An article in Business Week a few weeks ago discussed what many of us who belong to private golf clubs know:  Our clubs are hurting.  Members are bailing out every week or changing the level of their memberships to save money.  Membership rolls are the lifeblood of any club, and below a certain level of membership -- whether 200, 250 or 300 -- proper maintenance of the club and services to members cannot be supported.  As membership rolls erode, funds to keep things shipshape dry up and the club starts to look like the public course down the street (or worse).  Those clubs that can't stem the outflows go into a death spiral from which there is no escape without the pain of assessments or a drastic change in the club's status.

         The problems with the private club industry are the same problems with the real estate industry.  Supply and demand rule

the equations for each.  When golf was seen as the sport for budding executives and their families, clubs could set their initiation fees well into the five figures; many had waiting lists and could be choosy about whom they accepted.  In the face of irrational exuberance, more private clubs formed, especially in planned developments, which created an oversupply even before Lehman Brothers and the stock market plummet.  Suddenly, those budding execs were not so budding anymore, especially if they worked for financial services companies.  Other members who saw their 401Ks hit hard had to make a choice between security and luxury.  Of course, they chose security.

        Today we have way more private club supply than demand, and initiation fees are downward along with home prices, or vaporizing altogether.  One thing clubs cannot reduce, however, are dues, because below a certain point, you can't maintain your golf course and services without a steady flow of cash.  If membership rolls and, therefore, dues drop below a certain critical point, desperate measures are needed.  For clubs with a few deep-pockets members, that can mean large assessments on top of dues.  In other cases, private courses offer themselves for sale to an investor who pledges to keep things the way they are...at least for a few years.  And in a few other cases, the once unthinkable occurs; the course opens for public play.  Once club owners taste the fruit of a steady stream of green fees, it is hard to go private again.

        It is in the natural selection of things that some clubs will go out of business in the next few years.  Their members who can

afford private club charges will find another club in the area; other former members will disperse to the many local daily fee courses, some of which also were opened during the ‘90s boom times and have current issues of their own.  But in a few years, things will settle down, people will go back to work and start feeling confident again, and the upwardly mobile will see private country club membership as an affordable way to provide their families and themselves a means of recreation and socialization.

        I hope folks do a better job of research this next time around, and identify those private clubs that will be prepared for any future blips in the economy.  In my many years of visiting and researching dozens of private golf clubs, I know of only two that have engaged in serious, corporate-style strategic planning.  One is Champion Hills in Hendersonville, NC, and the other is Governor's Club in Chapel Hill.  Governor's Club's strategic planning session included an offsite session with an outside facilitator.  Club membership, according to a friend who lives there, "is off only slightly in the past couple of years." The best news, he wrote, "is that we have not had an operating assessment in the last few years," and they don't expect one this year.

        I'm sure other clubs engaged in contingency planning, but Champion Hills and Governor's Club were proud and upfront about their efforts when I spoke with them.  If you are considering buying a home in a golf community and adding club membership, ask about the club's contingency planning efforts.  Their plans for the future may tell you a lot about what kind of club they are today

        You can find the Business Week article by clicking here.

        My brother Bob, the portfolio manager, wrote the following to me the other day after a triple-digit rise in the Dow Jones Industrials:  "OK, now I'm at least unlocking the door of the doom bunker, so I can be ready to dash in."

        I asked him to hold the door for me. This current stock market is defying the laws of gravity in an environment of massive national debt, double-digit unemployment and a housing market that, despite what the National Association of Realtors tries to tell us, will stumble around for at least a few more years. 

        I am not an investment expert, nor do I play one at this blog site.  But I do have some skin in the game.  This stock market is

scary, and I have begun to pad my own doom bunker with cash.  This hurts because most of those stocks I am cashing out of only made it back halfway from the Lehman Brothers crash last September.  But as we learned last year, half a loaf is better than the alternatives.

        I also don't feel any strong optimism about the housing market in the near term.  There are just too many foreclosures on the horizon and not nearly enough new employment prospects.  But for those who have deferred their dreams of moving to that golf course home (or any place in the southern U.S.), now may be a good time to relocate, assuming you are above water in your current home.   Moving now could actually be a hedge against any badness that ensues.

        My wife and I, for example, are going to sell our primary home in Connecticut in 2011 or early 2012, a year after our daughter

goes off to college.  Let's fast-forward one year, for the sake of argument, and assume our timetable to relocate to South Carolina was next year.  Would the fact that our home's value has suffered a more-than $150,000 loss in the last three years give us pause?  Would waiting another year for the housing market to turn up again matter to us?  The answers are absolutely not.

        We bought our Connecticut house in the early ‘90s and saw its value increase steadily until 2006.  We didn't use the cash in the house as an ATM; we took out a home equity loan along the way, but paid it off in just a couple of years.  Like many Americans who bought their homes pre-2000, we are ahead of the game, with some equity to put to work in our next home.

         We also know that our house is worth what someone will pay for it, not what the Joneses two doors away got for their house in 2007.  (We really do have neighbors named Jones, but we do not try to keep up with them.)  If the average of three appraisals we get on our house comes in at ‘X,' we will expect to get ‘X' as the selling price, no more and, we hope, no less.  As in the stock market, pigs get slaughtered in the housing market.

        It may not seem like much, but the government would give us a $6,500 tax credit if we bought a new primary home before

next spring.  The tax credit, which originally applied to first-time buyers only (at $8,000), is being extended to people who have lived in their primary homes for five consecutive years.  If my Uncle Sam wants to pay for our fancy dining room set or living room furniture, I'm okay with that. (I promise to pump it back into the economy.)

        Also, for those who have good credit ratings and a desire to finance some portion of their dream home, mortgage rates are still as low as 5%, assuming a 20% down payment.  We don't plan to add any debt to our portfolio, but for others, low rates could spell the difference between their dream home or nothing.

        We have a place in South Carolina already, but we plan to live in a city as well.  We are going to rent a city apartment for a while, confirm that we like whatever neighborhood we choose, and keep an eye on real estate prices.  If we see a bargain, we will buy it. That same approach will work for many people considering a home in a golf community or in any neighborhood in a golf rich area.  Some homeowners in southern communities are now desperate enough that they are willing to take the monthly cash flow from a low rent in lieu of a ridiculously low sale price (or foreclosure). 

        Most of us entering our leisure years are going to downsize our living space.  All things being equal, that means our next

home will be comparatively less expensive than our current one, and a lot easier to manage.  But those savings may pale in comparison to cost of living savings if we move from a high-cost state to a low-cost one.  If you live in the Chicago area, for example, and want to move to your dream home next to the classy Thornblade Club in Greer, SC, you'll save 22% in living expenses.  Other savings include:  Philadelphia to The Landings in Savannah, GA, 27%; Boston to Avery Ranch in Austin, TX, 30%; Stamford, CT to Grande Dunes in Myrtle Beach, SC, 38%.  (Data from ACCRA Cost of Living Index)  If you spend, say, $100,000 annually on gas, dining expenses, real estate related expenses, food, utilities, healthcare and the like, you could save as much as $40,000 a year by moving.  In just a few years, you could even make back what you lost on your home's value over the last four years.

         And that can certainly help you keep up with the Joneses.

 

If you are contemplating a move to a golf rich area and want some ideas or a referral to a highly qualified real estate professional, contact me and I will respond promptly. 

Those moving from many areas in the north to southern communities, like Belfair in Bluffton, SC, will save tens of thousands of dollars in cost of living expenses each year.