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Cooley's Guide
To Buying Lake & River Resorts In The Ozarks Introduction last updated February, 2007 The Small Resort
Millionaire By "worked" I mean in developing Web sites, photography services, advertising services, and of course buying and selling of resorts. There are more resort owners than resorts on my list because several resorts on my list have had two, three, and even four different owners since I first started. I have seen more than one good resort get run into the ground by incompetent owners. And I have seen more than one old run down resort become a million dollar property under savvy ownership. I have worked with very incompetent owners, and I have worked with very brilliant owners. I first wrote this guide in 1997 after a couple of years of experience working with resort owners and buyers. I have updated it every year since 1997. Now, in 2007, I still see great opportunities for becoming a Small Resort Millionaire. While technology has changed tremendously since 1995, human nature has not. People still like to visit small resorts. While this guide primarily addresses small resort ownership in the Ozark Mountains much of it also applies to small resorts anywhere. However, each small resort region has it's own quirks and variations. I've had enlightening conversations with resort owners and resort buyers from all over America, Africa, and Canada. The need to relax and recreate outdoors in the water is alive and well on Planet Earth. The purpose of my guide is to help you decide if you wish to pursue a small resort opportunity. The guide outlines only the basics and does not go into detail on some topics. I reserve that knowledge for when you and I are actually out looking at resort properties. If I ever get the time I will indeed complete the entire book, which I will call Small Resort Millionaire. Until then I recommend printing out these 18 pages. It is easier to read that way, plus you can make notes in the margins, underline, and highlight. Many who read this guide do just that, then phone me with questions. Please feel free to do the same. The purpose of the "quick links" below is so you can find a particular topic quickly when you need to come back for further reference. The Basic Premise of Resort Ownership
Top As with anything else worthwhile in life, buying a resort requires doing some homework. The purpose of this Guide is to introduce you to the resort buying process, and to introduce you to the Ozark area in terms of resort operation. But first you need to know if I'm even qualified to offer you these ideas! Who Is
Gary Cooley?
Top I am highly involved in attracting tourists to this area. I know the market you will be dealing with very well. I am the producer of the "The Ozark Mountains Website" (OMW), the Arkansas Ozarks largest tourism Web site. OMW is an online content provider with an average monthly readership of 57,000 unique visitors. In addition to content production, I have also produced Web marketing programs and Web sites for over 100 Ozark tourism businesses. One way or another, I spend every single working day of my career with small resort marketing and operation! My wife Mary is my trusted and highly valued assistant. Where Did
I Get My Experience?
Top Blackburn & Company successfully handled more resort sales than any other agency in the Arkansas Ozarks area. Summarized in this guide is 50 years of their resort industry experience which I learned while with their agency. I am no longer with Blackburn & Company because the agency was closed in April of 2000 due to the sudden death of owner Charles T. Blackburn. I worked with Coldwell Banker Colonial Real Estate in Mountain Home, Arkansas as a resort specialist until the fall of 2007 when I established my own agency. My experience with Web Marketing also comes from 11-plus years in promoting the Ozarks on the Internet. While my marketing and sales experience goes back to 1982 with a number of projects, adapting that background to the Web took some trial and fine-tuning. Now many area resort owners tell me that OMW is their most effective form of advertising. Indeed, OMW has produced millions of dollars in direct tourism sales for our resort customers every year since 1995. But the best source of resort operation experience has come from the 190-plus resort operators that I have worked with over the years. Whether its real estate or Web marketing, I have spent many hours talking with resort owners about what makes a resort succeed or fail. I have seen resorts fail and I have seen them succeed. I owe a big thanks to resort owners who have taken the time to educate me and brainstorm with me about successful resort operation. Getting Started
Top When you phone me about buying resorts the first thing I will ask you is whether or not you have read these three decision steps. Your answers will tell me right off how I can be of good service to you. Decision
1 - The Down Payment
Top It takes at least $115,000 to $200,000 cash to work with as a down payment to buy a small resort. In addition to the down payment, you will also need a cash reserve in order to qualify for a commercial loan. In most cases banks will require 20 to 30 percent of the purchase price in cash as a down payment. It depends on your financial statement and the resort property as to the exact amount. If you need to first sell your home to come up with the down payment, that is something you can do. See Decision 3 below. If you have down payment cash, then the next step is picking a resort by your income needs. the cash reserve the banks require is not money you must put in a secured account. The reserve is typically equal to about 10 percent of the amount you borrow. Decision
2 - Will You Be an Income Dependent, Semi-Retired, or a Working Owner? An income dependent owner is someone who is relying on the resort to produce 100 percent of their annual income. They will need a resort which produces enough income to pay for all living expenses, plus health insurance, retirement funds, and college funds if they have children, etc. Income dependent owners will need to purchase the larger, more expensive resorts as the larger resorts are the only properties which generate enough income to live on year to year. You will need at least 10 to 15 cabins (units) to make a sensible living. A semi-retired owner is someone who has income from other sources besides the resort operation. Semi-retired owners usually have retired from the military or corporate world and have medical insurance, pensions, and savings. A semi-retired owner can purchase a less expensive resort because they do not need to rely on the resort's income. They can buy a smaller resort, hold it for 10 to 15 years, then usually sell at a good profit. Mini resorts, which are those with less than 8 units, make a good buy for this group. A working owner is someone who owns a smaller resort and holds a full time or part time job. This can be a very good way to own a resort. If a family of four buys a resort, one of the parents gets a full time job with insurance, then the other parent and children can run the resort. During the low season the other parent can work as well while the kids are in school. This allows you to buy a less expensive resort, plus get the numerous tax advantages of owning a small resort. Both mini resorts and larger resorts work for this group. Family Considerations Decision
3 - When Do You Sell Your Home? Top The 72 Hour "Kick-Out" Clause
Top What the clause says in essence is this: "Mr. Seller, I need to sell my home to get the cash for the down payment to buy your resort. But I have no idea how long it will take to sell my house to get that cash. I know you do not want to take your resort off the active real estate market. So keep trying to sell your resort. If someone else writes you an offer you want to except, I will cancel my contract with you, and you can take the other guy's offer. But first you have to give me 72 hours to come up with the money. If I come up with the money in 72 hours or less, you have to take my offer. And if the other guy's offer has a kick-out clause in it, then I will not cancel my contract with you unless the other guy comes up with the money first." While the actual clause is more exacting than this, you get the idea. No matter how you do it, there will be a risk for playing it safe in not selling your house first. While you get to play it safe with your house, you risk losing your resort to another buyer. If you know for sure you want to buy a resort, sell your house first. Keep the cash in your bank. Move to the area, rent a house, and look for a resort. Or rent or buy an RV and travel around America looking for a resort. I've seen more than one buyer do this. If you have cash in hand and already live in the area, the resort owner knows the deal will close without delay. You stand a chance of getting a better price. If you are living in the area in a rental, you can get a lot done ahead of time to build your business once you find the right resort. Moreover, if you are in the area, your chances of finding that perfect deal are much better. However, I recommend this only for those who are 100 percent sure they want a resort, and who are 100 percent sure where they want to have that resort. What To Consider In Any Resort Purchase Limits Of This Guide Top Your USP - The Key To Resort Operation Success
Top "Why should anyone come to this resort instead of the one next door, or the resort over on the other lake, or a resort in another in another state?" I consult with resort owners to increase their annual sales, I work with owners who wish to sell, and I have worked with many people who wish to buy a resort. Each of those three situations always centers on that one question. If enough people don't choose your resort over some 50,000 others in the Free World, you go broke. Its just that simple. The USP is what prevents you from going broke, provided you advertise it correctly, and then provided you carry out what you promise in your advertising. In many cases I have been able to boost a resort's gross sales with Web marketing. But it takes far more than a Web site to make a resort successful. Before I ever sit at the computer to start a new Web effort for a resort, I first develop that USP. To do that I go visit the resort and tour it completely. I spend time talking with the owners about why their customers keep coming back every year. Believe me, after developing USPs for some 100 resorts, they all start to sound exactly alike! But there is always something a little different at each resort. If they all have a dock, a pool, a lake view, guide services, nice cabins, what do you find to make it look unique? I have always found something. And with the USP in its finished form, that little something usually jumps right out at people. The USP is not a thing, its not a slogan, its not a logo, its not a special price. It the essence of the operation itself. If I had to identify just one element that was the most important in successful resorts with successful USPs I'd say the personality of the owners is the key. Each resort takes on the personality of its owners. Many times it is this "resort personality" that keeps guests coming back each year. The personality is defined and upheld by the owners. And the trick to your USP is capturing that personality and making it immediately apparent to anyone seeing your advertising. Thus part of what you should consider about each resort is how well will your personality fit in with what the current owners are offering? Making radical changes is sometimes good, and sometimes a bad thing. Explaining how to developing a USP is beyond the scope of this guide, but when you work with me as your real estate agent, I explain more about USPs and advertising.The important thing to know is that you need a USP, and to look for it at each resort. At first it may not be easy to spot the USP. But after you look at three or four resorts, you'll soon catch on. Preserving
Your Nest Egg Top I have seen a few people make very bad resort buys and lose their nest egg. And yet I know of many who, while not getting rich, are making a good living and love running their resort. When they sell they will make a good profit. Fortunately more resorts succeed than fail. But be careful. Take your time, do your homework, and wait for the right resort, at the right price. By far the biggest mistake you can make is to pay too much for a resort that does not cash flow. Nothing will squash your nest egg faster than a resort with a mortgage payment the operation can't support! You can generate enough wealth with a small resort to become a true millionaire. I've seen several resort owners do it. It is not so much a gamble as it is just smart planning. The Most Important Feature To Look For In Buying A Resort
Top The important point to keep in mind is that "expansion" refers to the cash flow, not so much the physical property. What many do not understand about resort values is that they do not automatically appreciate in value each year like residential property usually does. Resorts are commercial operations, not residential property. And as such, they come under a whole different set of valuation and appraisal guidelines. Not understanding the difference between commercial and residential valuation methods gets more people into trouble in buying small resorts than perhaps any other issue. When you work with me I explain the difference. I'll give a summary of it here. Forget location, amenities, and all the other features that are supposed to make a resort "attractive" until you determine expansion potential in terms of cash flow. If you can't increase cash flow, you can't make much money in the long run. Bear in mind there are several ways to expand a resort - more units, coin-op equipment, rate increases, etc. But no matter how you define it, expansion potential is the only way to justify buying any resort in most cases. If the cash flow does not increase since you bought it chances are slim you can sell at a profit of any amount. Never Give Up! Top Few people realize it, but in every single issue of National Geographic, for every single article, the Nat. Geo photographers take an average of 3,000 photos. And out of those 3,000 photos maybe eight will be used. Same for advertising. Every year my wife and I blow a fortune on advertising information made available from the top advertising minds in the world. We frequently pay anywhere from $5,000 to $7,500 for just one book from the top minds in the advertising world. And from time to time we pay astronomical consulting fees. Without fail the top advertising minds are like top photographers. It may take the advertising pros 15 to as many as 30 tries to "get it right". Many of the major inventions the world has experienced over the last 100 years where at first considered to be "mistakes". Or the inventions where discovered by pure accident. Perhaps the most famous example is Edison and his light bulb filaments. The point is to keep in mind that when it comes to expansion, don't be afraid to keep trying new ideas. Do your research, do your home work. Then try new programs, fine tune, and adjust. You have to be innovative. Plan on wasting some money because not every expansion idea will be a winner. On the other hand, try not to re-invent the wheel. If the resort you buy is making money, take it slow. Spend the first year just learning without turning the world upside down with changes. The Obsolescence Threat Top Please don't take the word obsolescence to always mean a negative! What makes obsolescence a negative is when you pay too much for it! Both economic and functional obsolescence are normal parts of any commercial real estate value cycle. For example, many Las Vegas hotels have been blown up and re-built three times since the 1950's.That is because the hotels became economically and functionally obsolete. The best thing to do with them was demolish the structures, reclaim the land, and build a new hotel. Needles to say, demolition costs a great deal of money. But demand for new facilities in Las Vegas remains so high it pays off to blow up old buildings and construct new ones. Though the resorts we are talking about are much smaller, the principle is the same. Tourists prefer newer, modern facilities with modern appliances and other up-to-date amenities. They will tolerate older facilities provided they are clean and in good repair. But there comes a point where you just can't get past obsolescence without a re-model. Set aside a little money each year to replace carpet, furniture, etc. Do one or two unit per year and you'll stay on top of conditions long term. Land Value Top As we saw above, demolition is not cheap. It used to be that you could contact the fire department and they'd come burn the buildings down for "practice". Or you could simply bull doze the place to the ground and haul it off to the dump, or bury it. Those days are long gone. The EPA requires permits for such acts. They don't want asbestos and other hazardous waste flying off into the atmosphere or going in our landfills. To tear down a 10 unit resort may represent a major cost. In some cases you can find companies who will pay you for the buildings. They come in, cut the foundation bolts, jack up the buildings, haul them off in one piece, then put them on land somewhere else and sell them. They won't pay you much, but its better than spending money for demolition. If you can't sell the old buildings to a mover, you're better off buying the raw land because of the demolition expenses. On the other hand, it can be very expensive to build a resort from scratch, even if you can find the raw land. It will vary from area to area, so do your homework. Remember that when it comes to land, it is worth only what someone is willing to pay for it. The seller can make all the claims, show all the examples, get appraisals, and otherwise attempt to support his high price theory. But if he is serious about selling and is not just speculating, the cash flow, not the real estate, determines the value of the operation. When it comes to commercial property, location, location, location is all about cash flow, cash flow, cash flow! The Ozark Tourism Market The
Ozarks As A Tourism Destination Top The Ozark Plateau, more commonly referred to as the Ozark Mountains, stretches south from the Missouri River (which runs east/west across the middle of Missouri), down to the Arkansas River which flows across the middle of Arkansas. The Ozarks also stretch a little west into Oklahoma and Kansas. Millions vacation in the Ozarks every year. Ozark tourism started about 1899. Since the Ozark Mountain range is such a large area, and since the area is generally easily accessed, tourists do not end up all bunched together except in a few locations. There's plenty of room for all. The region is still almost free of air and water pollution, certainly much more so than some national parks. The primary attraction of the Ozarks is fishing, hiking, water sports of all kinds, horseback riding, and similar outdoor recreation pursuits. Sophisticated activities such as polo, golf, sailing, theme retreats, and live entertainment are not common. While it is true that Branson, Missouri is now America's live music entertainment capital, it is the exception, not the rule. Branson is also proof of what can, and most likely will, continue to happen in the Ozarks. With over 7 million tourists a year, Branson has become a top American travel destination. Comparing Major American Resort Regions
Top No matter where you access the Ozarks, you can do so quickly and easily. By boat, by foot, by horseback, by canoe, by vehicle, or by airplane, you get to outdoor activities quickly. There are few lines at public access points. One of the Ozark's main attractions is that they are uncrowded. In Vermont many resorts cover hundreds or thousands of private acres. On an average season weekend 50,000 people go through one resort. Big resorts with 1,000 to 5,000 beds are common. The resorts have a long list of activities besides skiing.They have restaurants, stores, spas, you name it. Same for ski resorts in the Rockies. In the Ozarks resorts are almost all very small Mom & Pop operations. Most have fewer than 50 beds. Few are larger than 10 to 20 acres, many are less than 5 acres. The reason is that while the Rockies and the Green Mountains have skiing to attract the masses, there is no such large scale attraction in the Ozarks. The Ozarks themselves are the attraction. The first time I saw these little resorts around the Ozarks my question was, "If this is a resort, where is the rest of it?" It took some getting used to! To me Ozark resorts were motels with boat docks. But I soon learned they were really more than that. In essence the small Mom and Pop operations are starting points for people to get into the Ozarks. People still pursue activities in the Ozarks just like they do anywhere else. Not much changes other than the activities are carried out on public instead of private property in the Ozarks. And there is no snow skiing in the Ozarks! The beauty of the small resorts is that at most you'll see 50 people a day, not 50,000. And most of those 50 people will be friendly. In many cases strangers meet at these little resorts and become friends. The relationship frequently starts when their children play together, or when the husbands swap fishing tales, or if wives play cards together. People vacation in the Ozarks to escape crowds and to enter into the heart of the Great Outdoors. The Hillbilly image does not even come close to 99 percent of the Ozark people. Instead you'll find that most people here, and certainly most resort operators, are very friendly, have a great sense of humor, and work very hard. They are not bib-clad, barefooted, straw-chewing jug-toting dim-wits. I have lived in many different regions of America. Trust me when I say that the native Arkansans who are in the hospitality business are some of the best I've seen anywhere. They have a very sincere service approach. If you want to experience it, go on a fishing trip with a native guide. The Twin Lakes Region Top Mountain
Home, Arkansas Top Getting
Into The Ozarks
Top Army Corps
Of Engineers and the "Corps
Strip" Top Since the boundary was established as a function of elevation of "x" number of feet above sea level for flood control purposes, and not as "x" feet from the water's edge, the strip is frequently a very large area. It takes in sections covering many hundreds, or even thousands of acres. All of this area is public property. You can hike it, hunt it, camp on it, and otherwise enjoy it. But you cannot cut trees, build on it, have campfires, or operate any motorized vehicles on "The Strip". The Strip creates two very powerful advantages and one negative. First, because of the strip, very few buildings can be seen along literally hundreds of miles of shorelines. The result is a very beautiful primitive experience from out on the lakes. Secondly, the strip prevents homes and other buildings from being built on the water's edge where septic effluent can drain into the lakes. This is one of the reasons the water is so clean and clear. The downside to the strip is that you cannot own right to the water's edge. There is normally a wide strip of trees and terrain between your property and the lake. While the Corps allows docks on the lakes you cannot own the parking lot in front of the docks. In my opinion the advantages of the strip outweigh the disadvantages. I do miss the lakeshore cottages I enjoyed in Vermont where you can build a house right over the water with a boat garage. You drive your boat into the garage, then climb up stairs into the house. That is not possible here. There's no doubt that if we could build on the water's edge here that more people would come. But then that would destroy the whole beauty of what the area offers. In the end it is a personal choice. If you are the type of person who enjoys being around highly commercialized zones, this is not the place to be. If you enjoy the more primitive outdoor experience, this is a region you'll love. You can own and build right up to the edge of the water on the White River. Tourism Economy Top The Buffalo River was America’s first National River, and provides some of the best scenic canoeing in the nation. The North Fork is famous for catch and release trout fly fishing. Float trips, both for fishing and for sight-seeing, are popular on all three rivers. Bull Shoals Lake and Norfork Lake offer excellent fishing for several species of bass, walleye, crappie, and catfish. Moreover, both lakes offer suburb scuba diving and spear fishing. The Arkansas Department of Game and Fish has one of the best fish hatchery programs in the nation and they do an excellent job of keeping our area waters stocked and regulated. Both lakes have several guest-attracting fishing tournaments all year. What
Is A Twin Lakes Resort Like?
Top Ozark resorts stay open 8 to 10 months a year, a few stay open all year. November, December, January, and February are the slowest months. June, July, and August are the busiest. The spring and fall months generate moderate occupancy levels unless operators use aggressive and creative marketing. Most will average from a 30 to 60% occupancy rate over an eight month season. Occupancy rates during the summer months average around 95% for properly promoted operations. Most area resorts are a collection of 6 to 12 buildings on a few acres of land near the lakes or rivers. The most frequent layout is a main building with several smaller cottages in a row or u-shape. The main building is typically a combination office, storage, and owner’s living quarters. There is usually a small store offering groceries and tackle that also serves as the office and check-in point. Cottages are generally one, two, or three bedroom rental units designed for short-term living. Most are "housekeeping" cottages meaning they are furnished with cooking utensils and small kitchen appliances, all linens, plus refrigerators and ranges. Since guests generally cook their own meals and provide their own transportation, Twin Lakes resorts are not usually considered all-inclusive destinations. A few resorts do have their own restaurants, but the meals are billed separately. All-inclusive packages may be an untapped opportunity in this area. Who Are The Guests?
Top Families tend to use the resorts as a base of operation for not only water recreation, but for sight-seeing and enjoying the area’s non-water recreational attractions. They will drive to attractions within an hour or two away, then return the same night. Families holding reunions tend to stay around the resort catching up with each other. Anglers just want to fish and will do only a limited amount of anything else. Guests typically stay 3 days to a week. During high season most Ozark resorts require that guests stay a minimum of one week. During low season periods this requirement may change. Guests prefer the resort cottages over hotel rooms for several reasons. The resort cottages usually have fully equipped kitchens with cooking utensils, microwaves, toasters, coffee makers, and similar conveniences, so families save money on meals and enjoy the convenience. Cottages are also quieter and more private. The lakeside resort locations and settings are almost always far more scenic than the hotels and motels. The resort owners usually offer a much higher level of personal service than most hotels. Resorts are close to the water and usually have docks or marina services near by. Boat rentals, water skiing equipment, and marine services are available at most marinas. And of course, there are no crowds at these small resorts, which is one of the biggest reasons people come here. Resort Grounds
Top There is room for children to run and play outside, room to park boats, and room to relax. The emphasis is on quality time together in a natural atmosphere. Guests tend to entertain themselves as opposed to being entertained. Most resorts do not provide any live entertainment. Room Rates
Top How Much Money
Can You Make?
Top Gross income is one thing. Net profit after tax is another matter. Like any small business resorts try their best to show a loss on tax returns.There are no hard and fast ratios or formulas to use in determining profit because each owner operates in a different fashion. You have to look at each resort's financial statements separately even though there are expenses common to all. I spend a lot of time explaining small resort numbers to the buyers I work with. I won't go into detail here other than to say you'll run into the problem of "pocket flow", which is also known as "skimming". This means taking cash payments and not reporting them. This helps the owner avoid paying taxes, but of course it is illegal. But that does not stop it from happening. When you work with me in buying a resort I explain how to get around this problem. High and Low Seasons
Top In the Arkansas Ozarks few tourism operators use the universally accepted terms of low and high season. Why I don't know. But because the rest of the travel and hospitality world does, I use the terms here. The average resort in the Ozarks will be booked solid, or close to it, from June 10 to about August 15. This period is the area's high season. By August 15 most resorts and tourism business activity slows to a crawl. Then, as the summer heat cools, and after all the kids are back in school, the fall season begins. It usually starts in late September and lasts through the first few days of November. During most of November, December, January, and February, there will be very few tourists in the area. This is a good time of the year to rent your cabins out on a monthly basis, which some resorts do. During the last week of February and the first two weeks of March, activity begins to pick up as fishermen come for the area's great spring fishing. Spring weather plays an important role in how much business you'll see. While much of March and April are warm and pleasant, there are periods of cold, rainy, and windy raw weather. If tourists think they'll face chilly windy weather they stay home. May is, in my opinion, is the most beautiful month in the Ozarks. Tourism visits really start to ramp up by mid-May. Therefore, you can say our low season is from November through mid-May. The months of October and May could be called our shoulder seasons. Some resorts have higher occupancy rates than others during the shoulder seasons. What it gets down to is that some resorts are more aggressive with their advertising than others. Calculate Room Nights
Top If a resort has 10 units and stays open 365 days a year, that resort has a potential of 3,650 "room nights". If they charge $65 per night average, that is $65 a night times 3,650 room nights for a potential of $237,250 in gross sales. However, no resort books all of its units every night of the year. You need to adjust the gross room night to high and low season occupancy levels. Here is a high season example. Let's say our 10 unit resort stays 100% occupied for the 65 day high season. That is normal here in the Ozarks. Then 65 nights x 10 units is 650 room nights at $65 per night. Thus 650 x $65 is $42,250 in gross sales during the high season. Now we'll say that from August 15 to mid October occupancy will be much less. About the best you can do is around 40% occupancy, many do closer to 20 to 30%, some only 15%. But for our example we'll say that from August 15 to November 15 a resort stays 25% occupied. That's another 900 potential room nights with 225 actual room nights sold at $65 for a total of $14,625 for low season gross sales. Now assume the resort closes from about Thanksgiving until March first. From the first of March to Memorial Day we'll say occupancy averages about 20%. That's another 180 room nights at $65, call it $11,700. Thus the total gross income for the year is $68,575. Out of a potential 3,650 room nights, 1,125 actual room nights were sold, call it 31% annual occupancy of total potential, and sales reached about 30% of the $237,250 potential we started with. (Percentages will vary from operation to operation.) Add In Extra Revenue Sources
Top Cost of Operation
Top What frequently happens is the loan payments eat up the gross profit left between gross sales and expenses. If you pay $700,000 for a 10 unit resort, put 25% down ($175,000), and finance the balance of $525,000 on simple terms of 8% interest amortized over 18 years, that is a $4,600 a month payment, call it $55,200 a year just in debt service. If the resort in our example grosses $68,575 and if expenses run around $35,000, that leaves only $33,575. With annual debt service of $55,200 you are at least $21,000 in the red before you take out your living expenses. This is what ruins most resorts that go bad - the owners paid too much when they bought it. The mortgage payment is too high for the gross annual sales to support. So what to do? Larger Down Payments
Top Understanding the Right Price
Top If you are not paying cash that means you'll be getting a loan. If you are super rich and have a long list of valuable collateral, the bank will not care about the appraised value, or the annual cash flow. But most people are just not that rich. And if they are, they'll not be buying a small resort because they can afford a large resort and make much more money. So then it remains very safe to say that anyone making a savvy small resort purchase will need a loan. As part of the loan application process the bank will order an appraisal on the resort the buyer wants. If the appraised value comes back lower than the price the buyer and seller agreed to, they will need to agree on the lower price, or there will most likely be no deal. The exception might be if the owner is willing to carry a second mortgage to make up for the difference. If the appraisal comes back higher than what the buyer and seller agreed to, the bank will use the lower of the two values. Commercial Property Appraisal
Top The main difference is that commercial properties are open to the general public, private residential properties are not. When you start inviting the general public onto your property, you are playing a whole new game that involves red tape not seen on residential property. If a bank has to foreclose on commercial property, it is not the same simple process as foreclosure on a private home. In other words, the risk is higher. I see resort owners put $200,000 or more into remodeling a resort. Then they decide to sell it. The first thing they think is, "Well, since we put $200,000 into fixing the place up, it otta be worth at least $200,000 more, and we want to be paid for our time, so let's call it another $250,000." Unfortunately, it does not work that way. Here is why. The Black
Box
Top Only if that $350,000 increase results in an increase in annual gross sales. Unless that $350,000 investment produces at least a $50,000 gain in sales, it was a bad investment. If you want to get your price, you will need to wait until gross sales take a big jump upward. Banks don't care how much money you put into the place. All they care about is the annual cash flow. They look at a resort like a black box. If you put a dollar bill in one side of the black box, then 2 dollar bills had better come out on the other side of the black box real fast. Banks do not care what is inside the black box. Banks don't care what you put inside that black box that converts a dollar bill into two dollar bills in a sensible amount of time. The bottom line is your black box either makes money, or it does not. It is that simple. If you put $350,000 worth of time and material into your black box, and you put in a dollar bill on one side and only two quarters come out the other side, you wasted that $350,000. That is how commercial property works folks! It does not matter what the residential lot or home across the road sold for last year. It does not matter how much the house two blocks down the road sold for either. You can't compare apples to oranges. Anything that has commercial value will generate sales. Take a nice lake view for example. With a private residence, that lake view will have value that automatically adds to the price of the property compared to a similar home that does not have a lake view. This is not true for a resort. If that killer view does not cause more people to stay at the resort, then that killer view has little value. If you spend $100,000 fixing up a resort, then that $100,000 remodel had better produce more sales. If it does not, you wasted your $100,000. Like it or not, that is how the banks see it. For them it gets down to cash flow. Either an improvement increases cash flow, or it does not. And if it does not increase cash flow, then it has little value, no matter how much you paid for it. Increase Gross Sales
Top How Do You Know Before
Appraisal if the Price is Right?
Top There is a way, a very simple way, to tell if a resort is priced right for you. But since it varies from person to person, I will not detail it here. When you work with me as your real estate agent, I will explain what you need to know, and how to tell very quickly if you can not only survive, but make a good living on any given resort. Hint: It is not all about the resort's cash flow - there is more to it than that. Sale
Profit Top What Does It
Take To Sell At A Profit?
Top Generally speaking, day-to-day tasks at a resort are not highly physically demanding, but you will stay very active, especially during summer months. Long days are not unusual and you will get tired. When the season slows you'll be busy making repairs and improvements, traveling to promotions, etc. Most operators close from one to four months a year and enjoy some lengthy vacations themselves. So it all balances out in a year's time. You will have quality time to yourself. A resort’s success depends heavily on the personality and habits of the owners. Guests want, above all else, clean, comfortable cottages in excellent repair. Most successful resorts are operated by husband - wife teams who are absolutely fanatical about cleaning, fixing, tinkering, and improving. Additionally, they are the type who enjoy serving the public. They are very polite and helpful. They show their guests respect, dignity, and courtesy. With today's demanding consumer this can be a challenge at times! It is not unusual for guests to develop a strong loyalty to a particular resort because of the owner's attitude and character traits. They return year after year and book as many as three years in advance. A large part of any resort’s success is this repeat business. You can have the best lake view, the best pool, but if an owner is a rude grouch, those amenities are worthless. This is another reason banks appraise commercial property the way they do. Under one owner that lake view could be worth a fortune. But under a different owner, that lake view will be worthless. Yet good operators do not allow their guests to run rough-shod over the property. It can take a firm hand to keep some guests under control. Most guests are well behaved and respect a polite, fair, and firm operator. Crime and trouble-makers are very rare so security is not usually an issue. Children will sometimes engage in pranks that can be annoying, but anything worse is very rare. The most destructive guests are the ones who can't keep their kids and pets under control. Keep It Clean, Keep It Working
Top Typical first-time guests do not care that the resorts are not the modern spectacles of decoration found at the major hotel chains. In fact, many want something that is rustic, that is bucolic. They've been to Las Vegas and now want quiet. They wish to escape from the norm.The furniture, furnishings, and decor can be from the 1970’s so long as it is clean and in good repair, But let a resort room get dirty, let things wear out, or don't fix broken items, and guests will not come back a second time. Two things kill a resort's business real fast: rude owners and dirty facilities in disrepair. Good operators constantly clean, tinker, repair, replace, polish, mop, dust, and vacuum. Clean your rooms like you are preparing for a Military Inspection of the highest order. And don't forget to test the light bulbs. In the July 2004 issue of Consumer Reports there is a very helpful article describing the common complaints with lodging facilities from 50,000 CR readers. The main complaint was poor lighting, inside and out. I can confirm this. My wife and I do a lot of commercial grade photography for resort advertising. Without fail every photo shoot we conduct inside resort units, we run across lamps and lights with burned-out bulbs. The problem is so common we now carry a big container filled with all types of light bulbs. Pay attention to the little things, like working light bulbs. Make sure the rooms always smell fresh and clean. Strictly enforce any pet and smoking policies. Get down on your hands and knees and clean way down behind all furniture and fixtures. After cleaning, take a walk for ten minutes to clear your lungs and nose of all odors, then walk back into your resort units, and take a deep breath. What do the rooms smell like? Odor is as important as appearance. Some rooms smell when you first walk in, then you don't notice it after a minute or two. That is okay. But if you can still smell the offending odor 3 minutes later, it is too strong. Do something about it, even if it means taking the carpet out and painting the walls. Rugs, carpets, furniture, linens, appliances, and all plumbing fixtures need to be sparkling clean. Again, old is okay as long as old is clean and working. Indeed many area resorts have original art deco furniture straight from the 1950's. Many are the guests who marvel at once again seeing the furniture they grew up with. How Old Is Too Old?
Top The Blackburn’s built the resort from the ground up themselves. Since it was built in 1946 when building supplies were somewhat short after World War Two, they even made the foundation blocks by hand. To this day the resort remains in great shape. An old resort can be very successful when kept clean and in good repair by cheerful, service oriented owners. The current owner has recently made several improvements to the entire resort, so I suspect Blackburns will still be around, making good money, for many more years. Take care of a resort and it will take care of you. Build
Or Buy? Top Another limiting factor is new dock placement on the lakes. U.S. Army Corps of Engineers regulate dock design and placement. There are very few new dock locations available. River land is also very expensive. However, the land generally perks much better so the larger resorts are more feasible along the rivers. Location plays an important role in other ways. Some guests want to fish on the White River as well as on one of the lakes. They will want to stay at a resort that is close to both. Others don’t care about fishing and will choose a resort based on convenience to other area attractions, such as shopping, restaurants, golf, etc. Still other guests will want to stay at a resort offering a great lake view and want to be up on a hilltop where they can see for long distances. Others want to be right on the water, or as close as possible. Some guests stay at resorts on flat ground because they don’t want to climb slopes or stairs. Still other guests look for a resort way off in the boondocks. There are many variations to each location! Advertising
& Promotion
Top Some guests may come only once every few years. Therefore, good operators never stop promoting and advertising. They’d rather turn business away than not have enough. If there's a single factor common to successful resorts, it is that they all consistently advertise. There are a very few who stay booked and do little advertising. However, what they offer is so unique that word-of-mouth does it all. Very few are this fortunate! There are several ways to generate new resort business. To promote their resorts, owners attend various sporting, travel, and fishing shows in the major metro areas. They take out advertising in various local, regional, state, and national tourism publications. They join Chambers and other local organizations promoting tourism. New business rarely just falls into your lap. There’s too much competition for that! Web
Marketing
Top Word-Of-Mouth
Advertising is the Best
Top Competition
Top Each resort takes on a unique personality. Its location, setting, amenities, and owners all combine to create an atmosphere that is the final determining success factor. Ultimately guests decide for themselves where they want to stay. They decide which setting, location, and ambiance suits their ideal. And that’s where they will stay each and every time they come back to the Twin Lakes, provided the rooms stay clean and the owner's remain pleasant. What one couple finds undesirable, the next will adore. As the old saw goes, it takes different strokes for different folks. There is enough business to go around for those who hold up their end of the log. Do your part to help promote the area, keep your resort clean and in good repair, give your guests superb service, advertise, get a good Web marketing program, handle your email well, apply common sense to your books, and you will do fine. Local competition won’t be a major problem. In fact it helps. River Or Lake Resort?
Top The bluffs along the White are very beautiful and many people stay at the river resorts because they like the scenery. River resorts offer all the same amenities like pools, docks, housekeeping cottages, pavilions, playgrounds, etc. Ultimately it comes down to what you personally prefer. As far as the most profitable choice, the potential for profit is about equal with perhaps a slight advantage to the river operations because there are fewer of them. What Are Living
Quarters Like?
Top Most resort owner’s quarters are two or three smaller bedrooms, usually 1.5 baths, and have a total of between 1,100 and 2,000 square feet of private living space. While usually very comfortable and charming, they are not large. However, for those who want larger quarters, most resort homes do have room to build additions. How To Look At Area Resorts The Common
Sense Approach
Top The over-all appeal of the resort is your main concern. Here is a real simple way to judge that. If the owner claims, for example, that unit #5 sleeps five persons, will five people be comfortable in unit #5? Is the kitchen table large enough to comfortably seat five adults? Will the bathroom handle the demands of five adults over a week's stay? Is there room in the refrigerator for five people's food? Can five people all sit around and watch TV comfortably? Is there room to park cars and boat trailers for a party of five? Think about it closely. If you advertise your units as being able to sleep five persons, that means comfortably, in a bed, not sleeping on the floor. Judge each unit by how many people it can sensibly accommodate without undue compromise. Today's traveler does not want to be cramped. So when you look at each room, each unit, imagine yourself staying in it for a week. Don't expect the resort rooms to be first class. The furniture and appliances can be older just as long as they are clean, look good, and are in good working order. Look at the bedding and linens. Does the resort have enough linens to cover all beds and have enough spare sets? Are there enough towels? Are all the linens in good shape? If you have to buy new bedding and linens get a replacement estimate. What about the appliances? The hot water heaters, the heating units, and the lighting? Are they in good shape? If not, how much will it cost you to replace them? When you find a resort you like, think about every single little thing your guests will use while at your resort. Water, electricity, heat, air, appliances, etc. Will they have a clean comfortable experience? Good resort operators are fanatics about detail. Don't Judge
It By It's Looks -Judge It By It's Books! Top The ugliest resort I ever saw had couches with the springs popping out of the seat cushions. You get better furniture out of back alley dumpsters. The paint on the cabins had long since fallen off, the wood was bare and gray. Some of the siding had fallen off because the nails had rusted and broken. Yet every weekend was the most impressive line up of private limousines with chauffeurs, expensive SUVs, and yes, even a Rolls Royce or two. And I don't mean just one or two, ALL the vehicles in the parking lot were owned by the super rich. To this day I NEVER judge a resort by it's looks first! Inspections
Top Rest assured that the inspections will turn up problems. They always do. Don't let the inspections kill your deal! Negotiate with the owners. If you are working with me I have had enough experience to find a way around most problems. Get a "financial inspection" as well. If you want a second opinion on the numbers consult a good CPA who is has plenty of experience with lodging facilities or other small businesses. Ask the CPA what it will take to make the loan payments and to make a profit. Take into consideration the fact that you will be living on the property so there will be no house payment. The resort also has several other similar expense advantages. While the resort may not be cash rich it may give you the equivalent of a good cash income. Water
Supply
Top Making
The Deal
Top If you are working with me, I handle most of the closing details and I work hand-in-hand with the closing agent and title company. Most of my work on any sale starts as soon as the contract is signed. Purchase Price Allocation Top Thanks For Reading Cooley's Guide To Buying A Resort! Contact me:
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