2002: Golfweek Preferred - Rich find the need to rent their retreats
By Ron Berler
The townhouse, a historic, 4,000-square-foot, wood-frame beauty that overlooks the harbor on Massachusetts’ Nantucket Island, doesn’t have a “For Rent” sign on the front lawn. Renting out the home wasn’t what Mark Bergschneider had in mind when he purchased it. But it might as well have been.
Two years ago, Bergschneider, 50, who runs his own investment firm, bought the $2 million property as a second home, a getaway from his primary residence in Easton, Conn. He chose Nantucket because he has vacationed there since childhood. And this house, built in 1831, seemed perfect: five bedrooms, four fireplaces, a garden, that fabulous view.
But almost immediately he began renting it out during prime vacation periods such as the summer season, Christmas and New Year’s. His customers, for the most part, are business associates and friends. “I do it principally to defray costs,” he says. “The 6 to 8 weeks I rent it pays for about half my annual mortgage.”
Owners of luxury second homes do not fit the typical profile of landlords. But for a variety of reasons, even the wealthy are renting out their vacation retreats. Some, like Bergschneider, do it to defer fixed costs, such as mortgage, taxes and upkeep. Others, like David Rossiter, 37, a Utah businessman who recently sold a second home on the Hawaiian island of Kauai, rent out homes because they use their properties so infrequently that keeping them strictly as residences makes no financial sense.
There is a terrific upside to renting your luxury second home. In these turbulent financial times, with the Dow as unstable as the waves that break off Bergschneider’s beloved Nantucket Island, real estate remains a solid investment. Rob McGrath, 42, a real estate investor from Westport, Conn., purchased a three-bedroom, three-bathroom Telluride hideaway in 1995 for $380,000; he estimates its current value at $800,000 and says it appreciates perhaps $20,000 to $30,000 a year. He rents the condo out roughly 110 nights per year, netting about $220 per night, and comes within $5,000 of earning his mortgage and upkeep costs for the year.
But there are downsides to this practice, too. Bergschneider’s favorite season in Nantucket is summer, but his house is occupied by renters from mid-July to the end of August. His second-favorite time is Christmas, but that’s now out for him as well.
For Rossiter, his house no longer felt entirely like home. The 3,800-square-foot residence had been his dream palace. Done in Japanese-style architecture, it sits near the sixth tee of Makai Golf Club’s Woods Course and features high ceilings; three bedroom suites, each with its own bathroom; a kitchen with granite countertops; and mahogany and teak furniture, all built around an outdoor atrium with a Jacuzzi and a 900-square-foot garden. Like Bergschneider, he knew his renters personally, but he still felt compelled to protect his more valuable belongings.
“I worried about my Shoji screens and my suede couches,” Rossiter said. “I worried about my furniture, some of which was handmade in Indonesia.”
Bergschneider would enter his house, look around expectantly, and remember that some of his favorite artwork and furniture was in storage.
Peter Palmisano, 54, a San Francisco real estate developer who owns a $2.5 million second property in St. Helena, Calif., in the state’s lush Napa Valley, has different concerns. There are two homes on Palmisano’s six-acre vacation estate: a main residence and a Nantucket-style, three-bedroom, two-bath wood-frame country guest house. He rents only the guest house, and only when he and his family are away.
“The downside,” he said, “is when you walk into the guest house before the maids have cleaned it. Renters treat your home like a hotel room; many of them don’t respect your belongings. We’ve found favorite cookbooks open on the kitchen counter, soaked through with coffee.”
Some would-be high-end landlords have decided that renting out their homes isn’t worth the trouble. Two years ago, Jerry Maglio, 55, sold his $400,000 mountain chalet abutting Eagle-Vail Golf Club in Vail, Colo., and purchased a membership in McGrath’s 3-year-old fractional home owner’s company, Private Retreats. Maglio had invested so much of himself and his money in his second home, he said, that he felt obligated to spend all his vacation time there.
“We wanted more variety in our destinations and wanted out of the hassle of ownership,” he explained.
McGrath’s company owns elegant homes in 26 vacation destinations, among them St. Andrews, Cabo San Lucas, Telluride and Hilton Head Island, S.C. Currently, his club has 160 members (the maximum is set at 400), each of whom pays an upfront fee of $175,000, plus annual dues of $6,750, for access to any of the properties at any time. (If there is a conflict, the company will procure a similar luxury property nearby.) In addition, there is a $150 daily fee for cleaning and amenities – including the use of luxury cars, private planes and tee times at exclusive golf clubs. “It’s a lot cheaper than buying that second home,” McGrath said.
In these hard times, even the rich need to count their pennies.