I have been looking to purchase some waterfront property (land only or land with an existing cabin/cottage) but have found that it's more expensive than I was hoping. Recently, I came across a "for sale by owner" waterfront property that includes an owner's cabin plus 5 other cabins. The current owner rents out the cabins during the summer and fall. The property is really nice (and expensive)....but the wheels started turning.

We don't really want to get into the rental business, especially because this property is a couple of hours from our house and we wouldn't be able to manage it easily. However, what if we purchased the property and then sold the individual cabins as "condos"? This seems like a good idea from a financial standpoint although I realize that it's much more complicated than just buying a piece of property for the family. However, being that I have no real estate experience, I am trying to determine just how complicated it could get.

I'm assuming we would need to establish a company to buy the property. Buying the property, of course, would require getting a big loan (at least big by our standards). Then we would sell the individual cabins. Here are some of the questions I have although I'm sure that I'm just touching the surface and would appreciate any additional information you can provide.

What kind of a loan would I be looking at? commercial, real estate, etc.

What kind of rates can I expect in today's market?

How does it work when I sell one of the cabins? Legally, how do I transfer title to the new owner for his/her cabin when I have a bank loan that is using the entire property as collateral?

Like I said, I think I'm just touching the surface, but it's a start anyway.

Thanks in advance for your time.

slaward

Yes, this would be a commercial loan and the rates and terms would be higher (say 7% to 8% range generally speaking) than residential rates. The lenders are going to look at the cash flow - i.e. rental income from the property and may include your income as well. Interest rate on the loan is probably one of the last things I'd worry about in this transaction at this point.

You should check with the city/county about the procedures, costs and time involved in converting these into condos. You may be able to parcel the property into 5 individual residences and you could sell them for even more money.

To transfer a clean title to the owners/buyers of individual units, the bank has to structure the deal accordingly to allow you to do so. Essentially, as each property is sold, the cash from the sale will be used to pay of the portion of the loan associated with that property and the lender will release the lien on that property only.

The important things to investigate at this point would be:
1. Property income, expense and occupancy rates including peak and low periods.
2. Investigation on whether you can subdivide the land or convert the units to condominiums. An experienced architect should be able to help you with that or you can check with the appropriate government agencies.

Good luck!

The biggest issue is going to be what the land is zoned for. You have to make sure you can get the approvals to convert the cabins into condos before you even consider buying the land.

Not that it is necessary for the purchase, but if that is what you want to do and after you take down the land you find out you can't get approved for condos, what do you do then?

You first and primary concern would be due diligence at this point, find out what all your options for what you can do with the land, find out the costs involved with getting approvals and what codes you will have to follow for condo conversions, and you might also want to determine if condos will sell in that area, it sounds more like a tourist attraction than a place to live.




As far as your question about title issues, most loans like these have release clauses in them. Meaning, as you sell of the units a portion of the sales price goes to the lender and they release the individual title for that unit. You could also pay that amount yourself and title would be released in your name and later you would transfer title just like anytime you sell a home.

Each lender has different ratios for what you would be required to pay them to release title, but more often than not you are left with a decent profit from each sale.

Or maybe profit is not the right word since you will probably have put alot more money into it than you would be getting out of it initially. You would hope though, that once you sold off all the units that you would be left with a signifcant profit from your investement.