Real estate buys in carless communities

Rental restrictions can limit ability to cover ownership costs

In college, I had a friend whose family owned a beautiful beach property on Fire Island, one of the string of barrier islands off the southern coast of Long Island, New York. I always liked Fire Island because the little community prohibited cars.

Fire Island was and still is a summer beach venue, although just under 500 people live there year-round.

My friend was a scion of the Shorin family, which founded Topps, the baseball card company, and her family’s beach house was large, resort-modern and very impressive. I’m not sure what it would sell for today, but after looking at prices for beach homes on Fire Island, where most of the properties are around $1 million, I’m sure the house, if it went on sale, would definitely be in the seven-figure category.

I got to thinking about islands with no-automobile regulations when I recently visited one of the most famous of the country’s summer, sans-auto getaways, Mackinac Island, which sits in the Mackinac Strait connecting Lake Michigan to Lake Huron.

I should first make note that there are a number of such places in the United States, from the famous Catalina Island off the coast of California to the lesser-known Bald Head Island, a golf-cart-based community in North Carolina. Contrary to expectations, Bald Head Island McMansions generally run in the seven-figure category, but you can still find quaint Catalina residences for less than $1 million.

When it comes to no-automobile islands, the number of dollars it takes to buy a home often equates to the grains of sand on your beachhead.

That’s not the case at Mackinac Island, mostly because this charming place is not found in a warm-climate location along an ocean shore, but close to Canada in the Great Lakes region. On Mackinac, there are really not many glorious beaches of sand — it’s more about the quaint lifestyle because the heyday of Mackinac Island was around the turn of the 20th century, not the 21st century, and so many of the homes are of Victorian architecture.

"On many no-car islands like Fire Island, investors buy homes and use them as summer rentals. That model doesn't work well on Mackinac Island due to zoning restrictions."

A contemporary beach house would look absolutely wacky here, and besides no one could get the zoning approval to build one.

When I was visiting, I stayed at the Island House, a huge, Victorian hotel that has been doing business for 150 years. The most famous structure on the island is the Grand Hotel, which was constructed in 1887 and is still considered the finest hotel in Michigan.

The island was developed as a tourist destination and second-home market during the period between the end of the Civil War and the beginning of the 20th century, when America blossomed as an industrial power. It was the age of Robber Barons and monopolies.

With more money in circulation, the middle class joined the industrial titans in the summer exodus from congested cities to bucolic locations, where they built grand homes. Easterners traveled to Newport, Chicagoans to Lake Geneva, and those from Detroit and other big Midwest cities to Mackinac Island.

Until the 1980s, cottages (homes on the island are called cottages no matter how small or big) on Mackinac Island traditionally changed hands in personal deals. Then in 1984, Bill Borst opened Mackinac Island Realty Inc., the first real estate office on the island.

The reason for Borst’s enthusiasm for the place was that of the only 440 acres of private land on the island, a parcel of 177 acres that was part of an old estate had been turned into a resort area with a golf course — and 300 lots were offered for sale. All sold, but as of today only about 70 homes have been built.

The market for properties is considerably varied on Mackinac Island. At the low end are condominiums that can be acquired in the $200,000 range or a fixer-upper in the middle of the island at a place called Harrisonville where many of the all-year residents live.

In the middle of the market, a cottage of 1,800 to 2,500 square feet, depending on location, will cost $400,000 to $600,000. Top-end cottages go for $3 million-plus. The most expensive recent sale for a cottage hit $3.4 million.

On many no-car islands like Fire Island, investors buy homes and use them as summer rentals. That model doesn’t work well on Mackinac Island due to zoning restrictions.

"The majority of cottages can only be rented for a 30-day minimum and it has to be to one family," explained Alan Sehoyan of Mackinac Resorts. "That narrows the market, but we do get rentals — it’s just not a large volume. Cottages generally rent for $4,000 to $12,000 a month."

However, there are exceptions. Many cottages are built on state-owned land and these have a two-week minimum for rents, Sehoyan said. "These homes rent for $10,000 to $14,000 for two weeks, but you can only do that twice in a season."

Remember that 177 acres of resort property? Well, a number of condominiums were built there and these can be rented by the night, because the land had been zoned hotel/resort.

The boom time for Mackinac Island real estate were the years 1988 through 2003, not just because of the economy, but homes that had been in families for generations turned over due to death, divorce or other life-changing situations.

Although Mackinac Island real estate has been much more stable than the rest of Michigan, which is going through an economic crisis, the market slowed up considerably. Then 2009, which was awful for most of nation, turned out to be a decent year. "We had a few sales at the high end," Borst said.

Rentals were also better in 2009. "We were slightly down, but finished up strong," Sehoyan said. "In 2010, we will do better than 2009."

The uniqueness of Mackinac Island — no cars, the lush Great Lakes landscape and the Victorian architecture — attracts people from all over the U.S., Canada, and even Europe and Japan. Borst recently sold two condominiums: one to a local hotel manager and the second to a Kentucky family. The last cottage he sold was to an investor from Indiana.

However, there is a type of buyer who appears most frequently. They are folks who had come up to Mackinac Island as children and, now that they are older and with kids of their own, they want their children to appreciate the slack life of a no-car landscape.

Steve Bergsman is a freelance writer in Arizona and author of several books. His latest book, "After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade," has been ranked as a top-selling real estate investment book for the Amazon Kindle e-reader.

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