Dockominiums, Market Value, and Gross Sellout – Part 2

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So are you wondering why I’m a bit down on the prospects for this dockominium?  You’ve already got some clues from the last section.  The vacancy rate is like a big red flag at the entrance to the marina.  There’s plenty of room for improvement and selling rather than renting isn’t it.

Another key reason why I’m not optimistic about the projecteFamily Incomed sales pace is simple economics.  The median family income in the county is only about $50,000.  Is it any wonder that the boats in the marina aren’t all that big or fancy?  The boats in a tertiary market reflect the incomes of local residents.

Without getting into math, what are we saying about the income as it applies to a dockominium?  With most of the boats in the 40 foot range and a sale price of about a thousand dollars, we’re saying that the cost to buy a dockominium is 80 percent of the median family income in the county.  Oh, but let’s not stop there.  Do you think there are any lenders for dockominiums left?  I very much doubt it.  So we’re talking cash purchases.  That’s a lot of money for the local market!

Let’s take that further.  The median family income has to cover housing first, living expenses, the car(s), and finally the boat.  Is there a whole lot of room to include a $40k dockominium in there?  Not to mock Starkist, but “Sorry, Charlie”.

Maybe that’s why only two dockominiums have sold over the past 5+ years, recession or not.  And maybe that’s why there seems to be no robust sales pace in any dockominium within 50 miles.

It’s simple, really.  The economics have to be there.

Now let’s get into some match.  Let’s say the rental rate is $7 per lineal foot of boat length  per month ($84 per lineal foot per year) and the sales price is $1,000 per lineal foot.  So that’s a cap rate of 8.4 percent.  What’s missing in that number?  That doesn’t consider vacancy and it doesn’t consider that some boats will be taken out of the water and put in dry storage.  I’d also expect some flexibility with a 20 to 35 percent vacancy rate and maybe a discount for cash payment at the time of a slip agreement being signed.  So let’s just say there’s a 25 percent vacancy.  That would reduce the income to $63 per lineal foot per year.  Divide that by the even thousand and you’re looking at a 6.3 percent cap rate.  That’s great if you’re a seller, but what if you’re a buyer?  Divide $1,000 by $63 and you’re looking at a payback period of 15.9 years!  Oh, sure, there’s the possibility of appreciation, but on a cash basis in an oversupplied market where population growth is minimal in the country, where’s the upside for the buyer?

Right about now, income or growth stocks on the stock market are looking really good for that $40 thousand dockominium purchase price.

All of this math, but why did I turn down the assignment?  Find out in the next part of this series.

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