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Mayne Island Nightmare: Selling rec property in a collapsing market.
03-24-2014, 09:18 AM, (This post was last modified: 03-25-2014, 03:46 PM by Skook.)
#1
Mayne Island Nightmare: Selling rec property in a collapsing market.
I’ve just come across a Globe & Mail piece that is worth posting in its entirety. Before doing so, I want to point out something in its byline. It is a “Special to The Globe and Mail” which 99% of the time means it has been produced independently (often to promote something) and then sold to the newspaper. So, the first thing I do for a “Special” is Google the author to find out his/her background. According to her LinkedIn page, Kerry Gold, who lives in Vancouver, is a real estate columnist to the G&M; however, she is also a freelance writer. My thought is that the Realtor suggested to the owner they spread the net and get national attention and Gold was hired to pen a piece. That being said it is a good article showing the desperate situation for recreational property owners on the west coast who can’t find buyers because of the real estate free fall. The issues raised here are applicable to the Sunshine Coast especially up in the Pender Harbour area, to its surrounding islands, to Bowen Island and to all the remaining Gulf Islands.

After the article, I will offer my own thoughts and hope you will offer yours. The highlighting in the quoted story is mine.

Quote:How an island dream can go wrong
Kerry Gold
Special to The Globe and Mail
Published Friday, Mar. 21 2014, 9:07 PM EDT
Last updated Friday, Mar. 21 2014, 9:17 PM EDT

A potential island paradise has turned into a migraine that’s not quite over for a man who attempted to build his dream home on Mayne Island, B.C.

Seven years ago, Wilfred Klingsat, who is 73, bought the 1.3-acre property with wide-sweeping views of Active Pass in order to build a 4,000 square-foot house for himself and his wife. But about halfway into the project, construction cost overruns and conflicts with the builder blew the budget. He found himself faced with unexpected bills, such as the $5,600 it cost just to blast a big rock and $100,000 for underground wiring and water storage tanks. And then Mr. Klingsat’s wife was diagnosed with a heart condition that required her to be near a hospital, which made island life an unlikely option since it doesn’t have such amenities. “The doctor said she shouldn’t be there,” says Mr. Klingsat, who owns and operates a Booster Juice store in Duncan.

Today, their house is only a wood frame shell that looks out over one of B.C.’s most dramatic views, with the Lower Mainland in the distance, and regular sightings of ferries, whales and seals. The tiered wooded lot is only a five-minute drive to the ferry.
It is the idyllic best that B.C. has to offer, and yet the Klingsats won’t even break even on the near $1-million they spent on the property and construction. They have relisted it for $539,000, after previous listings at $649,000 and $699,000 didn’t get any offers. “Everybody loves the place, but the people don’t want a house that’s not finished,” says Mr. Klingsat, who gave up on the project six months ago. “And I can’t do it. I haven’t got any more money to put into it. “The whole economy everywhere is lousy – nothing is gangbusters. There are places for rent all over here on Vancouver island.”

Mr. Klingsat’s situation demonstrates the risks of island real estate investment, particularly where construction is concerned. He had purchased the property for $600,000, at the height of the market. At the time, it seemed that any property in B.C. was only going to go up in value. When the real estate market temporarily crashed in late 2008 and early 2009, nobody could have seen it coming. But recreational property is the hardest hit when there’s a downturn, analysts say, and is particularly vulnerable. As well, construction costs on an island are at a premium because of added transportation expense and extra time that it takes to build, or renovate.

Diana McMeekin, founder of Artemis Marketing Group, has worked in residential real estate for more than 40 years, and so she knows the housing market. She also knows the pros and cons of island life because she’s owned a secondary house on Keats Island in the Howe Sound since 1997. She has heard nightmare stories about island building projects that have cost homeowners their savings. It is not a project to be undertaken lightly. Mr. Klingsat, she says, is not alone. “It happens very frequently that people don’t make money on recreational property,” says Ms. McMeekin. “So don’t do it to make money. In all likelihood, that’s the wrong reason – it’s just a bonus when that happens. The main reason you should buy recreational property is for the lifestyle, for yourself and your family.”

Ms. McMeekin renovated her Keats property twice, which required truckloads of materials brought in by ferry and barge. She likens it to a “military operation.” “I would think I had a 20 per cent premium to get the stuff there, which is not sexy money. It’s gone. So you should be prepared for that,” she advises. “The other thing is, with a secondary home, your choice of contractor becomes very, very important because you will probably not be there every day. By being on-site, you can prevent mistakes or other things from happening, and you also keep your contractor keen and eager because they know you are there and watching. Whereas with a secondary home, you go by to check after a month, thinking ‘they must have made a lot of progress,’ and then you go there and you’re shocked at the lack of progress. “You can lose control very, very easily because there are so many logistical things you have to think about.” That said, she also loves her Keats Island retreat, which she gets to nearly every weekend most of the year. An ardent fan of island life, Ms. McMeekin says it’s also an optimal time to purchase a recreational property in B.C.

It is a buyer’s market, she believes, because of the spin-off effect of the American market’s downturn. Wealthy British Columbians and Albertans who would have otherwise purchased locally took advantage of bargains to be had in places like Palm Springs these last few years. As a result, the recreational market in B.C. has taken a particularly hard hit. Ms. McMeekin says her Keats Island home has also dropped significantly. “It’s definitely worth a lot less than what I could have got for it at the height of the market,” she says. “There was a time I could have sold it for $1.2-million. Prices have come down massively.” So, while the bargains down south are long gone, the ones in B.C. are popping up – such as Mr. Klingsat’s home.

Mr. Klingsat’s realtor, Ian Watt, agrees that the market is at a low. He’s been buying up property in the Interior as his own investment. Once people start snapping up bargains, as they did in the U.S., it will be too late. But it’s often difficult for people to go against the tide, he says. “This is the time to buy recreational property because nobody is buying it,” he says. “But we are like sheep. We only buy when everybody else is buying.”

Ms. McMeekin concurs. “The values are terrific. You can have your dream home – you just have to be incredibly careful about it. “It’s bad news for sellers, but great news for buyers.”

This man’s biggest mistake, of course, was buying in at the peak of the market never anticipating a collapse was just around the corner; yep, in good old 2007 - the year of insanity. I mentioned in other SC posts that prices jumped $100,000 or more that year. But, heck, he didn’t have a crystal ball and waterfront property never loses its value. Right?

The next big mistake was not turning to the most important source of information on Mayne Island - its full-time residents. They would have given him an earful on how expensive it is to barge building materials to the Island as well as offering other relevant info. But, I bet due his 'city-dweller' arrogance he made no effort at all to reach out and get to know those living nearby. This could have been done by renting a motel room for week and chatting up everyone he came across. All he had to say was, “I am thinking of building a place here. What advice can you offer me?” They would have been flattered and talked nonstop; so, remember that folks. If you’re moving to small community, take advantage of local knowledge and experience - show respect. Just remember, in a small community you may one day need assistance and if you’ve ignored or looked down on the locals, they’ll just call you a bonehead and walk away. I saw this happen many times living up past Pender Harbour.

The third mistake was failing to acknowledge his age. He is 73 now, so back in 2007 he was 66. So, there they are building a 4,000 sf home for just two people on the edge of rapid physical decline. His wife’s unexpected heart condition proved that; although, I am sure the stress of his bitchin all the time about the construction nightmare and rising price tag likely kick started her ailment; perhaps her unconscious solution for removing herself from the equation. When the mind and spirit is stressed, the body listens and tries to give a way out - even a drastic one.

The age issue is critical. So, many dream of getting away from it all and are (or were) attracted to boat access property. Well, depending on where that property is it can be a hell of a lot of work. I met a fellow who had boat access property on the east side of the Skookumchuck Narrows across from Egmont. For the most part, that side has a steep, rocky shoreline and here are pics of two properties there currently on the market.

[Image: attachment.php?aid=820]

The property on the right has as many stairs as the one on the left. Now, in the Skookumchuck Narrows, the highest/lowest tides occur during the night in winter and during the day in the summer. During the run-out those ramps to the float will be at a 45-55 degree angle. Just image hauling all your stuff up those ramps and then having to climb all those stairs.

That fellow I mention above, well he didn’t put in stairs he put in a series of joined ramps that snaked back and forth up the rock face. When I asked why, he said, “The first thing to go as you age is your knees and I decided to prepare. I can load everything on a dolly and pull it up the ramp.” Smart man. However, it was knowledge gained by visiting the area many times before finally buying.

So, after these mistakes, the owner is facing a nightmare because he can’t afford to finish the home and no one will buy it unfinished. Well, despite the Realtor trying to "prime the RE pump" at the end of the article - prices are low, now’s the time to buy; “it’s bad news for sellers, but great news for buyers” - the owner better get comfortable with the idea of paying the property taxes for a few more years to come as his "investment" continues to drop in value.

You see the baby boomers that created the west coast real estate boom a decade ago are getting too old to start another. Not only that, they can’t sell their ridiculously priced McMansions in the city even if they wanted to escape to Mayne. As well, banks aren’t willing now to offer mortgages for secondary homes and rec property and forget about a HELOC. The generation coming up can’t afford rec property let alone buy the boomer’s McMansions because they’re in debt up to their eyeballs. And, to round off this nightmare, BC ferry costs to Mayne doubled since 2007 and continue to rise and, now, the corp is cutting back on sailings. If the owner was shocked at the cost of building back then just imagine the building costs now.

No, this home and others like it - there are more than just a few on the Sunshine Coast - will continue to sit there with its guts exposed maybe for years to come. In the meantime, I guarantee this home will become a local landmark. I can hear it now…”Where's the best spot to fish?” “Just go around the point to the first bay past the unfinished house.” “How do I find this address?” “Just head up the road and it’s another half kilometre on the right past the unfinished house.”

[Image: attachment.php?aid=821]


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Mayne Island Nightmare: Selling rec property in a collapsing market. - by Skook - 03-24-2014, 09:18 AM

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