Thinking of buying rental cabins on a lake...need opinions!!

[Needafunboat]

Hi Guys,

So the cabins that we have been going to for the past 3 years are now up for sale. The owners contacted me and the price is pretty reasonable. It's on a 300 acre all sports lake near gaylord. Lake is nice and deep, spring fed and clean. Usually a bit cooler than shallow lakes, but you can always easily see your feet when you're in the water - very nice water. It's only about a mile long so top speed runs are a bit dicey, but overall a great family lake - never crowded.

Anyhow - they rent by the weekend and have a beach and an acre of flat mowed grass on the lake, there is also a nice beach and dock of course. There are 2 nice sized 2br cabins on the property. They rent for $150 per night + a $50 cleaning fee, or about $750 per week. They seem to rent out pretty well in the summer and winter. Fall and spring would be cheaper rates.

Cabins also happen to be ON a sled trail and on trails that you can ride dirtbikes / atv's on (not an official ORV trail, but the DNR hasn't hassled us in 3 years).

With the current economic times, I'm obviously looking at this cautiously. I just keep thinking that if I pass up a nice acre on a lake for a reasonable price - I'll be kicking myself!

I guess I'm asking for opinions on what you guys think -AND putting out an initial feeler for anyone who may be interested to rent this coming summer (or other times!).

Let me know what you guys think!! I've been hashing this thing over in my head non-stop. The wife is on board and cautiously excited like I am. It's a BIG step, but a great family place.

Thanks!!
Anthony

 

[wizard8575]

that depends on how ofter us fellow checkmaters can join you for partys...

 

[Scott_Loveless]

Are you sure you want to be in a business that is running full tilt during boating season ? You are pretty much on call from Memoral Day to Labor Day.

Crunch the #s ten times over and build in a real heavy layer of fudge in them for bad times. If it still works and you think you have it in you - Go For It!

 

[cooperider]

Put me down for a few days next August.

 

[Big Red]

Any property that has water on it only goes up in value. Figure everything out on a 6 month basis. If you can make ends meet by only renting 6 months out of the year you should be ok.

 

[senator-holland]

Any property that has water on it only goes up in value. Figure everything out on a 6 month basis. If you can make ends meet by only renting 6 months out of the year you should be ok.

i would buy it. especially in a bad credit crisis. property is alway searching for making up the cost by collecting rent. and after a few years sell it in the good times with profit.
overhere in europe you can't get anything with water on it. and if it is it's over a 500k euro's. even with only a doghouse on it....

 

[PapaMaC]

What a lot of people have been doing recently (I know of 3 within my own circle of affiliation) is they took out large cash loans and use the loans to buy property instead of getting mortgages. For the next few months this will get much more difficult to do, but only time will tell how well it will work out for them.

 

[mikestrobe201]

if I had the means I would pick it up.....value can only go up if on the water, plus it sounds like you would like using it yourself...

 

[merc245]

Nothing can do ONLY one thing. Real Estate Apraiser 10+ yrs. Ask to see the books if buying as buisness property.A good rate of return on investment properties is apx 10-12 % a yr. Or a little less if you could afford the time.

If your buying as a privite residence, Then your using heart to make the decision.And my advice would be Buy Low and Love & Enjoy for along time.

I feel 300 acres is a fair size family fun lake.The lake I camp on with neices and nephews is only 136 acres and we have all the fun possible.

Keep us updated.

 

[Needafunboat]

Thanks!

Thanks for all of the feedback! You guys touched on much of the same stuff that has been going through my head, as well as some stuff I hadn't thought of.

I didn't mention that we'd be splitting it with some very good/old friends of ours - which I clearly know this is a recipe for disaster. My lawyer sis-in-law (specializes in real estate law) gave me some good advice that we are using -- plan an exit strategy assuming you guys are not friends at that point. While this seems unimaginable, you need to have this stuff figured out up front - both families are on board with this. The other family has (great) kids about 6 year older than our kids, which is nice -- there will be no "billy doesn't like johnny" conflicts...

Another thing I didn't explain is that we are not buying it as a positive cash flow property. We love the area and our kids have a blast there. I grew up with a similar situation there (in PA) and loved spending time there from ages 5 until now. During my teenage years, it was the only place/time I was happy to bring buddies or girlfriends to spend time with my parents. Maybe I'm grasping at those memories...

The rentals would just offset maybe 30 to 50% of the ownership costs. We are only able to get up there 4 to 6 of the 12 prime summer weekends (june,july,aug) - so we'd rent it out the rest of the time. It also rents pretty well during sled season as it's on a sled trail AND in the snow belt. Fall and Spring are pretty dead.

It appears to be booked pretty solid over the summer weekends since it is one of 2 lakefront properties in all of MI that I know of that currently rent by the weekend over the summer. I'm sure there are more, but not many... Renting by the week is another option, but I'm not sure how that would go.

Of course I'd encourage you guys to get up there and would offer you guys better rates.

Good advice Merc - I'm getting their P&L for the past few years, and I will need to understand the full ownership costs. Any other things / pitfalls to look for??

Then there is the economic situation - my strategy is now to actually put as little down as possible and just pay the PMI for a while. The sellers are willing to do a land contract with us - so we'd need to crunch the #'s and see if that makes sense. My sis-in-law said that "seller backed financing" can be a very good deal depending on the specifics.

Anyhow - keep the info/opinions coming and I'll let you know what happens. I'm talking with the seller on sunday.

Thanks!

 

[hotdaddy27]

If I had the opportunity I would BUY IT!

However, you must do what is right for you and your family.

Good luck...........it's a big decision.

 

[zstevens]

check into the property taxes ? as 2nd home /vac. home is way more than normal ! my family made it a perm residance for my dad ,his better half has other home in her name .

 

[Needafunboat]

Zach - that is exactly one of the major open points. I searched the tax payments for that parcel in the county and I can see what they've been paying as well as what they bought it for- a couple of weird things:

1) the state equalized value (SEV) is like 1/4 of the last purchase price - it should have been 1/2 of the value.

2) they are not paying any non-homestead taxes (they own a LOT of other properties).

The owners said they would start an LLC with the property as the only asset and then sell the LLC. They thought that would keep the taxes from going up.

I obviously need to check into all of that stuff. Sounds a little shady.

The owners still are getting us the profit and loss statement - it may be a better business venture than we had thought, which makes it even more attractive at the moment.

UGGHH - this waffling is driving me nuts, and it appears it could continue for a while. Neither the owners nor I are in a hurry so it will drag on for a while...

 

[Chris E]

ok - a bit of canadian advice here - but it shouldn't matter.

1. get the financials for the last 5 years - p&l is great but you need everything - especially the "statement of cash flows" - that'll tell you where and how the money was spent that came in and also have the balance sheet. have them analized by an accountant - most businesses will try to run a low net income to reduce tax payable, so expect revenues to be undersated and expenses to be overstated - especially "miscellaneous expense" (a personal favourite of mine).

2. your legal advice is exceptional - don't ignore it

3. what are your projected revenues for the property and how will that offset the expenses of running it?

4. how will you attract and retain clientele?

5. which family will be responsible for the overall operation of the property and how will they be compensated for it?

6. who will hire and maintain staff - and who will monitor the staff to keep them from stealling you blind (absentee landlords make for great targets)

7. with the US real estate market the way it is, a real estate investment is certainly sound - and there is only so much waterfront - so as long as your willing to hold onto it for a while, you'll make money.

8. now for the wet blanket - what will happen if one of the marriages breaks down? that could cause the whole thing to fall apart. and with 53% of all marriages in the US failing odds aren't in your favour.

hope that gives you some food for thought - i don't want to be a wet blanket - but these decisions need to be based on good sound financial thought - and not emotion.

 

[remlinger]

Ok, location sounds great. But lets look at the cabins themselves.

1. When were they buildt?

2. What are the untilities? water, sewer?

3. Condition of roof and age?

4. Condition of mechanical systems and age?

you'll need to build in for maintance.

Also how many cabins? I might have missed this. The reason for asking is if there are only two and one is empty your loosing 50% revenue. But if there are ten and one is empty your loosing only 10%. This plays a big part as to where your money is coming and going to.

 

[Needafunboat]

Excellent, this is exactly the type of stuff I was looking for. There is clearly an emotional side to these purchases and I need to poke as many holes as possible.

First an update: the P&L statement has not arrived, but they've been promising it for while and know we need to see it. The sellers are about as patient as we are - they are rarely in town. Although they do want to sell, they are not in any hurry.

Lots of good points you guys brought up - here are a few answers:

The property has 2 parcels:
1) two cabins and the acre of frontage (about 105' of frontage x 250'? deep x 124' wide at the "back" of the property). This parcel is pretty level, open - lots of mowed grass. Zoning is such that you could easily put 2 more cabins, or a pole barn or whatever on this.
2) about .7 acre behind first parcel, has a 3br house w/ walkout and a 27' 25' garage. Has a 10' easement down to the water.

We are considering the first parcel - it's not as big an investment as I may have made it sound, but still big for us.

Cabins are OLD (unknown bulid date), but insulated well, each with an addition in the 60's. They have been Roof on one is very good, bad on the other. Our offer included them putting on a totally new roof (sheathing). They have the typical northern MI wall-furnace (you've seen 'em) and window AC units.

Utilities will be included in the p&L - has a newer septic + well in good condition. Owner said costs average about $550 per month for all 3 dwellings. Taxes are cheap right now (per the public record search I did), but I'm not sure what they will do when the cabins are sold, they could almost double.

The local hotel owner does the cleaning and the renting for a reasonable fee. The advertising is in place (we'd extend the contracts and advertise in some other places + word of mouth)

Place has alot of return renters - largely because it is one of the few waterfront (only) places in MI that rents by the weekend. It has a great beach and lots of space to toss the football. Plus aside from labor day, I've never seen more than maybe 6 boats on the water.

Yeah - the big D is scary - all around. Not sure how we'd handle that. I'm sure my lawer-in-law would have something written in about it, but it would probably cause the whole thing to be sold. Just reality, and we should come to grips with that going in.

 

[remlinger]

How close are you tothe holly waters on the ausable? Becasue thats a markcet to advertise that is fly fishing.

 

[Needafunboat]

Well, the cross street is au sable trail... The lake I believe is one of the headwaters of the au sable. About 8 miles north of frederic. From what I can see Bradford lake feeds bradford creek, merges with Kolka creek and runs down towards Frederic...

Nice market though! - hadn't thought of fly fishermen at all. The lake has great fishing and some of the summer rentals are JUST fishermen. THere is a smaller lake across the street too.

If the ATV law goes through, we can rent to those guys because there are lots of gas line 2 tracks back there. We've done some awesome dual sport dirtbike rides from Waters down to starvation lake, through kalkaska, down north and south grand traverse trails, rode west missuake, some of east missuake and then came up through grayling and I believe frederic trails. over 200 miles of mixed sled trails, single track, and some dirt road riding. My favorite LP loop by far.

Sledders are a given, the owners rent to Morell Mushroom hunters in the spring (never would have thought of that either!) and some fall color tour people in the fall. There is good hunting and state land nearby.

The place is also 40 min to torch, 1/2 hr to mullet/burt, hour to boyne, 5 min to otsego, 20 min? to margarethe, maybe an hour to traverse city, about an hour to mackinaw. Lots of other stuff to do there, but enough stuff to do that you can boat atv, dirtbike, hike, hunt.. all from there.

 

[remlinger]

Sounds like a nice location to be in.

 

[Needafunboat]

Thanks Remlinger - you can tell we like it there. Had (yet) another long long talk with the owners last night and they are sort of all over the road. They want to keep a little lake front and can't decide how to split it up. If we had a little more cash, we'd buy both parcels (all 3 houses + garage) - but that would make things tight and neither the wife nor I like that.

So we'll to into savings mode for a while until the owners figure it out... 'hmm maybe a used manual jackplate will have to do, because I don't see that grand for a slider in the near future! Anyone have a used 8"'er?? cheap?