Orion Commercial: Resort Buyer's Guide

As you consider various resorts, keep in mind their style and personality and choose a property that will be well suited to you. The resort you choose may appeal to others like yourself, and thus your guests will be people to whom you will easily relate.

Resorts can be categorized as Housekeeping (cabins with kitchens), American Plan (lodging with meals), or Campground. A resort may cater to families or business people, or sport enthusiasts in various income brackets. Once you've identified the style of resort operation you prefer, pay very close attention to the environment because no matter how much money you may have, you cannot change the environment! It's important to understand that, in purchasing a resort, you are entering the "hospitality industry". Being hospitable and seeing that your guests enjoy their vacations is the key to success.

In 1973 there were over 3,600 resorts in Minnesota. In May 2010 there are about 900. Although the 900 that exist today may have more beds than the 3,600 in 1973. What has happened and continues to happen is that as lake shore property continues to increase in value developers have bought resorts, subdivided them and the cabins have been sold individually. This has affected the value of all resorts pushing their physical value higher than their economic value and ability to pay for them. In today's world every resort buyer should look at as many properties as they can and learn as much as they can about the resort industry in general, the area and the specific property. In choosing a resort, choose one with opportunity as you may not find a resort that has cash flow.

We at Orion Resort & Campground Sales help buyers understand opportunities. It begins with dividing any resort into three to five basic income categories. Those categories are: Lodging Revenues, RV Site Rentals (overnight & seasonal), Restaurant Revenue, Equipment Rentals and all other income (store, gas, bait, etc.) Each of these categories have a different percentage of profit. Understand that profit in the lodge or store selling candy, pop, ice, wood, bait and gas may only average 25% profit. Profit on renting a cabin might have a gross profit margin of 75%. RV site rental might have a gross operating profit of 90%. Profit on renting boats and motors may be higher than 90%. With this understanding, you can prioritize your spending, improvements/additions and your time to the revenue department with the greatest yield. When you originally look at a property to purchase you should identify the opportunities, assess the needs of the property - whether they are promotional or physical. Then plan your purchase so that you can resolve some of the physical or operating deficiencies of the property to realize the opportunities for greatest performance.

We at Orion Resort Sales are also in the business of operating resorts and we know how to identify opportunities and budget for greater performance - because we have done it. We share operating information for buyers to be better resort operators and we look forward to working with you.

RESORT BUYER'S CHECKLIST:

ENVIRONMENT

Lake Size: Does it connect with other waterways or lakes? Type: Sport or recreational? Fishing? What kind? How well known?

Area: Hunting, skiing, snowmobiling?

Topography of the Resort
Elevation above the water line is very important for septic systems. What kind of tree cover is there? General appearance and landscaping? What direction is the resort facing? Wind is a factor in dock maintenance, boat mooring, and ventilation. Sunrises, sunsets and south views are enjoyable for guests.

Neighborhood:
How well are the neighboring resorts doing? How strong is the resort association? What is the rate structure in the area? Is the area promoted? What other amenities and activities are available? Proximity to large metropolitan centers is not a major concern because people are willing to travel to the correct environment. Note the success of some of the most remote resorts in Canada and Alaska, some of them accessible only by plane. Look for signs of success with other area resorts.

PHYSICAL:

What is the first impression from the road entrance and from the lake. What could you do to improve it:

Buildings
Inspect each building; look at the condition and general appearance of the foundations, roofs, windows, and stoops. Inside, look at the flooring, walls, windows, ceilings, bathrooms, kitchens (especially the fixtures), sinks, countertops, cabinet space, and storage space. What's the general feeling? Identify all physical needs for improvements. We can help prioritize a budget for making improvements.

Equipment and Furnishings
Check the appliances, furniture, and particularly the bedding (how many changes of linens), which is most important in the lodging industry. (If you don't provide your guests with a restful stay, they're going to complain about more things!) Are the cabins adequately furnished with pots and pans, cooking utensils, silverware, toaster, coffee pot, etc.? Check the furnishing of the lodge and other buildings. What kind of tools for ground maintenance are there? Check the boats and motors carefully. Look at the hulls. Are the rivets tight? Are the transoms in good condition? (Don't worry about the paint job --- that's only cosmetic.) Is there a set of oars and cushions for each? Are they in good condition? Check the motors: age, size, type, condition. Do the motors match the boat transoms? (A full- transom boat requires a long-shaft motor.)

Other Equipment
Minnow storage tanks, extra refrigeration and freezer space, an ice-maker? Is there recreational equipment? Lawn furniture? Sufficient maintenance tools? Gas pumps and tanks (do they comply with codes)? Can boats be launched on the property or nearby? How much dock space and in what condition is it? (Note: Dock systems can be expensive and a lot of work to install.)

Utilities
Ask questions about the sewer system and water supply system. Water is either going to be a well or a lake system where the water is drawn from the lake, purified, chlorinated, and pumped to the buildings. Lake systems are, typically, dependable. Be sure it's adequate for winter use. In today's world, sales require a sewer certification, which the seller is required to provide. A sewer certification invovles pumping all of the tanks and having a camera lowered into the tank to inspect it. That is done by a professional to make a certified inspection. Each county has a list of certified inspectors. Make sure that is done! Remember that expansion of units or higher-than-usual occupancy will create a greater usage which, in turn, can cause stress or even failure of the sewer and water systems. In regard to electrical wiring, one must take a common sense approach. If you can see the condition of any exterior wiring , make a note of it. If the wiring is underground, chances are it is very new. It would be unfair to compare the size of the electrical systems on any given cabin with that of your home, but it must be adequate for its expected usage. Request a final inspection of the resort before the sale, from the area Health Department, State Fire Marshall, and any other regulatory agency or a private contractor for any area of concern.

INCOME AND EXPENSES

Ask for a breakdown of income per cabin, per boat and motor, per department as described in the opening few paragraphs. Your final decision on income and expenses should be based on 3 years of federal income tax forms and 12 months of bank statements of the last full year of business. Compare the bank statement deposits to the gross revenue on the tax statements. You may be exposed to an owners or real estate agents "summary of income and expense" that eliminates what they refer to as "non recurring expenses". There are such things as non recurring expenses, but although those expenses may not "reoccur", new ones do show up every year. Base your decisions on tax returns and bank statements and if you can't get them from an owner or agent, something is wrong and you are about to be fooled, so beware.

Analyze all revenue departments of the resort. What additional revenue departments could be added? How could existing revenues be enhanced or expanded? A major question is: Does the resort generate enough income to pay all the expenses (that's including the owner's personal expenses), make the payments, and have a little money left over?

Does It Sound Realistic? Look at the rate schedule. Look at the reservation book. Take an average cabin per week, then multiply it by about sixteen weeks ( or whatever the area's reasonable season might be.) for full season. Compare that to what the owner is claiming to have received from cabin rentals or from lodging only. Do the same thing for boat and motor rentals. If the resort has all new equipment, it is likely to have a respectable amount of revenue from motor rentals. (Incidentally, new motors impress the guests.) We can offer comments on rates, how vacations are packaged, where and how to market for greater occupancy.

Most resorts offered for sale will not net enough to cover all of the operating expenses along with the new debt service created as a result of the sale. Many resorts, where the physical and environment were right, and the price right become excellent opportunities. If the new owner is aggressive, the resort can turn into a real performer in the first few years!

COMPARABLES

Being exposed to a number of resorts for sale can serve two primary purposes --- Education and Comparing Values:

Education: Seeing a number of resorts avails an opportunity of comparing physicals, rate structures, types of amenities, how the resort is promoted, where the guests are from, operating procedures, guest policies, staffing needs and a number of other helpful hints. A number of exposures add to a buyer's education of the industry and a more informed buyer typically makes a better operator.

Comparing Values: Everyone wants a "fair" deal. In listing a resort for sale we give the owner a price range of what their resort will sell for and on what terms. If an owner has a higher opinion of value, we politely say "We're sorry we cannot provide that service" and pass on the listing. Comparing offerings is one thing, but actual sales is the only real comparison. We've personally handled many resort sales and have been exposed to many others. We can usually provide actual sales of resorts within specific areas to buyers for comparables.

A most important factor is our experience in owning and successfully operating resorts and recognizing potential. There is an old saying "You make your money in real estate when you buy it". What that means is if you make the right choices and do the right things you make the most money. With our years of experience we've been exposed to the best operators and have converted some of these exposures into substantial gains in our own resorts.

SUMMARY

We've made this information available to help resort buyers make an educated decision on purchasing a resort. When dealing with resort buyers that have done their homework, the final step is structuring the terms of the sale with the needs of the resort, the buyer and the sellers. We strive for conditions that fit as many needs as possible and win/win deals that work for both sides.

Example: If a resort has certain physical deficiencies that impair its performance, We strive to structure terms with conditions that the buyer makes the needed improvements. The improvements enhance the sellers collateral by improving the resort and helping start the buyer on the right foot to run a successful resort. Our assistance with buyers continues when they become owners. We are available for consulting with helpful hints regarding rate structure, advertising or other problems that may occur. We would look forward to establishing a long term relationship with you.

BUYER ASSISTANCE

When purchasing a resort listed through Orion Resort & Campground Sales we maintain our fiduciary responsibility to the seller but at the same time educate and assist the buyer for a strong beginning into the resort industry. Resorts are sometimes sold on contracts with the seller and we feel a successful buyer insures the seller receiving their payments on a timely basis.

If you are not purchasing a resort listed by Orion we can help you as your agent, (referred to as buyer brokerage) Our many years of experience of dealing with 100's of buyers and physically inspecting over 400 resorts as well as our operating experience as owners of resorts is a very valuable resource we feel is cost effective. We know what questions to ask, how to listen, know resort values, know how to promote and operate and most importantly how to recognize potential, budget and capitalize on it. It is important for buyers to be correctly matched to the right resort, campground or whatever business they invest in.

As you can see from the amount of information provided at this web site we at Orion Resort & Campground Sales feel Buyers entering the hospitality business should be well informed. Better, well informed buyers are better operators thus contributing to a stronger industry. We practice hospitality at Orion Resort & Campground Sales and if we can help in any way please call. We've experienced many times, "What goes around, comes around!"

WHEN YOU BECOME A RESORTER!

• Join the Congress of Minnesota Resorts so you can stay informed of what is happening and associate with achievers.
• Keep your rates high enough to maintain good accommodations and facilities.
• Keep your property and equipment clean and in good condition and the grounds well-groomed. (first impressions)
• Keep good records; treat your resort as a business.
• Advertise! Use the typical advertising techniques and try new ones such as the Internet.
• Be hospitable!
• Keep in mind that you provide "mental health" with a good vacation, which is a need in any economy.
• Be active in your local resort associations. It is a tremendous opportunity to continue your education as an operator. Above all remember you are not competing with neighboring resort operators. A strong resort area serves everyone well. There is a tremendously large market of resort vacationers, go get'em and good luck!

If you would like to be sent information on listings or seek our buyer broker services, fill out our information request form.