With inflation continuing to be a concern, savvy investors are looking for ways to protect their portfolios. Real estate has traditionally been an effective hedge against inflation, which is one reason why there is demand to buy into this lucrative market.
One real estate investment that is worth investigating is golf course properties. Mortgage originators and brokers should understand the benefits of these deals so they can correctly evaluate the profitability of such deals and advise their clients accordingly.
Golf courses are a solid investment choice because, like other types of real estate, these properties appreciate over time. According to the National Recreation and Park Association, properties that view a golf course, even if they are not part of a course community, have 15% to 30% higher property values. They also provide stable cash flow from long-term recurring income of memberships, green fees and other revenue opportunities.
The National Golf Foundation reports that the last four years have been historically strong for the U.S. golf industry. The foundation estimates that in 2023 26.6 million people played on a golf course and 6 million people either tried golf for the first time or returned to the game after not playing for at least one year.
What’s more, today’s golfers are young — the sport’s biggest age group is made up of young adults ages 18 to 34. These kinds of trends promise to keep golf courses in the proverbial green long into the future, but that is not the only way golf courses make a profit.
Revenue streams
Golf courses can feature restaurants and bars where food and beverages are sold. They also offer other revenue streams, such as golfing lessons, retail sales of golf attire and equipment, golf cart and equipment rentals and even branded merchandise for the golf course itself.
Some golf courses present further opportunities for real-estate development. Adjacent properties may be developed and sold or leased for substantial additional revenue.
While golf clubs have long been profitable due to these myriad opportunities, they are even more so today. Statistics from the Federal Reserve Bank of St. Louis show that total profits at golf courses and country clubs — a number that combines the receipts from all these varied revenue streams — have jumped since 2020.
Inflation hedge
Investing in golf courses is a particularly good idea now since they act as a hedge against inflation. Real estate investments — especially golf courses — offer an attractive financial stability. They are real, physical assets that tend to retain their value and appreciate over time.
There is also a long-standing historical relationship between inflation and real estate values. As inflation rises, so does the value of real estate. Meanwhile, if the owner took out a mortgage to purchase the property, the amount of debt does not change, meaning the owner now effectively owns a larger share of the property.
Another strong point in favor of investing in golf courses is that, during inflationary times, golf course operators can raise their prices. Everything from memberships and fees to concessions and services can be adjusted to maintain profitability.
Historical data proves this proposition. The U.S. Bureau of Labor Statistics shows that golf courses have successfully and steadily raised membership dues and fees for more than a decade. Similarly, the receipts from golf course admission fees, equipment rentals and concessions show notable increases in recent years.
Potential downsides
Anyone seriously considering investing in real estate should also weigh the potential downsides, however. When it comes to golf courses, there are a few possible problems to be aware of, including high maintenance costs.
According to Golf.com, annual maintenance fees vary considerably, but average more than $800,000. Sometimes, owning a golf course is likened to owning a farm since they constitute large tracts of land that must be painstakingly groomed. This necessarily entails expenses such as equipment, fertilizer, water usage, trees and plants. That doesn’t even include the staff which typically ranges between 12 to 18 maintenance workers on publicly accessible courses.
Golf is a seasonal sport, which means revenues can vary. The profits during peak months need to be sufficient to offset the more fallow periods. Market pressures can also negatively impact golf courses. For instance, daily use can drop when the surrounding community is experiencing economic hardship.
Fuel costs can also factor in, especially if your golf course is farther away from a population center. When gas prices are high, maintenance prices rise, but fewer people will be willing to drive a long distance to golf on your course.
Right investment
Given these challenges, it is necessary to vet deals carefully. Here are some issues that commercial brokers need to tell investors when looking for the right golf courses in which to purchase. Like any real estate investment, location is one of the most important factors.
Ideally, you should identify areas where real estate appreciates at a rapid rate. The best golf courses are typically located in communities with an affluent population or that attract a lot of tourists, as local historic landmarks can have a beneficial effect on property values.
If you’re looking at a golf course in a remote area, then buyer beware. Accessibility is vital to getting golfers to play on a course, and even more important when trying to get them to return. So ensure that no physical barriers would hinder people from arriving at the property. Keep in mind that these might not be obvious on a map or listing so you or your client should visit the property to gauge its accessibility and overall suitability.
Similarly, if the surrounding area is in economic decline, then the golf course probably is not a good bet. Realtor.com, for instance, offers a variety of interactive maps that can help an investor learn a lot about the value of area properties and whether they are appreciating or depreciating. The U.S. Bureau of Economic Analysis, also offers plenty of resources for understanding the economic outlook of various geographic locations, and the U.S. Census Bureau offers a wealth of statistical information about states, counties, cities and towns throughout the country.
Good golf courses to invest in should also offer amenities such as clubhouses, practice facilities, locker rooms and driving ranges. If a golf course doesn’t have these, make sure to factor in how much the necessary new developments would cost because those numbers can affect the entire viability of the deal. Finally, prospective investors and dealmakers should also consider the climate. How many days, on average, can you expect to attract players? How many days should you expect low attendance? Don’t forget to reference flooding maps to see if the area that your client would be purchasing is prone to this problem.
● ● ●
Knowing the potential risks and rewards of investing in golf course properties allows investors to make better decisions. It also enables real estate agents, mortgage professionals and financial advisers to better guide clients and structure deals. Investing in a golf course property is a long-term commitment. While these assets promise diverse, lucrative revenue streams, they can also expose investors to risk, which is why doing your due diligence is indispensable.
