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Name:
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MotorMan
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Subject:
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Hey MotorMan
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Date:
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4/6/2007 11:10:04 AM
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from feb
"This is a question or a lead to a discussion. Please do not take it as argumentative. I might just learn something here.
I read your rules of thumb and was curious. If a Lake lot is valued at $200,000, then your point is for finance purposes, 3X guide, the improvements should equate to $600,000; therefore a total investment of $800,000. "
ANSWER: YES, AT A MINIMUM
from feb
"What I think you may of also said is the above may become a tear down and it is better to follow closer to the 10X guide an build up to $2mil in improvements on a $200,000 lot. "
ANSWER: YES, I learned this rule in 1978 in a real estate school. It had worked for a century.
from feb
"Did I read you right or is it (guidelines or rule of thumb) maybe a little different on the Lake? It seems the 3X and 10X guides might be less applicable on Lake property."
ANSWER: sort of. I bought a 720 sq ft 1916 cottage teardown in 1974 for $65,000 on one of Wis's nicest lakes. Just myself, I fixed it up for $20,000. I sold it in 1990 for $250,000 and it was promtly torn down and a 4000 sq ft house put up on the cheap, maybe $400,000. This was a mistate, moneywise, but all he could afford. A 2.5 million house was too much, but a million might have better. My $20,000 was not wasted as I got a nice place for a single guy to live for 16 years or $1250/year. Since the 4000 sq ft house was built on the cheap, it became a teardown as soon as lots on that lake hit $600,000. The 10x number breaks down when land values soar due to very limited supply. All States will have their version of WI's Lake Geneva, the deepest, cleanest, biggest lake midway between Chicago, Milwaukee and Madison, the State Capital.
I call it the "Lake Geneva effect" ; you take the nicest lake in the State and it has the highest prices. In 1975, when Lake Geneva was $200,000 for a lot, nearby lakes shallower, sold for $60,000 to 100,000. Northern WI's Minocqua chain was nice, but near nothing. They sold for $20,000. Little lakes near Minocqua sold for as little as $4,000/lot. When lots are only $4,000 few big land owners will subdivide their massive 200 acre holding if it costs $3,000 per lot to put in a road, power, etc. It is generally that MONSTER taxes that force big acreage owners to subdivide in WI. More on THAT later.
from feb
"I certainly understand it and pretty much aggree for less expenisve lot property and subsequent construction. "
ANSWER: YES, under certain conditions.
from feb
"Now to a slightly different discusslion. As we all know there are some nice Lake Homes on the Lake. Many of the more expensive homes are in gated type communities (I will use the Ridge as and example). There are some as equally nice homes and lots outside gated communities with lower values. I am of the opinion the gated community Lake houmes may stay more stagnate from initial investment cost for years while the other properties outside the gated communities may in fact continue to rise in value to a greater degree (%). This is not to say the two options will become equal in value but the initial investment may change dis-proportionately. As we all know, the cost of ownership for the gated communities is usually greater due to association fees and the amenities they may offer to some. "
ANSWER: I'm not sure what you're getting to here. It may be "DON'T PAY TOO MUCH" The other is called "diseconomy of scale". See: http://en.wikipedia.org/wiki/Diseconomies_of_scale
EXAMPLE: An empty nester wants to sell her 3600 sq ft house for the going price of $1,00,000 in her area. However, the 1800 sq ft houses she is looking at cost $700,000. So for half the house, she pays 70%. This happens because the smaller house buyers can only afford the monthly payments of the $700,000 house. House prices always go down, for a while, when interest rates go up. The time to buy is when they are low.
Stillwaters lots acutioned for $8,000 then slowly fell to $4,000. As soon as it turned around, lots were snapped up and $12,000 lots are getting more rare.
Funny as it seems, you lock in your profit in lake property when you BUY. Anyone can sell at the going market. What's hard is the buying. Above $65,000 tearndown was worth $100,000 in my opinion, but others could not overlook the "ulgy" 1916 cabin and I saw value in the framing.
from feb
Just currious what others may think and see things in their opinions and experience."
ANSWER. When Ron's hometown of Janesville had unlimited cornfields to subdivide, prices went up gradually. But then commute costs start to rise and the new lots are almost in the next County, so old lots because more desireable.
This is turning into an econ 402 lecture. Please forgive the length. Ask any other questions. I have been making money in lake property since 1971.
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