Custom Built Home on Private Lake

[Shane Bryan]

I came across a property on a private lake within the city limits of a highly visited tourist town in Colorado. The property was purchased several years ago and the house was leveled to build a custom home. The owners only finished the shell and lost the property in a tax sale.

The houses around it on the lake shore sell between 900K to 1,300K. The new owner of the property took possession with a Tax Deed and is asking 700k.

My plan is to have a custom builder finish the house and list it for market value. With it being in the million dollar price range I'm sure it would be at least a year and half before even coming close to selling it. I plan to rent it out on a day basis to generate a great income till I'm able to sell it.

I'm looking for opinions and advice plus I need a cash partner.

Asking 700K (owner took possession with Tax Deed, lots of room to deal)

Custom Built home 350K (very rough estimate)

Furnishings and other expenses 50K

Total 1,100,000

I feel I would be able to bring the property's price down based on the tax sale and current condition of the property.

[Jon Holdman]

The last figure I heard, admitidly several months ago, was that Denver has 10 years inventory at prices over $1 million. Jumbo loans are essentially non-existant, which means a buyer has to come up with cash or a big enough down payment to move this into conforming territory.

Have there been any sales of similar properties in this area anytime recently? I realize the price you get is going to depend on the details of the property, but when I hear a range like $900K-$1.3M, I hear "$900K". That's the same as someone saying "my house in North Aurora is worth $70K-100K". Really, I think? So, you don't really know, what its worth, then?

I don't fund deals this big. If I did, you'd be looking at 15% interest, paid monthly. Probably 60% LTV. I'd want to see you have at least 10% into the deal. So, if the value is $900,000, 60% is $540K. Less the $350K escrow for finishing the house gives you $190K at closing. I'd expect you to bring $90K to closing.

You'd have payment of $6750 a month, starting a month and change after closing. At $300 a night, that's 13 nights a month just to cover the interest payment.

You say its rented 70% of the time. Sorry if I'm skeptical. If this is in a ski area, you might get a lot of nights in Jan, Feb, and March. You'll get some nights in December and April. You'll get some nights in June, July, and August. But the mountain towns struggle any time except the height of ski season. I just did some poking around on vrbo.com and you can have your pick of numerous places in Breckenridge or Vail any day all summer long. Maybe you have a more popular location than those (though either of those is WAY north of $300 a night in winter). But I think you'll be doing good to get a few nights a month rented in the spring and fall.

This is a hugely speculative deal. Five years ago people made big bucks with deals like this. Today they're albatrosses that are very difficult to move. If you have deep pockets and patience, there might be money to be made.