Entry Level Lakefront Value

It is with some fear that I share certain market revelations here. Not fear, in the way, say, that I’d fear a large spider or any sized snake, but fear nonetheless. There are those who read along here, gleaning their market information and perhaps having a chuckle or two along the way, and then they take that info to other Realtors and buy things from them. For this there is shame heaping upon them and their future generations, but they do it anyway. There is also the danger of delivering this information so that it finds the eyes and makes its way to the mouth of some of my competitors, but even so. I cannot keep all that quiet.

So today, a new, but basic metric for discovering simple entry level lakefront value. It should be noted that value is discovered based not solely on the primary component that gathers all of the attention: price. While price is obviously an important indicator of value, it is not the only one, nor may it be the most important one. I was traveling a month or more ago through the twisting roads of Amish Country, and I stopped at a gas station to refuel and to ask for a local route preference to get from where I was, A, to where I was going, B. The gas station guy, with his shirt that bore his name that I cannot remember, told me that I needed to take highway V. He then told me, to reinforce his prior point, that I needed to maintain a singular focus on V. As if Highway County V was so important. But, apparently it was and so I did. Just as I maintained that steadfast focus on V, many buyers keep their eyes locked on the price as if that is, as V was, the most important thing going.

It isn’t. Price is important, but it isn’t everything. If it were everything, that would make the lakefront deal at $850k next to the Linn boat launch a great value. But it didn’t, because it isn’t. Price is important, but if it were the only thing then we wouldn’t even be at Lake Geneva, and we would, instead, be discussing the merits of some small pond in Northern Wisconsin and we’d remark to each other that while everything here at this lake is horrible, it sure is cheap(!) Price matters, but not in a vacuum. Price, compared with location, compared with structure, compared with neighboring structures and monuments, those matter collectively more than price does singularly.

And all of that to say this. If we are looking at entry level lakefront, a market that we’ll extend today to reach properties that may sell sub-$1.8MM, then we have one very simple theory to apply to the price to see if we are indeed capturing lasting value. If we are looking solely at a lakefront home that we can buy for $1.5MM that may be worth $1.51MM in a few years, that’s a different goal than the one that I would usually pursue. I’m looking for value in location, and the value in a location is determined simply by asking one fairly curt question: If I tear this ugly house down and build a new one, can the site support that future increased value?

I thought the question was going to be shorter before I wrote it, but it’s still pretty easy to read and answer. When I mention new construction in this price segment, I am not talking about $300 per square foot type of construction. I’m talking about $200-$250 a foot construction, a price point that allows for Viking and SubZero to make their presence felt but leaves no room for hammered Silver sinks that were hand hammered with a very old hammer by a very old man in some very old chalet on the side of an even older mountain back in the old country. With that price point for construction, that allows a 3500 square foot home to be built for $700k. That is our basis for this discussion, that price point.

The theory goes that if I can buy an entry level lakefront home, I would like to have three basic options. I would like to have the option to live in it as is. Without doing anything. I’ll need to buy a boat, but that’s less a chore and more a privilege. Other than that, I’d like to buy a bit of furniture and clean the place up a bit and move in. That’s nice. Option two is to apply a somewhat basic renovation to the home. Trim, floors, paint, perhaps some kitchen and bath work. For any lakefront home in this price category, I can assume that a light $100k remodel will satisfy most of my cravings. I want, when buying this home, to make sure that if I purchase for $1.3MM and put $100k into it, that I can sell it for a price that reflects my increased basis without causing me the emotion and financial pain of selling at a loss.

The last category to consider is the one that is most important today. Can I, when I buy this entry level home, decide to live in it for a few years by applying one of the two heretofore mentioned options, and then, when I decide that I love the location and I tolerate my neighbors sufficiently, can I tear this sucker down and build new. The easy answer is yes, if market context and value don’t matter. But they do, which is why you’re reading my sight and not another agent’s site (BUY NOW!!! BEFORE PRICES GO UP!!! AHHHHHH!) If I buy for $1.4MM, and I tear down and build for $700k, can the site support that future value? That is the question we should be asking for entry level lakefront properties, and in many locations the answer is more of a question, in the way that Canadians answer everything with an accentuation on the curious. Yesss?

In Cedar Point Park, if I can buy an entry level lakefront in the right price range and apply this cost model, I can, generally speaking, support that future value. If I do the same in Fontana pretty much anywhere, I can also make sense of this. If I do the same in Geneva Manor, perhaps it works. If I do this on some random stretch of the lake, where values have proven to be steady in the $2.3-$2.6MM range, this works as well. However, if I attempt this in the Highlands, does it work? If I do this on Walworth Avenue of Williams Bay, is this a good value driven decision? Nope.

So consider this a quick primer on entry level value, and play this game when considering any entry level lakefront home if indeed your future plans extend beyond having a very nice little lakefront home that will always be nothing but a very nice little lakefront home. You could also contact me and we could work through this game together, which sounds nice for everyone.

Lakefront photo by Matt Mason Photography.