Absolutely Not!

Stein, Michael K.
November 2002
Journal of Financial Planning;Nov2002, Vol. 15 Issue 11, p36
Academic Journal
This article offers advice on investing in a recreational real estate. Generally, the potential buyer has a vision of a risk-free, cash-flowing, certain-to-appreciate, investment. Just as generally, none of those visions are likely to be accurate. They expect to make a modest investment, say 20 percent of the purchase price, then take a mortgage for the rest of the purchase price. They expect to rent the property for enough income to pay the maintenance, debt service and management fees. They rely on the estimates of the selling agent of potential rents. Then they look at the appreciation history of similar properties over the last ten years and conclude that this is a riskless transaction. The most obvious source of trouble is the probability that income and appreciation projections will not be met. Smart owners of recreational real estate are making the calculation that future prospects may not be as bright as the recent past. Typically, recreational real estate goes through much more dramatic cycles than other forms of real estate. It tends to magnify economic trends, going up rapidly and excessively in good times, and getting hit with a double whammy in bad times, falling values and slack demand. Given this analysis, the prospects for buying recreational real estate in 2005 look particularly poor, but the task still remains of cutting the emotional umbilical cord that connects these folks to their dream.


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