Build a Vacation Rental Home or Buy Local Hold Cash Flow

[Corey Reyment]

HELP! My wife and I are trying to break in to the real estate game and we have local investors, we have liquid cash we could use, and we also own a lot in a wooded area with deeded access to a large lake in Wisconsin on Lake Petenwell. We have been trying to sell the lot for awhile to use for down payments on local deals in the Green Bay area. Our goal is to buy and hold to create cash flow. We own the lot outright. Up until today our strategy has been to find a deal in our local market and then begin on multi-family units and begin to use direct mail campaigns to find deals locally. 

After discussing my land situation with a co-worker today, he suggested using the land as the down payment on a new construction and then rent it out as a vacation rental. I also work commission and have enough work history to prove my income but may be switching from full to part time as I begin another career in a few months.  Would that affect my ability to refi and satisfy the construction loan?

Does anyone have any insight? 

[Art G.]

Hmmmm... I am not 100% on what you are saying. Do you mean that you want to take a loan out against the vacant land to use to build the site? I dont think banks will go for that alone, but if you show them plans to build and what the value will be when done, then they might go for it.

You are better off looking for new construction loans, they are more used to this concept.

But most importantly, what kind of market is there to rent out this vacation home? Do a lot of people come to that lake? Is the land within a reasonable distance to amenities? What would be the rents from such a vacation home assuming there is demand for it?  Try calling local vacation rental brokers and seeing what their opinion is.

My first reaction is the same way I feel after thinking about it and writing the above, keep the land as collateral and use your cash and loan power to purchase income properties.

And try not to change jobs till you get the loan. They will not give it to you if you recently changed jobs.

[Chad Nagel]

I would say your local market in GB is better than adams co.  That market has always been extremely depressed, that is prolly why your lot has not sold. It would appear to me you wanna build a vacation home more for personal use than investment. Price your land correctly, sell it. Take cash and build an empire.  Take my free advice for what its worth.... ( a previous adams county property owner)

[Corey Reyment]

Thanks @Chad Nagel and @Art G.. Art - to answer your question I would be doing a construction loan and then refi upon completion to a 30 year. I have been checking around online and there are some companies that advertise rental properties for vacations on the lake. We are only a mile from a nice beach and boat landing as well as a local bar/restaurant that has live music, etc. The interesting thing about the area is there is a world class golf course being build only 2 miles from our land and it is set to be complete in 2017. The other thing that has me intrigued is it is close to Madison and Milwaukee as well as only 45 minutes from Wisconsin Dells. I think I would agree with you Chad but my wheels are turning. 

[Chad Nagel]

My property was right next to northern bay golf course and marina on castle rock.  Google that development and how it went bankrupt. You can put in all the world class high end amenities as you want.  Its still adams co, lol. The tourists surprisingly dont end up that far north. I rented mine out cheap and it was full. Was a 1980s construction 2 bed total investment 50k, not an expensive new construction build. 

[Art G.]

I think I gotta go with @Chad Nagel on this one. He lived there and sold there, and says its no good. That zebra aint gonna change its stripes. Chad was right, sell the property cheap, and use that cash to get into some better investments with more guaranteed returns.

[James Watts]

Try looking up Airbnb and VRBO on rentals available at Lake Petenwell. You'll see how full their calendars are a what they get for rent. I agree that it's probably not worth building. Then try owner financing your lot via a land trust and push the monthly cost not the total price. You might add $150 - 350 to your budget for 5 -10 years and qualify for loans more easily.

[Corey Reyment]

Very helpful @Chad Nagel! Consider it done! 

[David Faulkner]

I admit that I do not know your market, but something you said stuck out to me that should be considered further. If I understand your post correctly, you said that you have been trying to sell the lot for awhile but either have not or could not (not sure which). That tends to point towards NOT building a vacation home for investment purposes there ... I would think that if that were a solid idea, then somebody else would have bought the lot and done that with it by now.

If you can acquire a property at a discount in a decent neighborhood, earn some forced appreciation, with some cash flow in a local market with a long history of decent price and rent increases, and can independently validate that all of these elements exist in the deal, then I'd go that route.

[Svetlana Foley]

Try to sell.  One mile from the beach and few miles from other amenities is just a bit too far for many vacationers, especially with all the competition from WI Dells and Blue Harbour, to name a few.  Many times people prefer right on/next to the beach/golf/etc.  If people were flocking in droves to your neck of the woods for vacation, it would have been a different story.  You would also need to look into zoning and ordinances before you even consider building.

[Corey Reyment]

I was agreeing with selling until I spoke to my boss who has land on a different lake nearby. He told me more about the golf course and resort they are building. It is expected to have PGA tour events at it. Here is the link to it as well as a video on the golf channel. Let me know if you guys think it would be worth holding and building. As for building @Svetlana Foley, we can build. Has to be a minimum of 1200 sq feet with brick on the front to meet our neighborhood code. We do have a pier right across the street on Petenwell that is ours so our vacationers would have their own dock and shared beach just across the street. http://www.sandvalleygolfresort.com/    Golf Channel - http://www.golfchannel.com/media/plans-sand-valley-wisconsin/