Two lake lots purchased. Do I rent or sell?

Question

I currently live on a lake in a great location.  A couple doors down I've managed to purchase another home on a better side of the lake with more square footage for my family.

The way I see it,  I have two options...

1.) Keep both houses.  Live in the bigger home and rent out the smaller house which would cashflow roughly $300/mo

2.) Sell the smaller lake lot for roughly $175k profit and invest it in other markets.

Things to consider:

Purchased the bigger lot for $600k under contract for deed with 4% interest for a five year period with $30k down

Purchased the small lot for $210k with 3.5% interest with $172k left to pay. Was told I could list it at $350k.

Any input on ways I should be looking at this?

Thanks in advance!

James Hamling · Answer

@Daniel Lochen this is a very easy one as to what's best: NONE OF THE ABOVE.

It boggles me why the 1 commentor feels lake front is not anything special, that's like saying water is not wet, it's on that level of wrong and ridiculous. A VERY universal rule of real estate is what? Location location location, right. And what is King in location? WATERFRONT.

I see your in Kimball, which 98% won't know beyond a google search. Development has not hit there yet, it hasn't really hit in St Cloud area for most part aside from Sartell, and even then not on scale like rest of Twin Cities expansion, so your some time away from forced appreciation via development.

Similar issue with market renting as sale.

But but but, there is a golden opportunity that I notice you said nothing about, and that is STR. Now, to pull off a STR is far from easy, it is not real estate investing or landlording, it is hospitality business. Take a what, 15/20 minute trip west to get around the chain of lakes, how insanely packed is that whole area all summer? And what crazy prices will people pay for the weekends, right.

What I would suggest is a newer strategy I developed, that I have not heard anyone else doing as of yet. Simply put I went out and scouted the best STR operators at small and growing size, a focus on quality operations. I than built established deals where I or my clients acquire the properties, and we lease to the STR operator on a long term lease deal, there in mitigating there costs of acquiring properties and frees up operational capital for operations and allows greater expansion. In return for allowing them to sublet for profits I get higher than market rents, in some cases as much as 200%. We all make great returns, everyone wins.

I have a comparable place in Minnetonka right now that would have been able to get market rents around $2,500, currently averaging $7k per month with some touching near $10k.

On lake in Kimball area, similar thing although we would be much more "vacation" rental focused so amenities would need to match. We have properties of similar lake shore STR that get up to $450 per night.

Without doubt, that's which direction I would go.

Bill Ward · Answer

@Daniel Lochen

I’d think you would get a lot better return using that 175k than just $300 a month. Even a 5% return on your money would put your way over that without the stress of a rental

John Teachout · Answer

MN has a lot of lakes so it seems lakefront property wouldn't be rare. From my experience, waterfront properties are closely tied to the current economy and their prices fluctuate accordingly. If it were me, I'd consider selling and taking the profit to deploy elsewhere. Would you be exempt from capital gains due to occupying it? If so, this would be an additional reason to sell.

Daniel Lochen · Answer

@John Teachout thanks for the input!

Looking at the history of houses sold on this lake,  I have yet see one depreciate in value when markets settle.  "Not sure if this is accurate for most lakes or holds any real value when calculating decisions. "

I did forget to weigh in the capital gains though... thank you!

Daniel Lochen · Answer

@Bill Ward thank you for your input!

Daniel Lochen · Answer

@John Teachout sorry I should have clarified!

Lot #1 is a .75 acre lake front lot with a 4 bed 2 bath split level built in 1974 with an attached garage and 100ft of sandy shoreline.

Lot #2 is a . 75 acre lake front lot with a 2 bed 1 bath house built in the 70s, a 30x30 detached heated garage all on 80ft of shoreline.

Lot #2 is where I currently live but plan on moving to lot #1 for more room.

-I'm just not sure on how to look at the numbers when it comes to having the best return for my money...

Plan A) Consider putting the profit I make on the sale in an average market (stocks, 401k, foreclosures)

Plan B) Hang onto property #2, rent it out,  and aim for cashflow and appreciation.

Note: Appreciation on this lake has increased considerably more than others due to its size and location.

John Teachout · Answer

This post is confusing, when you're referring to lots, are you referring to "land" or improved properties, ie with structures/homes on them?

Two lake lots purchased. Do I rent or sell?

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