The lake club

Desirability" - The most common word on Realtors’ lips when lake homes are mentioned. It’s also the driving force behind nearly three decades of escalating lake home prices in a property sector marked by a finite supply.

And while good for property owners and Realtors, the burgeoning desire to buy a chunk of Waukesha County’s two dozen northwestern lakes known as the Lake Country may have effectively squeezed out the average Joe.

"Lakes used to be for the average person, but now they can’t afford it," says Mike Grota, of Grota Appraisals. Menomonee Falls-based Grota has been in the business 22 years and is the official assessor for Okauchee, Lac La Belle and Fowler lakes.

Even market veterans are stunned at real estate appreciation since prices took off during the ’80s.

"Every year I say it can’t go any higher," says Jim Siepmann, third generation owner of the Waukesha land development firm Siepmann Realty Corp.

Yet every year it does.

In fact, lake property values have doubled every seven years, according to MLS research conducted by Cathy Liebert, lake home specialist with Realty Executives. That astronomical spike in prices has made Lake Country the stomping grounds of the financial elite, willing and able to pay ever-higher prices to be a member of the lake club.

Why does the skyward price spiral continue unabated? Beyond the obvious limited supply of waterfront property, there are two simple reasons: One, the desire to have a vacation in your backyard, and two, lake property is, hands down, one of the best investments around.

With annual appreciation of between 10 and 15 percent, "Lake properties have been a better investment vehicle than the stock market for the last 15 years," says Leyton Schultz, owner of Schultz Appraisal Agency. In the industry for over 40 years, Hartland-based Schultz is assessor for some of the top-tier lakes including Pine, Beaver and North.

The decision to postpone the sale of his family’s Victorian-style home on the east shore of Pewaukee Lake’s coveted Rocky Point was a windfall for Milwaukee businessman Kurt Van Dyke.

In 2001 he put the home on the market for nearly $680,000, got a matching offer, and only later — due to family opposition — decided against the sale. Then in November last year he re-listed the 1,752-square-foot-home perched on a 1.5 acre parcel of land, and based on current market prices, expects to have no problem selling it for over $1.15 million, 64 percent higher than a 2001 assessment. "It turned out to be one of the best decisions we ever made," says Van Dyke.

Savvy stock market investors, corporate executives and successful entrepreneurs like Van Dyke make up the new lake resident roster. Some of these glee buyers unwittingly accelerate values as they head to the buying table short on time, thin on market research, but pockets stuffed with cash. "There are less deals than there ever were because of the proliferation of wealth," says Grota, who does assessment work for 47 municipalities in Southeastern Wisconsin.

In addition, out-of-state buyers, used to getting less bang for their buck, also play a role. "We’ve always had the Chicago effect and historically they’re blamed for accelerating our values," Grota said.

Some of them are not picky, with cash-rich baby boomers — often more concerned about the house than the land — will scoop up a property even if the frontage is non-swimmable. They then knock down perfectly good homes to build personal castles.

"Only 10-15 years ago people would tolerate jerry-rigged properties," says Janet Matt, lake property specialist with Nashotah-based Matt & Associates. "Then, land was king."

Market watchers agree those investors are missing the point: "The value is in the dirt," says Realty Executives’ Liebert.

Putting down roots on waterfront property may prove to be one of the best investments around.

In 1969 UW-Waukesha accounting professor Carol Fischer and her husband dropped $37,500 to purchase a small property on Okauchee Lake. Then in 1981 they scooped up a burned-down structure next door for $75,000, spending $112,500 in total for the pair. In 1984 they sold both parcels for a combined $307,000, which allowed them to move up to the next tier, Oconomowoc Lake. In 2004 the $75,000 property resold for around $635,000.

Fischer is glad they bought when they did and believes today Oconomowoc Lake is pretty much beyond the reach of ordinary wage workers.

So how limited are the opportunities and what’s the cost of joining this exclusive club of lake dwellers?

Currently realty listing service records shows there are 740 active properties in Lake Country communities. The median price is approximately $500,000 with house sizes averaging between 3,000 and 4,500 square feet, according to research from Bill Minett, owner of The Real Estate Company Lake & Country Inc in Oconomowoc.

Keen to join the lake living set, residents of affluent area suburbs often get "sticker shock" when they see the prices.

"They may have a beautiful home in the $300,000 to $500,000 price range in Brookfield and they come out here and find that gets them a cottage that the wife wouldn’t want to live in," says Thomas Matt, broker and licensed appraiser with Matt & Associates. Even the most modest home on secluded Pine Lake will cost a cool $1 million.

And even if you can muster up the cash to make a bid for choice lake property, roadblocks are not uncommon on cream-of-the-crop lakes like Oconomowoc, Pine, North and Beaver.

Prime properties are known to stay within small groups of individuals or families that seek to monitor who gets in, or look to steer future direction of the property by weeding out the buyer with the best succession plan.

"You almost have to know somebody to get in," says Grota.

Yet it’s hard to blame them. Several lakes are notorious for noisy parties and boat traffic, and still others crowd in homes so tight the result is an unsightly barrage of old and new.

Identifying buyers who actually care about the lake environment may be the priority, as lake stewardship becomes a hot topic in Lake Country.

"New people come in, build huge houses and think they own the lakes," says Liebert, a Lake Country resident for 27 years and now living on Beaver Lake.

Realtors too make a concerted effort to keep the sweet parcels under wraps for the most discerning — and wealthy — clients.

Once in the club, membership fees can be frightening.

Besides upkeep, taxes on a $1 million home can top $24,000 a year, and with a 30-year mortgage at around 5.75 percent, add to that (assuming 20 percent down) $4,668 for principal and interest, $1,200 monthly in hazard insurance, for a whopping monthly payment of $7,868, according to Associated Bank. Actual taxes would vary according to the municipality.

In the end, a decision on whether to reside on water may involve weighing the desire to live on the lake versus the costs.

"For now people are willing to pay those numbers," says assessor Schultz.

Ironically, should prices go south, homeowners with the highest property values could carry the greatest risk in times of market fluctuation.

"It’s safe to assume that lower-priced properties have more potential buyers, and therefore the greatest risk may be at the top of the market," says Grota.

He forecasts in five to 10 years there may be a softening of prices after decades of appreciation. That should come as no real surprise since in real estate, like all other markets, nothing lasts forever.

"Real estate is cyclical and property values can go the other direction," Schultz says.

What are people saying about mortgages today:

Rates on 30-year mortgages edged down last week to a seven-month low. Mortgage-giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages fell to 6.3 percent, down slightly from 6.31 percent two weeks ago. It put rates at the lowest level since they were at 6.24 percent the first week of March.

Bank of Hawaii, Central Pacific Bank, Territorial Savings Bank and Wells Fargo Home Mortgages all cut their 30-year mortgage rates to 5.75 percent this week.

Most people think of a mortgage as a means to an end. After all, you buy a house, not a home loan. But a mortgage is much more than the path to homeownership. It is a financial instrument that must be managed, just like any other financial investment.