Crunch Time in Heaven

The subprime jitters have rocked the housing market. How will they affect your dream golf home?$deck Michigan struggles while High Carolina is hot

When fellow real-estate agents and home-buyers around the country start telling the war stories about their local housing markets, Kim Tofferi listens sympathetically. But she has a hard time feeling their pain.

She knows that home prices nationwide have fallen more than 10% in a number of areas from their 2005 highs. Houses for sale are sitting on the market longer than they have in a decade. And record numbers of defaults and foreclosures have made lenders leery about writing new loans for those without the most bulletproof credit scores, further constricting the pool of eligible buyers.

But the market for vacation homes in and around Vail, Colo., has been very, very good to Tofferi. She and her husband, Pentti, the former director of golf at the Club at Cordillera, built a 5,000-square-foot, four-bedroom, 4 1/2-bath golf home bordering the 12th hole of the Cordillera Valley Course in 2002. The house, which features panoramic mountain and golf-course views, gourmet kitchen, hickory floors and a four-car garage—sold this summer for $2.3 million. "We sold it in March and made a deal to close on it in April of 2008," says Tofferi, who will relocate to another new house her husband built in Cordillera. "Our buyer was a Realtor, and his plan was to flip the property. He's going to net $500,000 from the folks he sold the property to. There's certainly money out there if you're selling a quality property in a quality area, and in 40 years, Vail has never seen a dip in values."

That's obviously great for Tofferi and other homeowners who have invested in seemingly slump-resistant places like Vail and other pockets of the country where home prices don't show any signs of cooling. But what about prospective second-home buyers concerned about making a serious financial commitment in a turbulent market? Or the homeowners who enjoyed almost a decade of dramatic appreciation in property value but are now seeing some of that equity erode? How can you protect yourself from—and perhaps even take advantage of—the bust side of the real-estate cycle?

To answer those questions, Golf Digest and BusinessWeek commissioned Longitudes Group, an Omaha-based golf and leisure research company, to survey 37 of the most popular areas for golf-course and vacation homes and identify representative developments within those communities. Then, through research at county assessors' offices and online databases, Longitudes Group built profiles of the four strongest and weakest markets and how golf-course homes fared compared with properties overall in their respective zip codes.

The result? Those owning golf-course properties in places like Myrtle Beach (up 34% over the past year and 126% over the past five years) and Park City (up 22% over the past year) are asking "What real-estate bubble?" Investors in second homes at popular winter getaways like Sarasota, Fla. (down 10%) and Palm Springs (down 2%) are experiencing more anxiety. "Money is just not flowing as easily or as confidently as it was 12 and 24 months ago," says Longitudes Group President Sara Killeen, who studies golf-related real-estate trends for developers and investment groups. "People in all categories are definitely feeling the credit crunch. The very high-end homes—more than $2 million—are holding their own, but people who have to carefully plan out the expense of a second home might be waiting on the sidelines to see what happens."

Still, the old saw that golf-course property is a good investment seems to be holding true, even in areas where real-estate values have taken a hit. With the exception of Florida markets—where condo overbuilding has left a glut of inventory—golf homes in each of the "down" areas fared better than homes in the same zip code. In Scottsdale, for example, homes surveyed were down 4.1%, but homes in golf communities like Desert Mountain have shown modest increases. "One thing to keep in mind, too, is perspective," says Killeen. "Owners of homes in most of these down markets have made quite a bit of money in appreciation—10% or more a year over 10 years. A market that's down single-digit percentages this year is—at this point—just showing signs of a correction. Most owners' original investments aren't at risk."

Of all the areas surveyed, Myrtle Beach recorded the strongest percentage growth, partly because of its lower initial prices. Homeowners at the Barefoot Resort & Golf in North Myrtle Beach—which sits on the Atlantic Intracoastal Waterway and features courses designed by Tom Fazio, Pete Dye, Greg Norman and Davis Love III—have done even better. Properties there have appreciated an average of 56% over the past year. "Affordability seems to be driving the growth there," says Killeen. "You can get more for your money in Myrtle Beach—where the average golf home costs $410,000—than you can in Scottsdale or Sarasota." Indeed, real-estate values in most of South Florida, as well as Michigan and, to a lesser extent, Palm Springs and Reno, Nev., have been hit hard.

For example, in 2001, Chip Ferlaak was living with his wife and four children in Gaylord, a northern Michigan golf mecca at the peak of a course-building and real-estate appreciation frenzy. A golf pro at one of the local Gaylord clubs, Ferlaak decided to buy a lot adjacent to the Otsego Club, where he and his wife could build a retirement home.

Then along came a statewide economic crisis, led by the struggling auto industry, which torpedoed home values. "It's more bad timing than anything else," says Ferlaak, who took a new job in downstate Grand Haven and has been trying to sell the Otsego lot for the past two years. "There's been a lot of overbuilding up here, and between gas prices and the traffic, we just don't see ourselves coming up here very much."

Ferlaak estimates that his property is worth 30% less than he paid for it in '01. "Do we keep it and try to wait for it to come back, or do we sell and cut our losses, and stop having to pay the property taxes?" he asks. "Looking back, we probably bought at the very top of the market, but we were looking at it as a home, not an investment."

Ferlaak's advice? Pay attention to the economic health of the area as well as the amenities in the development "It's still a beautiful lot, in a great location," Ferlaak says. "Some places are going gangbusters, but Michigan is just struggling right now."


Given the market conditions, should you wait to buy your own golf home? Not necessarily.

Long before his property-flipping adventures became the basis for The Real Estate Pros—one of the most popular reality shows on TLC (formerly The Learning Channel)—Richard C. Davis was capitalizing during both boom and bust cycles by doing grunt work much less camera-friendly than chucking air conditioners out of second-floor windows. "There's no mystery in how you make the right decision about a property to buy," says Davis, who started his Charleston, S.C.-based Trademark Properties in 1991. "We're the ones going down to the county assessor's office and making friends. Most people spend a bunch of time looking at car prices on the Internet, but they don't research what's going to be their biggest investment."

Davis' TV show focuses on his team's adventures (and misadventures) rehabbing properties for a quick turnover and profit. What gets overshadowed is the legwork that goes into every purchase: Davis says Trademark researches 2,500 properties a month and might find only one to buy for investment purposes. "I'm an opportunistic buyer," says Davis. "I'm trying to make money. If you're buying your primary home, and you're going to live there for 20 years, you can throw the investment rules out. But if you're looking at second homes—and I've bought vacation homes all up and down the Atlantic Coast here—you have to think about it like an investment, not like something your spouse is nagging you to pick up on the way home from work. You have to do the legwork. " Here are his tips:

The first step is to prioritize the amenities and lifestyle items, like the quality of the golf course or the social life at the club. Which ones mean the most to you? Assuming you've determined where you want to buy, Davis recommends you build a list of 10 developments that satisfy those requirements. "You want to be somewhere where you believe in the golf course and lifestyle, and you feel like there's some value in the actual sticks and bricks, and not just in marketing hype."

The next step is to avoid getting snared in an artificially created feeding frenzy. "Don't get caught up in trying to keep up [with other bidders]," Davis says. "Developers want to get you into an auction-type situation by saying you need a reservation to get in. Remember, there's tons of inventory out there, and you can take your time. The last thing I'd do is buy something on the basis of a glossy flier."

The final step is to find out what actual houses in the development are selling for—not the list prices. "Go to the assessor's office and say you want to know the velocity of deed transfers in a given development—and use those exact words," says Davis. "If I see that fewer deeds are changing hands, that means demand is slowing down. Sniff around and find the real values, then buy with the eye toward keeping the property a realistic amount of time."

For a buyer who has cash either to buy a home outright or put enough down to qualify for a loan below the $417,000 limit for conforming mortgages and an attractive interest rate, a down market like this one is a ripe time to buy undervalued properties. "People have been saying, 'I'll buy it, and even if I don't like it, I'll sell it and make money,' " says Davis, whose show will next track Trademark's maneuvers in Charleston's softening real-estate market.

"That party's over," Davis says. "Credit is too tight. I can remember the last time this happened. I was over at Kiawah Island buying foreclosures seven or eight years ago. It wasn't any indication of the quality of the properties there. It was a reflection of the money situation. That's where we're at right now. There are some tremendous bargains out there. Ten years from now, you're going to look back and say you can't believe how you got your place for 50 cents on the dollar."

Whether you're looking to find a great deal in a down market, or investing in an established up market, you should buy a property that makes sense for your short- and long-term goals and ultimately fits your lifestyle needs. For example, Vail resident Tofferi says that once you get past the amentities, the biggest continuing draw for vacation-home owners at popular Vail developments like Cordillera and Beaver Creek is the sense of community.

"Second-home owners are leaving their beehive—the place back home where they know the people and where to go and what to do," she says. "What anchors them is they can pick up and leave a place that's familiar and come here and feel like a local—not some outsider. There is a feeling of community. That's a powerful thing, and it's just as important as the value of the home."

By Matthew Rudy

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