Waterfront Resort for sale...need help analyzing

[Taylor Witt]

Need help in analyzing a seasonal resort/rental property I am looking to buy with my partner in Minnesota. Currently I have 3 rental SFH rental properties and feel comfortable analyzing these deals, but never have analyzed a resort property.

The deal...

$800,000 asking price for the resort, boats, all furnishings

180' Lake front, ~1 acre land, 7 cabins, 1 main house

Currently the resort is rented out in the summer for 13 weeks.  Resort income each week is ~$950/cabin = $6,650 for all cabins each week.  Totaling $86,450 if at 100% occupancy.  75% of the guests are return from year to year.

During the other 9 months of the year the resort is rented out to mainly local college kids.  Rental income each month is ~$750/cabin = $5,250 for all cabins each month.  Totaling $47,250 if at 100% occupancy.

Total Income for the year: ~133,700

There is a 4 bedroom house that is on the property which my partner will live in while there and take care of the day to day needs. What would be a proper salary or pay for my partner?

We are looking at doing seller financing with either $100,000 or $200,000 down as the seller is being flexible with us.

There is also talks of the city putting in city water on the resort, not sure what this would run us in assessments but think it is noteworthy.

Anything else I am missing?  And any help I can get would be great!

[John D.]

I would encourage you to use one of the rental spreadsheets here on BP. Make sure you have realistic estimates for repairs, renovations, CAPEX, replacing furnishings, etc, etc. I would budget 20% or so for on-site management, and you should talk to local property management companies to see what they would charge just to get a feel. My guess is it would make more sense to have the manager live in a small cabin, and rent the 4 bedroom house for some good money. If your partner is used to living in nice large places, he may not be cut out for the manager position, make sure he's OK with lots of fairly menial work, without a ton of compensation.

      $120k per year income, on a $800k place, that has that many doors and is going to require lots of maintenance is NOT GREAT, in my book I'd say it's marginal at best.  Hopefully there is some upside to those rental numbers.  I know here a large house rents for 5-10x a cabin, so you might significantly increase your rates by renting that big house.

       In my market, I am looking for 25% of the investment cost in annual gross rents (so for an $800k property I would be looking for $200k annually).  For a complex property with that many roofs/doors I would likely hold out for more like 30-35%.