There has been a decline in the golfing industry for the last decade with the number of rounds being played decreasing.
Many of the real estate developers who planned sprawling communities around golf courses are turning away from these plans.
With fewer buyers playing golf regularly, the 1500+ golf course properties on Australia are no longer selling at the premium they once did.
This industry decline has led to some golf courses being shut and converted for other uses. While there are also some golf courses that have been fenced off and are sitting as vacant land.
This does not mean all golf courses are suffering as prestigious membership are still in high demand. If one of these courses were to be put on the market, major golf management companies and investment funds will line up to buy them.
This is due to the overall profitability of golf courses.
The problem is that most of the golf courses that are on the market will not be profitable and are not in the best locations. A lot of golf courses that have been sold in recent years were priced on multiples of potential revenue because they did not have profits which could calculate a return on investment.
Are there financing options for golf course property investments?
If you are buying a golf course, a 10% return might seem reasonable, but the truth is that many of these courses have a return of -10% at the time of sale.
According to the start up loan providers at Max Funding, this risk makes financing a challenge. They note “with this negative return, financing for these courses is almost non-existent with the financing available offering short terms or double-digit interest rates. Still, with more lending options available than ever before, there are avenues of progression for potential golf course property investors.”
This places you in a different situation compared to buying other management-intensive real estate such as an apartment complex or hotel.
With these investments, you have an expectation of growth in the surrounding area. This will increase the room rates and rentals over time to provide a good ROI. While the current rates for these properties might be below market, raising them to market will net a good return.
When looking at the golfing industry though, you cannot realistically raise the green fees as easily. This is due to the overall decline in demand for course time. This is a decline that is set to continue in most cases.
How can you turn an unprofitable golf course into a profitable one?
If you want to buy an unprofitable golf course and turn it into a profitable one, there are a lot of major changes that need to occur.
Some of these changes include:
✔︎ Management will be able to take care of some steps toward profitability such as opening a private club to the public to a limited degree.
✔︎ Remodelling any outdated facilities and reconfiguring the curse to improve the views are other steps that can be taken.
✔︎ Decreasing the water used through correct landscaping will also lower overall costs.
✔︎ The marketing of the course can also be adjusted to target groups such as university students, corporate events, bachelor parties and minor league golf tours.
The problem is that making these changes on some courses will be a challenge and will not help the profitability of the course. In some cases, the only way to make a profit from the purchase is to redevelop the land for other uses that are not golf-related.
The number of holes on the course can be reduced to 18 or 9 or completely removed if you plan to exit the golf industry. If you have a normal course, it can be changed to a par 3 executive course.
The land that you now have can also be developed into apartments, housing or a hotel.
You can also sell off some of the open land to a residential developer could change the economics of the course. The golf course might only have $50K per annum after a $1 million investment providing a 5% return. If you are able to sell $300K work of land without affecting any of the course operations, the return on investment will increase to approximately 7.1%.
Is the land more valuable without a golf course?
Full conversions where you eliminate the course completely can be hard as homeowners who border the course may have a problem with this.
You will also need to deal with zoning laws and conversion moratoriums which requires certain skills. There are some areas where you are forced to offer to sell to the neighbourhood association before you can sell to developers.
To mitigate some of the anger your neighbours have, you could add a greenbelt or a walking path for them instead of the golf course.
According to custom home builders All Image Architects, “residential use is the most obvious conversion use for a golf course, but you can also consider agriculture, commercial officers, conservation easements, driving ranges, concert venues and more.”
Of course, you can also leave the land fallow for land banking.
Some other income sources linked to the land include selling billboards, mineral rights and leasing the land for fishing or hunting.