Licensing Boat Slips to Pay off Marina Mortgage?

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Licensing Boat Slips to Pay off Marina Mortgage?

Account Closed
Rental Property Investor · Huntsville, AL · Member since 2014 · 9 posts · 5 votes

BP Family,

I have stumbled upon a deal which could prove to be exceptionally lucrative, assuming my financing plan turns out to be feasible.

The property: A marina on a large lake in Alabama. It has 24 boat slips which rent for a total of $14,500 annually. oh, and there is a small, yet liveable, 3br/2ba house on the property.

The seller is asking $225k, but i think he'll come down to $200k or so, as the property has been for sale a couple years, and it is owned free and clear. (It's all "unearned equity"- it was inherited.)

In any case, let me give you the basics, and then the main question:

Down payment: $40k 

Mortgage balance: $160k

which is $858.91/month or $10,306.92 annually.

taxes are $2,500/year

insurance $2,400.year

so $14,806.92 would be almost entirely covered by boat slip rentals, not to mention

I do understand that this does not come close to meeting the 50% rule, but my wife and i would live there and we both have jobs, so even a little negative cash flow would not hurt us, since we'd have a house payment in absence of the deal anyway. So we could pay for maintenance and the 40k down payment 

Boat slips are in short supply (there is a waiting list) and can be sold for between $12k and $15K in this area, which would yield $288,000 on the LOW end of the range. which would pay off the mortgage and also yield somewhere between $60k and $80k in profit, depending on how quickly we sold them off, i.e., how much mortgage interest we avoided.

However, the financiers of the down payment (we'll call them "Mom" and "Dad" are concerned that it is not legal to "sell the slips" before the mortgage is paid off.

"Selling a boat slip" is really just selling a permanent license to the easement which accesses the slips and also a permanent license to the slip itself. As I understand things from my research on here, I can sell a license to use the property regardless of a mortgage on the actual property (and honestly, the due on sale clause would not even come into play, as i am not transferring an ownership interest in the actual real property. 

So the question, in summary, is: CAN I SELL LICENSES TO THE BOAT SLIPS IN ORDER TO PAY OFF THE MORTGAGE ON THE PROPERTY, or is there something illegal about doing that? (I don't think there is; i just want to give "Mom" and "Dad" some peace of mind.)

Hopefully, some of you have experience in this area. Maybe someone from Florida, Miama, Fort Lauderdale, Tampa, or better yet, someone in Mobile, Spanish Fort, Gulf Shores, Orange Beach (or any other keyword alerts I might be able to catalyze, lol)

And yes, I understand that the generic answer to this is that state laws vary and I should seek the advice of a competent attorney licensed to practice law in my state. I am going to. So save it. Lol. I just like getting investors' perspectives on this kind of thing as well.

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Dion DePaoliPro Member
Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
12y

Before we get lost in words and I don't want dumb down the legal impacts here.  This does get complicated and you need to understand what is happening in the deed and what is being sold and how.  

Who has rights to ingress and egress, is it properly set up or did somebody throw a dock up with some slips in the back of their house and are trying to use the utility easement as ingress/egress?  

How is liability of slip renter/owners and property owner handled?  Between slip owner to slip owner?  Who holds responsibility to environmental impacts - can your slip contract hold the slip owner liable?  Does another community member on the same body of water have to make claims through you to get to the slip owner?  

Much of this impacts the contract language of your mortgage not to mention the sales contracts of the slips.  Needless to say, this is complex.  It's do-able but do not try and assume you can just "do" things with out proper counsel and course.  

The key factor to your question at it's core.  You need to disclosure your plan to your lender.  Since you are granting some interest in the Subject Property to another party, which is the slips to other folks, they have right and interest to know about any changes in the collateral and it's utility.  

The historical designation may have some say so in how interests of this property can be sold and delivered as well.  

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  • Dion DePaoliPro Member
    Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
    12y

    This would be a bank's portfolio loan.  With the residential component, that may help relieve some pricier loan terms but depending on some other concepts, those terms might still be a little more.  Like down payment and interest rate.  Moral of the story, you will need to get some loan quotes.  Some banks may flat out pass.  I am not sure your metrics used above will be what you end up with in loan terms and demands. 

    In addition, that insurance policy looks a little light.  The lender may have some specific demands for coverage.  You own property where vehicles sit on the water.  If something spills, you will be responsible or sued.  They will want protection for such things.  The Lender may demand a $1 Million+ policy to cover that risk.  That will likely run you more like $8k annually.  Again, you need to get a quote from the bank and then the insurance to really start to understand all the real costs and terms.

    The plan to "lease" the boat slips is fine. (stop referring to it as a license, that is not proper) The bank will understand. You are not selling off those slips, unless I misunderstand your plan, and leasing slips is common. The bank will know how to work with it. A lease would not trigger DOS.

    The general plan you have is fine.  Marianas get financed often.  I am not sure the terms of said financing you fully understand though and your estimates may be too low.  There are many moving pieces with the boat slip and your primary residence being on the same parcel.  Those legal real estate issues need to be looked and the insurance and environmental concepts will need to be looked at and evaluated.  A bank willing to finance this property will know what to do.  I recommend you start having meaningful discussions with potential lenders so you can get a real idea of the costs of getting the loan and holding the property.  This will not look like a residential loan since the property is mixed use.  

    It sounds like it can be a good deal for you.  Good Luck.

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    12y

    Not familiar with the licensing idea/concept, boat slips here are "condominiumized" and the buyer gets title.  As a buyer, I'd be hesitant to "buy" a boat slip that you held title to, could sell, could not pay your mortgage and it gets foreclosed on, etc.  Since they don't have individual legal descriptions, I don't see how the mortgagee could do partial releases either, but maybe. The licensing thing may work, just never seen it.  Are theo ther boat slip sales you mentioned, done by selling "licenses"?

    0Reply
  • Account Closed
    OP
    Rental Property Investor · Huntsville, AL · Member since 2014 · 9 posts · 5 votes
    12y
    Dion DePaoli , Thanks for the advice. I suppose I didn't explain the situation well. I am not talking about leasing the slips. I am talking about selling a permanent license for each, which is a fairly common practice here. Licenses on slips that rent for $1k annually sell for between $1250 and $1500. The situation is unique in that the property is zoned as residential and commercial usage rights are grandfathered in from historical usage. (Which is why I can't change the name of the marina.) The financing is approved as of 1:30 p.m. today, based on the residential value of only the waterfront acreage and SFH by the road. The rest is "gravy."
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  • Account Closed
    OP
    Rental Property Investor · Huntsville, AL · Member since 2014 · 9 posts · 5 votes
    12y
    Wayne Brooks - because Alabama Power technically owns the first 10 feet of water extending horizontally from the shore, the only way to transfer any right to docks, etc, is through licensing. I suppose our situation here in AL is unique in that we can't "own" boat houses, etc. Thanks again for your help.
    0Reply
  • Dion DePaoliPro Member
    Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
    12y

    Before we get lost in words and I don't want dumb down the legal impacts here.  This does get complicated and you need to understand what is happening in the deed and what is being sold and how.  

    Who has rights to ingress and egress, is it properly set up or did somebody throw a dock up with some slips in the back of their house and are trying to use the utility easement as ingress/egress?  

    How is liability of slip renter/owners and property owner handled?  Between slip owner to slip owner?  Who holds responsibility to environmental impacts - can your slip contract hold the slip owner liable?  Does another community member on the same body of water have to make claims through you to get to the slip owner?  

    Much of this impacts the contract language of your mortgage not to mention the sales contracts of the slips.  Needless to say, this is complex.  It's do-able but do not try and assume you can just "do" things with out proper counsel and course.  

    The key factor to your question at it's core.  You need to disclosure your plan to your lender.  Since you are granting some interest in the Subject Property to another party, which is the slips to other folks, they have right and interest to know about any changes in the collateral and it's utility.  

    The historical designation may have some say so in how interests of this property can be sold and delivered as well.  

    2Reply
  • Account Closed
    OP
    Rental Property Investor · Huntsville, AL · Member since 2014 · 9 posts · 5 votes
    12y
    Dion DePaoli , Seriously, thanks for the solid advice. I actually did what you said late this afternoon and told the lender that I wanted to do it that way. His advice was that I should have a survey done and have the easement, parking area, and slips divided into separate parcels, and then based on the appraisal, that they would give me clear title to each of the slips as I paid their respective parts of the overall balance down. Because the appraisal shows the entire dock as only being valued at $19k, I can pay for the individual slips and have clear title to them at less than a thousand bucks per. I have to admit that on some level, I felt like I should keep my plan hush hush. But after finding out that it will only cost $750 for the surveyor, plus filing fees for the newly created parcels, it will really simplify things, and ensure that no one else has encumbrance issues in the future. I'll probably donate the access drive to the city to avoid paying taxes on it after I sell the slips off, since it only constitutes about 10% of the original lot's total area, and would ensure that everyone is able to access the dock in the future. Thanks again for taking the time to give me some good coaching on this deal.
    1Reply
  • Rick H.
    Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes
    12y

    I get the part about having a vision for a lifestyle, however it comes across to me like you're trying to 'buy' a job. 

    Maybe I missed it, however it seems like an installment sale with the seller taking one or more purchase money notes is the logical way to finance this biz opp. That's about the only thing that might make this attractive. If not offered, I'd cool off pretty quick on the deal.

    Licensing does seem like an interesting way to pass individual benefits to users.

    Riparian and marine laws are well outside my area of expertise do I'll defer to the experts. 

    0Reply
  • Michael Lemieux
    Investor · Deerfield Beach Florida and Tupper Lake, N.Y. · Member since 2013 · 307 posts · 118 votes
    12y

    @Account Closed , I don't have any advice, but love the idea.

    1Reply
  • Dion DePaoliPro Member
    Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
    12y

    @Account Closed - glad it helped.  That is the way I would desire it to go if it were me.  Carve out the slips, have the released from your mortgage encumbrance and be out of the way of future liability with the cash in your pocket.  Good luck.

    0Reply
  • Phil B.
    Real Estate Broker · Tampa, FL · Member since 2014 · 121 posts · 77 votes
    12y

    I own a boat and I rent a slip.  Its on the Gulf of Mexico in a high and dry slip.  My monthly rent is $258 per month.  The marina charges by the foot - my boat is 19 feet.  Boats come and go in people's lives faster than cars.  You buy one and you either want to get rid of it or you want to buy something bigger.  I would rent the slips on a monthly basis with discounts for full year, six month and month to month lease options.  My credit card gets whacked by the marina automatically every month so they have no problem collecting "rent" from me at least and there's a waiting list to get into this marina - a nice problem to have if you are the owner.

    The downside - WATER.  Everything is wet all the time and with that, something is always breaking/decaying/rotting, etc.  I'm not a fix-it guy but have been around marinas most of my life and I think they can be a lot of work to maintain.  You'll also have to provide some kind of service.  People need electric somewhere near their slips to charge their boat batteries which always seem to die on perfect boating days.  An in-house mechanic helps too (you can clean up if you dis-allow other mechanics onto the property as my marina does.  I am forced to use the marinas mechanic basically unless I pull my boat out, trailer it and take it somewhere).  People want ice and beer and fishing tackle.

    Good luck whatever you choose.  I just wanted to share some info.

    Phil

    1Reply
  • Account Closed
    OP
    Rental Property Investor · Huntsville, AL · Member since 2014 · 9 posts · 5 votes
    12y

    @Phil B. -

    Thanks for the great info and advice. This place comes with a waiting list too. I like what you said about offering varying lease terms.  Hopefully, I'll be able to find a slightly-above-equilibrium price which will allow  a small amount of turnover (which will free up the individual slips for sale.

    If everything goes according to plan, I'll also be living on the Gulf in about 9 or ten years. Thanks again!

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