|Is Owning A Resort Right For Your
Most of the people contacting me
about buying a resort are families. No doubt about it, owning and operating a resort can
be a very rich and rewarding family project. Many resorts in this area are owned and
operated by families. However, due to soaring real estate prices, resort ownership for
families is not making as much sense as it used to.
The reason is simple. Few resorts make enough profit every year to support a
growing family. If you have children to put through college, if you will be paying for
your family's health insurance, and if you wish to invest for retirement, its all but
impossible to do all of these things with the annual profits from small resorts. And what
about improving or expanding the property? There will be no money for that after family
Another common problem is that most small resorts do not have
an owner's home large enough for today's active families. The majority of these resorts
were constructed from the mid 1950's to the mid 1970's. Back in those days the typical
family residence was a lot smaller than today's home.
Most owner's home will need an addition to accommodate
today's family. Or you can convert the owner's home into a rental and build a new, larger
home - if there is vacant land available on, or near the resort. Yet building an addition
or a new home means spending money that could otherwise be used to increase the resort
cash flow through expansion.
There are only two sensible ways for families to own
profitable small resort operations.
Put More Down
The first solution is to make a sizeable down payment. Instead of putting down just
20 percent, put down 50 to 60 percent of the purchase price. This reduces the mortgage
payment to a sensible level. High mortgage payments devour profit. Unless the mortgage
payment is reduced, you won't prosper. With many small resorts you'll make a sensible
living if you don't have an alligator of a monthly loan payment.
If you are looking at buying a $700,000 resort this means a
down payment of some $350,000. That is a big chunk of change, something that few families
have. But assume you do. Then the next question becomes, "Well, is buying a resort
the best way to invest that much cash?".
Maybe, maybe not. Let's compare. Assume that you take that
same $350,000 and invest it in some type of financial instrument with relatively low risk.
Let's say that instrument yields an average of 6 percent per year, and let's say you
compound it out five years.
At the end of that five years your $350,000 has turned into
$468,378, a gain of $118,378, call it $23,675 a year. That is a nice college fund! Can a
small resort generate the same gain? In some cases the answer is yes, and you'd make more
to boot. In most cases however, the answer is no, you won't even come close. And therein
is the challenge. How do you know which resort will pay off well?
The answer is different for each family. It depends on what
your idea of a good lifestyle is. If your family has a strong interest in owning a small
resort, contact me by telephone and we'll talk it over. I can tell you quickly whether or
not a small resort makes sense for your family. It is not a real difficult thing to
determine once I know your individual expectations.
One Spouse Gets A Job
If one spouse works full time in a position paying a salary with health insurance
benefits, you can make the small resort idea work. Since a family of four can expect to
pay anywhere from $10,000 to $13,000 a year for health
insurance, a job that provides health insurance can save you a bundle.
Next, banks are far more willing to set up a revolving line
of credit if one spouse is gainfully employed full time. The extra income, plus the
savings on health insurance makes profit generation much easier. With that revolving line
of credit you can add new units or otherwise make improvements that allow your cash flow
When it comes to qualifying for a commercial loan to buy a
resort, the bank will not take into consideration a future job. You may find that you
would need to move here first, get the job, then apply for the loan to buy a resort.
During the busy summer high season it takes two adults to
smoothly run a resort with more than 8 or 9 units. If one spouse works full time chances
are good that you'll need to hire part time help on weekends. That can eat into profit.
However, the cost of part-time help is not high and you will still come out ahead. If you
have a couple of children who enjoy resort work, you pay them instead.
Low Season Work
Most small resorts do not stay open all year. They close in November and reopen in
April. Thus for five or six months out of the year there is not a lot to do at the resort.
If the second spouse takes a part time job in the off season, that helps out too. I know
some resort owners who take a job in off season just to have something to do.
As you have seen, it takes either a big block of cash or second jobs to make a
small resort work for a family. If you are still interested in a small resort for your
family, phone me and say you read this article and want to discuss it further. I'll be
glad to help.
Information For Resort Buyers & Sellers
|1. Cooley's Guide To Buying A
A candid and comprehensive look at finding, buying,
and operating a small Ozark resort. Explains what to look for, and how to determine if the
resort owner lifestyle is really for you. Based on over 35 years experience of those
within the industry. A definite must-read for the serious would-be resort owner!
You Need A Real Estate Agent?
Not a sales pitch to use an agent, but a realistic look at the experience
needed for anyone buying or selling small resorts.
3. Frequently Asked
Questions - For Buyers and Sellers
to Main Cooley's Resorts For Sale Page
2Cooleys.Com Tourism Sites
See what area resorts and tourism businesses look like and what they offer. Links
lead to main directories for each lake and the rivers.
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