TAKE TWO MORE BABY BOOMERS HAVE PUT MONEY INTO SECOND HOMES - FOR RETIREMENT OR INVESTMENT.

Byline: Evan Pondel Staff Writer

When Susi Cook's stress levels rise, all she has to do is close her eyes and think about her second home in the Sierra Nevadas. It's not just the thought of escape that brings a smile to her face - her second home has appreciated nearly threefold in value.

A frothy real estate market has not only benefited those who own single- family homes throughout Southern California. Try 900-square-foot second homes tucked away in the mountains.

``We bought it before the prices went out of control,'' said Cook, a bookkeeper from Westlake Village who purchased her two-bedroom condo in Mammoth Lakes, Calif., for about $150,000 in 2000. But as the market slowly changes direction, those interested in purchasing a second home are questioning whether pleasure or appreciation is more important. For Cook, 50, the ability to escape Los Angeles and ski Mammoth Mountain is more of a priority than flipping her condo for a windfall of cash.

Others are still seeking a second, third or even a fourth home for investment purposes. And despite talk of an impending break in the housing market bubble, those who own or want to own a second home are steadfast in their decision.

In 2004, nearly 23 percent of all homes purchased were for investment purposes, while 13 percent were purchased for vacation use. And between 2003 and 2004, there was a 16.3 percent increase in second-home purchases.

``A number of people who are buying second homes for investment purposes are disenchanted with the stock market,'' said Dolores Conway, an associate professor at the University of Southern California Marshall School of Business. ``And some of the creative financing has made it easier for people to get into second homes.''

Zero-percent-down home loans and relatively low interest rates have contributed to the popularity of owning a second home. Cash-laden baby boomers are yet another reason why second-home sales are strong despite an otherwise flat-lined economy.

Many boomers are coming to a point in their lives where sinking more money into mutual funds and 401(k)s isn't as appealing as owning something tangible. Such is the case for John Dorio, 44, who recently plunked down $1.25 million to buy a 3,000-square-foot home on the water in Lake Arrowhead.

``I don't want to sound materialistic, but it's nice to have something tangible after working so hard for years and years,'' said Dorio, a mortgage broker from Orange County. ``I also did it for the investment. Meaning, it's something the kids will be able to use in the future.''

When asked whether he was concerned about losing money on the house should the real estate market tank, Dorio said the therapeutic effects of having a home in the mountains is far more valuable to him than market fluctuations.

But to some, the upside potential of a real estate investment is therapeutic. And the real estate can be bought and sold without any sort of emotional attachment.

The Inland Empire knows these kinds of investors all too well. New housing developments have sprung up throughout San Bernardino in the past decade, serving as quick-hit investment opportunities.

``There is this kind of rhythm out here. It heated up in Orange County first, and then traveled east,'' said John Husing, whose consulting firm, Economics & Politics Inc., is based in Redlands. ``People started acquiring homes in the region for investment purposes only. And that's bad social policy.''

At a time when housing prices continue to soar, the act of buying and selling a home in less than a year is pricing others out of the market. ``I've received a flurry of e-mails from people who feel like they've been tapped out for a capital gain. We already have a housing shortage and this doesn't help.''

Developers are also finding themselves in a quandary. When new developments spring up, the onus is on the developer to sell the homes. But if the homes are snapped up and sold too quickly, the development has little time to establish a viable community.

To curb the quick flip, developers such as KB Home, have stipulated in contracts that buyers have to own their new home for a certain amount of time before they can sell the property.

``We're trying to build out these communities. We're not striving for people to sell their new homes,'' said Daniel Weidman, spokesman for the Los Angeles-based company. ``When someone comes into the sales office, we can generally tell what their intention is.''

Even though quick turnarounds aren't a ``chronic problem'' for KB Home, the company understands there is only so much it can do to avoid the situation. The company is in the process of developing Legends at Cascades, a community of 500 attached town house/condos in Sylmar, and Weidman said KB Home wants a ``neighborhood full of permanent residents.''

But permanence is not a priority for Bob Dougherty, who has purchased a total of four homes in Scottsdale, Ariz. His primary residence is in Camarillo, where he works as a real estate agent for Coldwell Banker. He initially bought a second home in Arizona so his wife had a place to stay while finishing up her doctorate at Arizona State University.

The other homes were purchased merely as investments. ``I see them as little 401(k)s,'' he said. ``Ultimately, the three properties could end up generating some income for us.''

Or he may consolidate the properties and use the profit to purchase another home. That could also help Dougherty avoid paying capital gains tax on the profit. Many second-homeowners are becoming familiar with what is known as a 1031 tax-deferred exchange, allowing the seller of a home to transfer profits to a new property essentially tax-free.

Baby boomers are prime candidates for 1031s because many already own second properties. And if they don't now, Realtors are confident they will in the next decade. ``When baby boomers start retiring, we're going to see the largest amount of money spent in the history of our economy. And they'll want to put that money in the cheapest and warmest place their money can buy,'' said Mike Bell, a real estate broker at Prudential California Reality in Pasadena.

From Bell's perspective, that cheap and warm place is Baja California. In the past several years, developments have been surfacing throughout the peninsula, offering prospective homeowners a chance to live by the sea at a relatively low price. ``You can buy a two-bedroom home really close to the beach (75 yards) for $300,000,'' said Bell, who bought a similar home just north of La Paz. ``But buyers have to beware that not all properties are created equal in Baja.''

Many of the properties don't include utilities or title insurance. And it's also important to inquire about the type of banks backing the newer developments.

Dick Gaylord, a Long Beach real estate broker, doesn't want to look as far as Baja for himself. His eyes are fixed on the mountains.

``And I'm very discouraged. There's not much up there right now,'' said Gaylord, a Re/Max Realtor. ``But I'm going to keep looking until I find my second home.''

Susi Cook's property won't be among the options. She is going to stay put until she stops skiing or her husband loses interest in Mammoth.

``For all I know, prices could all of a sudden fall apart. And if that happens, our condo will turn out to be what it was intended for,'' she said.

Evan Pondel, [phone]

evan.pondel(at)dailynews.com

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Photo:

(1 -- 2 -- color) Susi Cook and her son Matt think about their second home, a condo in Mammoth Lakes, while standing in front of their Westlake Village house.

Staff Illustration