready to start using what we buy. What are your criteria for buying or how are you advising clients at this stage of the game?

A: As I have been saying in this column for years, the best reason to buy a property in Mammoth is to increase the amount of quality time you spend here. Yes, the peak periods of tourism can get a little crazy and Mammoth isn’t the “perfect” resort, but all it takes is an incredible ski day or coming upon some blankets of wildflowers in the middle of nowhere or just appreciating the change of season, and it’s pretty easy to realize why you want to be here.

The basic principles of Mammoth real estate that I have espoused here in past columns still apply. But now they are even more important. The frenzy of real estate markets in other areas is gone. Interest rates aren’t obscenely low anymore (they’re just really good.) The great Intrawest marketing machine is greatly subdued. New ownership of the Ski Area is old news (even though who really owns Mammoth Mountain becomes more vague all of the time.) The biggest news is that we are going to “plan” the town again.

The three most important things about a piece of real estate are still the same, it’s just that everybody has just a little bit different idea of what the best location is. I’ve seen buyers that think being close to Roberto’s or Whiskey Creek is optimal. Some think being close to the Do-It Center is critical. For others the Village is everything and then some. For me personally, I’m heading back to Old Mammoth.

I always tell people to satisfy their own desires first. But if you are looking more with an eye for investment, then the answer is near your favorite amenities with the very best investments being those near chairlifts and ski runs. This is a ski resort after all. It is also some of the scarcest property in town. And if you look at the maps you will see there isn’t much potential for any more. It’s also where the astute and affluent buyers and renters head. And at this stage of the game, I wouldn’t compromise on views either, unless it simply blows the budget.

Sometimes it is more important to look at what not to buy. I’ve always been big on assessing the curable defects versus the incurable defects of a property. It’s a Blink for me. I’m always astounded at how many agents, new and old, never seem to be able to make this distinction. The other important question; if it is curable, how much will it really cost? And some of those defects might not be so obvious on a beautiful summer day, or in a busier (and rushed) real estate market. Resale-ability is always a serious consideration when buying–especially the resale-ability in a slower market. I’ll admit I’m jaded. Having been through a couple of prolonged down markets I have a good mental framing of what doesn’t sell in a soft market (sometimes we call those “career listings”.)

Right now I’m more bullish on the single-family home market, especially the resale homes that are less than a decade old or are in good condition. I can see many of these homes selling in the coming months at less than replacement value–due to high vacant lot values (and scarcity), recent (and large) increases in permit fees, and updated construction costs and code requirements.

Further, many experienced and sophisticated buyers are turning to single-family homes. Some buyers are forming partnerships (some taking the form of LLC’s), or buying for corporate/business ownership, etc., essentially creating their own fractional properties with people they know and establishing rules and expenses to fit their desires. Modern fractional properties are just a little too rigid for most southern Californians who tend to prefer more freedom of usage. They also want greater control of management and expenses.

A growing industry in Mammoth, whether we like it or not, is the nightly rental of single-family homes. Owners are finding their way around the Town ordinances that preclude nightly rentals. And a menu of support services including things like personal chefs and deliver-to-the-door ski rentals are making the rentals of single-family homes the new luxury experience. Ultimately, the more discriminating owners and nightly renters are likely to be heading to the single-family homes.

In the condo market my criteria would be condos with excellent locations and mature management. The big buyer beware at this point in time is under funded homeowner associations and disclosed or non-disclosed assessments. Some of these assessments are or are going to be substantial. For instance, we currently have similar appearing, side-by-side projects (and separate homeowners associations) in town, one is in great shape and the other facing 10’s of thousands of dollars of assessments per unit. A buyer better be working with an agent who knows what is going on–or better carefully scrutinize the HOA documents (and preferably both.) Another concern would be that some projects (by design) are more vulnerable to higher utility costs that could lead to substantially higher fees in the future.

I see other interesting trends and I’m trying to anticipate what the ramifications will be. An obvious one is that buying or holding any kind of land at this time needs to be a considered a long-term investment, no matter how you look at it. Another ploy used in other markets and may come to Mammoth–the use of celebrities to hawk units in fractional developments. I don’t think Pamela Andersen would go over very well in Mammoth, but it might get us to sales presentations.

Credit has tightened in the past few months with further increases likely, so the best deals in the future are going to go to those who have cash and good credit. I’m also thinking that at some point there might be a convergence of cash-strapped condo owners and a hiccup in nightly rental revenue, and many of those units may convert in to long-term rentals. That would be an interesting market condition that could partially alleviate our housing shortage. I also wonder how much cash may be sitting on the sidelines waiting to see if Mammoth sees a little downward pressure on values. Waiting to pounce on some really good deals.

In the coming months we are going to find out which sellers are just “trolling” for a price and which ones really need to sell. We’ll find out how much phantom inventory is out there. But if you want to buy, it is a good time to pay attention. There may be some opportunities to buy the choice properties at good prices.

Or maybe you should be asking the Mammoth Town Council for their real estate advice.

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