Spec Pick: Bridgehampton B&B Offered at $2.3M

All Photos | Town & Country

24 Lumber Lane, Bridgehampton. We think it’s a real sleeper.

This Pam Walsh Exclusive (of Town & Country) is modestly priced at $2.3M.

Here’s a quick review of this Bed & Breakfast for sale in the heart of Bridgehampton within steps of the Hampton Jitney, LIRR, shops and restaurants.

It’s comprised of a 4 Bed / 4 Bath Main structure and a 4-unit Carriage House sitting on .70 of an acre, which is considered large for a village property.

The house has been extremely well maintained, and appears to be in great shape. Basically, it needs a few cosmetic upgrades like paint and a thorough cleaning. For all intents and purposes the property is good to go.

Homes like this are generally in great shape because a) they were built by the best craftsmen of their time  b) their clients were some of wealthiest families and c) over the years the homes were meticulously cared for as they passed from one generation to the next.

As in this case, the Old Mulford House has a great history. Built in 1873 for the popular Dr Edger Mulford where he began a family medical practice. We’re guessing there must have been a building boom during this time, with the expansion of the railroad that brought affluent tourists out to the beaches, and to the private clubs, as well as exporting local fish and produce back to NYC.

In 1990 the new owners began operating the home and carriage house as a B&B, and since 2011 it has been operating as a boarding house. The good news, the home & carriage house is grandfathered as an established rental property and can be rented in any number of configurations.

Editor's Note

There are some semantics between a B&B vs Boarding House.

A B&B suggests there is food included in the price of lodging, and therefore subject to Suffolk County Health Department inspections, the same as a restaurant and requires a special operating permit.

Operating as a boarding house does not include food and does not require health inspections. However, a B&B conjures up a romantic image of bedrooms with 4 poster beds with luxurious bedding’s, and the smell of baking breads or cedar logs crackling in the fireplace. The word Boarding House casts a vision of a Youth Hostel, Pensione, or flop-house. But …

Rest assured, in the Hamptons there is absolutely no difference except the breakfast, and unscheduled visits from the inspectors who work for Suffolk County Health Department.

Typically real estate agents market B&B’s or Boarding Houses the same way they would a normal home with one slight difference. They try to impress upon the buyer the many advantages of owning a home that provides supplemental income that might pay the mortgage and any other living expense.

But who the heck buys a B&B?

The business model assumes you need a real “people person” that enjoys doing laundry, making beds, scrubbing toilets and tinkering around the house all day while waiting up at night for guests to arrive or cancel because of a change in the weather.

If we understand correctly, then you need a buyer who is either certifiably crazy, or had a dream of retiring in the Hamptons so they could clean toilets and wait up for guests to arrive in the middle of the night. In either case you need someone “odd”.

However, at this modest price point, perfect location, and a rental income survey, we’re thinking the buyer doesn’t have to be crazy. Or maybe crazy not to consider this property as a great investment vehicle.

Lets see how this all adds up.

Here are the income & expense numbers.

Annual Operating Expense:

$5,365 Property Tax . This is extremely low for the property value as well as the lot size and square feet of the structure size(s).

$6,850 Property insurance cost with a $1m+ liability rider (still relatively inexpensive).

$10,200 Estimated utility costs, that includes heating oil, electric, cable & internet services.

$22,415.00 Total annual operating expense.

Estimated INCOME report:

There are several strategies in terms of a Chinese buffet of rental possibilities.

You can rent by the night, the week, the month, or  by the season and / or  a combination of either  …

Or you can rent on a year round basis.  Agents would argue the highest and best  use for the greatest return is the best approach. However, a nightly rental is the most labor intense.

Here are a few rental samples to consider.

Rental Example (Click Tabs)

PLAN A: YEAR-ROUND RENTALPLAN B: BOARDINGHOUSEPLAN C: HYBRID APPROACH

Room 1 — Bedroom with fireplace, bathroom, sitting room and large outdoor deck.  $1,665 /month)  Annual estimated income:  $20,000

Room 2 — Bedroom with fireplace and bathroom.  ($1,350/ month) estimated annual income:  $16,000

Room 3 — Bedroom with fireplace, bathroom. ($1,100/month) estimated annual income:  $13,000

Room 4 — Inn Keepers quarters. ($1,000/month) estimated annual income: $12,000

Carriage House: 4 units) $2,500 per month or $30K .

Total income : $7,615 per month or $91,380 per year.

$91,380 Gross rental income.
$22,415 Minus operating expense.
$68,956 Net rental income

Using a Boardinghouse example or a Nightly Rental approach (potentially the most difficult to execute.)

Boarding house Rates (Approximate)

Main House:

Suite #1 (with deck) May – September $600/night
October – April $350/night

Suite #2 (middle room) May – September $500/night
October – April $250/night

Suite #3 (smallest room) May – September  $400/night
October – April $200/night

Suite #4 (WC room) May – September  $600/night
October – April $350/night

Suite #5 (closest to kitchen) May – September  $550/night
October – April $300/night

Carriage House:

Suite #6 (Cottage) May – September $700/night
October – April $375/night

Suite #7 (Tack Room) May – September $400/night
October – April $200/night

So, an estimated revenue generated, based on 22 weekends (May – September only), and a 2-night weekend minimum stay would be as follows:
Suite #1:  $ 26,400
Suite #2: $ 22,000
Suite #3: $ 17,600
Suite #4: $ 26,400
Suite #5: $ 24,200
Suite #6: $ 30,800
Suite #7: $ 17,600

Income generated: $165,000
$165,000 Gross Income!

$22,415 annual operating costs
$35,000 support staff/annual housekeeping costs
$107,585 net rental income

Using a hybrid approach: Renting rooms on a monthly basis, assuming seasonal rates  & off-season discount rates.

Suite #1 (with deck) MD – LD $10,000
October – April  $1,500/month

Suite #2 (middle room) MD – LD $ 8,500
October – April $  1,300/month

Suite #3 (smallest room)   MD – LD $ 7,000
October – April $  1,100/month

Suite #4 (WC room) MD – LD $ 10,000
October – April $1,500/month

Suite #5 (closest to kitchen) MD – LD $ 9,000
October – April $1,400/month

Carriage House:

Suite #6 (Cottage) MD – LD $ 12,000
October – April $ 1,800/month

Suite #7 (Tack Room) MD – LD $  7,000
October – April $ 1,100/month

If you were to rent out each of the 7 suites year round, estimated income would be $141,000.

$141,000 Gross rental revenue
$22,415 annual operating costs
$15,000 maintenance cost/tenement services
$103,585 net rental revenue

As you can see, there’s plenty of possibilities. Bridgehampton is a popular destination because it’s central to everything. This can only improve your odds of maximum occupancy.

However, if this were purely a numbers game, this property would have been long sold. It’s a unique property and will require unique marketing.

As we mentioned, most agents hope for that one Odd Ball or special individual. Instead, let’s try to think outside the box.

We assume each agency has an in-house commercial expert. Commercial agents think and talk differently. They use an entirely different vocabulary, like “Cap-rates” and “1031 exchanges”.

They may know more than you about commercial financing models, like special SBA loans for small businesses. They can also point out the best conventional lending solution to leverage assets, reduce tax liabilities and payroll expenses with employee housing credits.

Most importantly they can speed dial commercial investors faster than you can say “why didn’t I think of that?”

One of the benefits of partnering with a commercial agent is having access to their database and special ability to target commercial buyers and tenants.

Knowing or having access to a list of employers who happen to have staff housing issues is a helpful start.

Finding a seasoned commercial investor and convincing them you can rent the place for top dollar is another part of solving the buyer problem.

It also helps to be connected with a list of wealth managers and facilitators that specialize in targeting 1031 exchanges. This property is ideal for an investor looking to burn/use their 1031 exchange credit for a like-kind commercial property so long as they think the property will perform.

Let’s look out towards the horizon 10, 15 years from now..

Our community is fast approaching starter home prices of $600K, and the average 4000 square foot 5 bed 6 bath house is now over $3.650M.

It’s a scary reality but we’re quickly creating a market that can’t sustain the housing needs of its local service staff population.

In 10 years, unless the restaurants switch to vending machines.. where will their wait or kitchen staff live?

Perhaps they’ll invent a yard Roomba for the Estate Manager so he can maintain the property by himself. Maybe a Self-Service Golf Club, where members play golf, then clean up and put everything away when they’re done.

This might sound a little nutty today, but if the current business owner doesn’t lock in staff housing now or hold a long term lease for staff housing, their business may suffer the consequences.

Ask the Devon Yacht Club in Amagansett. Each year members would question the high turn over rate for their service staff. Back in 2001, the Board of Directors got smart and took matters into their own hands by purchasing a 3-unit apartment building for staff.

Initially the members balked at the re-assessment, which covered the cost of a cash purchase price. However, ask them how they feel today about their decision to own staff housing. They’ve improved their retention rate, they’ve stabilized staffing and payroll, and most importantly the membership won’t have any future surprises when they’re forced to pay higher wages to offset housing or pay inducements to attract select personnel.

Finding the right type of real estate investor or navigating your way through an assortment of business owners (who have a need for staff housing) can be a pain-staking process.

If you need special marketing support, partner up with a commercial agent that has access to such information, or build your own list. Lastly, you could also seek help from an outside consulting source like Hamptons Real Estate Partners.

Good luck, all this talk about Beds and Boarding Houses has tired us out.

Categories Spec Picks

Founded by Dan Gualtieri & Noel Roberts. The editors deliver a unique blend of hard news, incisive commentary, detailed market reports, and exclusive interviews. When promising opportunities hit the market, we’re there to tell the inside story. Contact us if you'd like to submit a story or discuss a project.

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