Lake Tahoe Real Estate Investments:

A Good Mix of Fun & Financial Benefits

By Theresa Souers, president South Tahoe Association of Realtors

Lake Tahoe is perfectly situated just a few hours drive from the sophistication of San Francisco and just over the mountains from the sparkle of Reno, Nevada. Nestled in amongst spectacular mountains with breathtaking panoramic views and crystal clear fresh water lakes, the Lake Tahoe area is rich in both natural beauty and solid investment opportunities.

Over two million visitors a year come to Lake Tahoe to enjoy snow and sun alike. During the ski season people from all over the world, flock to the slopes for some of the best skiing in the United States. First class resorts such as Heavenly, Squaw, and Kirkwood are a popular draw for the recreation minded. And, the hot tourist market doesn’t cool down when the snow melts. Summer brings a whole different crowd—one looking for warm, sunny days full of boating, biking, hiking, camping, and of course, golf. There are nineteen golf courses in and around the Lake Tahoe area including the two world-renowned courses at Incline Village framed by a stunning mountain backdrop.

As if these attractions weren’t enough, for those who prefer their entertainment indoors, Lake Tahoe’s casinos add to its reputation as an all-season, world-class vacation destination. Popular events such as the Summer Outdoor Concert Series, the Shakespeare Festival and the Renaissance Fair do their share to draw in visitors. After all, half of Lake Tahoe is in Nevada, and South Lake Tahoe is centered about Stateline (the California-Nevada state border) where the area’s largest casinos are located.

The question is, what do all these visitors have in common? The answer: they all need somewhere to stay when they come to play.

Throughout the decades, the value of Lake Tahoe rental properties have consistently grown at a rate higher than the state and national averages. Every indication is that Lake Tahoe real estate values will continue to climb in the coming years. One reason is what’s known in the real estate business as the “rolling boom”—one of the strongest indicators of a particular area's investment potential. This is when an area grows due to its affordability as compared with its more pricey neighbors. In the case of Lake Tahoe, it sits squarely centered among major real estate hot spots predicted to have solid growth. Consider these statistics:

The population of Nevada is growing four times faster than that of the United States and is predicted to double by the year 2023.

Reno , Nevada is currently rated toward the top of the Metro Growth list.

The San Francisco Bay Area has developed affordability challenges where the average price of a home exceeds the average homebuyers' budget.

Other economic factors indicate that rental properties may make a solid investment. The following have a direct affect on the real estate market: the U.S. gross domestic product, unemployment, consumer price indexes and interest rates. According to the National Association of Realtors, the U.S. gross domestic product should increase from 3.7% in 2005 to 4.1 % in 2006. The Consumer Price Index is projected to rise 2.9% and inflation-adjusted disposable personal income is forecast to increase 4.5% in 2006. And finally, despite recent modest increases, interest rates remain at record lows.

With the recent “pause” in rapid price increases, this may well be the best time to enter the revenue producing rental home market. In fact, the second/vacation home market is the fastest growing segment of real estate investments today. Lake Tahoe—as an international recreation destination with a bright demographic future—is one of the top recommended investment areas. When considering Lake Tahoe vacation properties for income purposes, an investor has two options, both of which can produce great results: a vacation or a full time rental.

The advantage of a full time rental lies in the consistent income the owner collects, while the tenant pays most of the utility bills. Currently, there is a shortage of full time rentals in the South Lake Tahoe area resulting in a vacancy factor of almost zero, with the average rental bringing in close to $400 - $500 per bedroom.

While the income from a vacation rental may not be as consistent, the potential for income can be much greater and has the added benefit of allowing personal use for the investor. In fact, there are very few opportunities today that offer rental properties that “Pay for Play.” With Lake Tahoe real estate, baby boomers can spend their vacations at their own rental property and have the confidence and security that they have also made a wise investment. For example, if a home with a purchase price of $500,000 were to increase an average of 7% in value annually—not the 20 - 30% seen in the past two years—an investor could still see the following:

$35,000 in equity appreciation per year

A potential of $25,000 in rental income per year

Significant tax benefits

A whole lot of fun in the snow, under the sun and/or at the casinos

There is no one right strategy.

The important questions to consider in choosing a real estate investment strategy include:

Can I afford to carry the mortgage, property taxes and other real estate expenses in the months when the property may not rent or rents lightly?

What is the likelihood that my family will use the property enough to add significant value to this investment?

Which is more important to me at this time, the certainty of a full time renter or the pleasure of a vacation home?

Lastly, there is always the California or Nevada question to be decided when purchasing real estate in the Lake Tahoe area. Is it better to buy on the California or the Nevada side of the state line? Both offer distinct advantages. Bottom line, full time residents of Nevada enjoy the benefit of living in a state with no personal income taxes. On the other hand, real estate located on the California side is as much as 50% less expensive between the South Lake Tahoe shore in California and the North Shore of Nevada.

Whichever way an investor chooses to go, California or Nevada, full time or vacation rental, Lake Tahoe offers many kinds of attractions as well as investment attractiveness. From my own personal experience, Lake Tahoe real estate is a great investment opportunity whether your investment goals are income, equity growth, tax leverage, or just plain old vacation fun.