Do golf community condos offer investment potential?

         In 2009, after the housing recession was in full swing, I traveled around the Orlando area with a real estate agent who specialized in significantly undervalued properties, typically those that had been foreclosed on and were now bank-owned. Some of the properties were in awful shape, with interior walls punched in by angry former owners as they left their home for the final time, and some outside mechanicals, like air conditioner units, lifted off their foundations and taken away. Unsurprisingly, the selling prices of these properties were way under their inherent value, and with something like $8,000 to $10,000 in rehab costs, the properties could be put back in

reasonable shape and rented out at prices that would return about 8% to 12% annually on the cheap investment. In an investment environment in which the only safe return on money was something on the order of a couple of percentage points, such an approach seemed to make a lot of sense –- at least for someone who had connections to a company that could come in and clean up these distressed properties. (In my Orlando real estate guide’s case, it was her son’s company, and the returns were all in the family.)

         For those without an uncle (or son) in the business of rehabbing distressed houses, there are similar opportunities today for the adventurous. Some golf community property owners pressed for cash are still listing their condos and town homes at recession-era prices. Last week I was conducting research for a customer looking to move to a $200,000 golf community condo within eight hours of New York City, and I was perusing listings in the Kingsmill Resort in Williamsburg, VA. I came across one listing for a 2 BR, 2 BA unit posted at $199,500. The fine print indicated it was a foreclosure, but the general description indicated an average annual rental income on the property of $41,000, for an impressive annual return of about 20%. ($40,000 divided by $200,000) Something smelled fishy –- I thought I knew what it was -– and I contacted a Williamsburg Realtor I know and he confirmed my suspicions about management fees the Kingsmill real estate office charges for renting out the condo.

        “They get 50%,” he said. “It’s highway robbery, but they are the only game in town.”

        As outrageous as that management fee is, that still leaves a 10% return before taxes and other costs of ownership (new furniture as well, perhaps), but also before an investor reaps the tax advantages of an income-generating property (deductions, appreciation, “subsidized” visits to upgrade the property). I’m guessing a 7% to 8% return when all is said and done. And as the owner of the unit, you can use it for two weeks a year as a vacation home without jeopardizing your deductions, or longer if you are on site to, ahem, “enhance” the property.

         My brother, a personal financial advisor, suggested that a retiree looking to live in a resort golf community might consider investing in a few low-priced properties inside the gates, manage them personally to save on fees, and generate some nice overall returns. (Note: Some golf communities may have rules about self-managing rentals, and many insist on rental terms of six months or longer.) I did a scan of all the Kingsmill listings and found about a half dozen 2- and 3-bedroom listings at less than $225,000. An opportunity could very well be there, and in other resort communities in the southeast, for a future landlord. Contact us if you would like to discuss further.