The Wall Street Journal
The Wealth Manager
WITH MARKET HOT, MORE PEOPLE NOW HAVE THIRD HOMES
By Raymund Flandez
Jay Lieberman, a dentist who lives outside Washington D.C., also owns a home perched on the slopes of Park City, Utah, which he uses as a ski getaway for his family. Late last year, Mr. Lieberman decided to snap up a third home as well.
“I bought it purely as an investment,” says the 58 year old. He plans to use the 2,200-square-foot house, also in Park City, as a rental property. Mr. Lieberman rented it out for two weeks over Christmas, and it is booked for the Sundance Film Festival this month.
Second-home ownership has jumped significantly in the past decade, thanks in large part to record-low interest rates on mortgages and the rapid appreciation of real-estate prices. Now, motivated by those same factors, as well as some others — from a desire to retire in multiple locations to an interest in being nearer to relatives — more people are picking up third homes, too.
While academics and economists say no one systematically tracks the third-home market nationally, brokers from California to Florida say more of their clients are buying a third piece of property.
Alice Sardell, owner of the real-estate firm Sardell & Co. in Aventura, Fla., north of Miami, says she sold third homes to at least 40 people last year, double what she sold the year before last. The homes ranged in price from $265,000 to $2.4 million.
Esther Muller, a real-estate broker in New York City, says she closed on 19 third-home deals last year, compared with 11 the year before. A number of her baby-boomer clients are nearing retirement and plan to visit their homes at different times of the year, she says.
With concern about the near-term direction of the stock market, more people are betting that real-estate is the best bet for boosting their returns. One disincentive for third-home buyers: Third homes are ineligible for mortgage-interest tax deductions. (The interest on mortgages is deductible up to a total loan amount of $1.1 million, but only first and second homes qualify, says Martin Nissenbaum, a tax attorney at Ernst & Young. Each year, though, the owners can choose which of their extra homes they want to designate as their second home.)
In a sign that real-estate firms are beginning to target the third-home crowd, several New York firms have recently bought or merged with their counterparts in other property hotspots. Within the past two years, NRT Inc.’s Corcoran Group has acquired brokerage firms in the Hamptons and Palm Beach, Fla., saying it wants to serve its clients in what it calls a “luxury triangle.” Brown Harris Stevens, based in New York, also got into the act this summer. The firm, owned by Terra Holdings, has entered into joint ventures with two real-estate firms in the Hamptons.
Pam Liebman, president of Corcoran Group, says her company made that move after noticing that more of its clients had homes in all three of these locations.
For the super rich, multiple homes are nothing new, and some of the current crop of buyers are in that same league. But the third-home trend is starting to migrate further down the food chain. Sari Sardell Rosenberg, a senior mortgage consultant at the Manhattan Mortgage Co. in New York, says in deals that she has worked on, the typical net worth of third-home buyers who apply for a mortgage loan range from about $3 million to $5 million.
A number of these clients aren’t chief executives or other corporate hotshots, says Jacky Teplitzky, executive vice president of New York real-estate firm Prudential Douglas Elliman. But they have earned a good living and have saved well, and their kids are grown up and have moved out, which means many of their biggest expenses are behind them.
The run-up in real-estate prices in recent years has fueled the perception that property is a relatively safe haven for investment dollars. Average prices of single-family homes surged nearly 13% in the 12 months ended Sept. 30, the largest 12-month increase since 1979, according to the Office of Federal Housing Enterprise Oversight, which tracks home-price changes nationwide.
Enticed by these potential gains, there has been a surge in people purchasing second homes. About 445,000 second homes were bought in 2003, up 24% from 2001, according to the latest estimates from the National Association of Realtors.
While many third-home buyers are motivated primarily by profit possibilities, others are in it more for lifestyle reasons. Alan Ryan, whose main home is in Marco Island, Fla., near Naples, also has a place in Manchester, Maine. He spent Thanksgiving last year in his new 2,100-square foot Winter Park, Colo., home, which is located a couple hours from where his children and grandchildren live. “We wanted them to be able to ski as a family,” says Mr. Ryan, a retiree who sold his food-service distribution business in 1999.
Ruby Azrak, a former president of licensing for hip-hop clothing line Phat Farm, was spending 60 days a year at the Delano Hotel in Miami Beach. Fed up with waking up in a hotel, he and his wife bought a 2,400-square-foot condo in the area, the couple’s third home. “We don’t even bother with luggage,” he says.
As nice as it sounds, having three homes can present some new hassles. Homeowners have to deal with upkeep on yet another property, and keep a third set of everything from clothes to kitchen utensils. Some homeowners also may feel obligated to vacation in their third home, even when they might prefer to travel elsewhere. Others wonder if it is wise to have so much money tied in one type of asset.
Susan Stella, a retired elementary-school principal, has two homes — one in Santa Fe, N.M., and another in Melville, on Long Island, N.Y. She and her husband are looking to buy a studio apartment in Manhattan. Their plan is to rent out the apartment for awhile to bring in some revenue. Then, when her husband retires, two or three years from now, the couple will sell off the Long Island condo and live in the studio.
“I would never want to own three houses,” she says. “I find owning two homes overwhelming.”