[at-l] Laurel Creek Lodge

[garyticknor@starpower.net (Gary Ticknor)]

Another way to look at it is to ask what is meant by "value". If they will only
part with the property for $500K and you want that property, expect to pay
$500K. But if they want to liquidate their investment, it must be understood
that the property is worth what an equivalent capital could generate invested,
with a discount or premium for the risks involved.

So, simplistically, if the capital to buy the hostel could generate 8% in bonds
or more uncertainly 11% in equities you would expect your $500K investment to
yield a certain $40k/year (or be rewarded for more uncertainty with perhaps
$55K/year).

I don't think the hostel will generate that kind of income. The books would
show.

So, despite the owner feeling that $500K or $525 is a reasonable price, if it
will only generate $20K - half (after expenses, including management costs but
excluding debt servicing) then the "value" is only half, or $250K. Unless you
just have to own that particular investment.

I suspect that the property will stay on the market for a long time, waiting for
that "particular"  buyer, or else the owner, seeking liquidity, will come WAY
down.

Gary from Fairfax, computer geek, but works around money geeks.

(Hi Tim!)


Tim Rich wrote:

> Greetings,
>
> Joel pretty much nailed it in his first statement regarding practicality.
> Making the mortgage is only the beginning.  For starters, a property is only
> worth what it can produce in net income.  Generally, a $500M property should
> produce about $50M in net income per year.  Laurel Creek is only open about
> 4 months per year and has few rooms from which to generate income.  A 4,300
> per month mortgage, times twelve, can't be carried by four months of
> seasonal income, along with property taxes, upkeep and the like.  There is
> big reason why hostels are generally in old homes that, no offense intended,
> are beginning to reach the latter portion of their economic lives.
>
> The bottom line is that 1) the property probably won't go for anywhere near
> the asking price, and 2) the success of a hostel operation is greatly
> compromised by the existence of any debt, much less $350-400M.
>
> It is a neat idea.
>
> Take Care,
>
> Tim
>
> On Fri, 24 Aug 2001 13:15:38 EDT, JoelFromFlint@aol.com wrote:
>
> >  I think the LCL idea is intruguing, if not all that practical. That said,
> if
> >  they are asking 525k, then the real price is probably 475 or so. With all
>
> >  closing costs, that 500k. On a standard commercial loan, 20% of that
> would
> >  have to be put down, or 100k. Does that sound more doable? It might be
> tough
> >  to get 500 people to pledge $1000 (not too long ago in my life, coming up
>
> >  with a fiver was tough), but what about twenty folks with 5k each? If Red
>
> >  and/or Miss Janet is serious, I'll get out the checkbook and start
> writing.
> >  The toughest part is keeping the mortgage paid; with a 15 year
> amoritzation
> >  at 10% interest, thats $4300 per month. I think this is worth looking
> into -
> >  keep the ideas rolling. joel
> >
>
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