Investing in Boat Slips

[Joshua Dorkin]

There was another thread on the site in the making deals forum which contained a lot of great discussion, but which became way too contentious, so we closed it.

I wanted to start another discussion about investing in boat slips that will hopefully be less personal since no one is critiquing what anyone else is selling . . .

So, if you're interested in discussing the positives, negatives, and everything else entailed in these kinds of investments, please jump in.

[Vikram C.]

Josh, this thread is a good idea. I actually found the boat slip thing intriguing because it had some attractive qualities to it based on the postings of the OP in the other thread. Let me summarize what I learnt from the other thread:

1. Many boat slips have been converted into condos. Since the "slip" itself is just water, the entire expense of maintenance, etc. is paid through your condo dues.

2. It appears as if there was a bubble in boat slip prices which may have burst, at least in some parts of the country. The poster mentined that you can get CAP rates of about 10% on boat slips these days. I am assuming this is after subtracting the condo fees.

3. Unfortunately, the poster seems to have assumed zero operating expenses except for the condo fees. This means that the true effective CAP rate may be a bit less than the 10% indicated - if you make some assumptions for accounting, legal, vacancy and other costs. From my reading of the other thread, I got the feeling that this opportunity was probably a year or two away from hitting bottom.

4. I also read in the other thread that the vacancy could be quite low for smaller slips (32' or less) because there is a waiting list for such slips. It also appears as if the condo association manages to fill the vacancies, "evict" tenants who do not pay, etc. So it appears as if the condo association performs many property management functions for boat slip owners.

5. It was mentioned in that thread that banks are only lending for one boat slip per person. I was surprised to hear this because, if the opportunity is so good and cash flows justify it, why would you not be able to get a loan for a portfolio of slips?

6. The other OP was quite convinced that there was a lot of appreciation potential in boat slip values because (a) rents have been going up although prices have collapsed and (b) there are restrictions on the supply of boat slips and it is not easy to get permits to build new ones. He also felt that luxury items rebound first in a recovery.

Anyway, these are all things I read and I do not have personal knowledge to confirm any of this. But I like the relatively passive nature of this type of cash flow investing but I do not think the cash flows mentioned were sufficiently attractive. But it is definitely something to evaluate and keep an eye out for in case prices continue to decline in the future and the yield becomes more attractive.