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| Best Practices: Property |
Compound Interest
Elizabeth Wine
06/01/2005
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When Peter Bickford and Greg McCarthy were shopping for a home in East
Hampton, N.Y., the tony Long Island enclave favored by Manhattanites, they fell
in love with a 1750 Cape Cod-style house with original details. After buying it,
as well as an adjacent plot of land to ensure their privacy, they began to
consider putting a structure on the empty lot. Their aesthetic demanded a
similarly older building to complement the Cape Cod.
 | | (Illustration by Kevin Spaulding.) |
So they did what any
tasteful owners would do—they found a preservationist and settled in to wait for
the right structure. Finding just such a building took a full year and required
disassembling a barn in Ontario, Canada, moving it to their Long Island lot and
rebuilding it on the spot.
Bickford admits that before the end of the
construction, he had lost track of how many checks he had written. “Was it the
most economic thing we could have done? Maybe not. Maybe the aesthetic drove us
to spend more,” he concedes. The expense of buying and transporting a
century-old barn hundreds of miles ran to the mid-five figures, while rebuilding
and remodeling the structure cost nearly $1 million. They also worked for two
years to obtain the proper wetlands permits to build on the empty lot and
complete seemingly endless paperwork, while paying well over $5,000 in fees to
facilitators to navigate the local regulations.
| Owners of Two combined properties in the Hamptons can often sell their
compound for anywhere from 150 to 300 percent of their original,
separate sales prices. |
Believe it or not, this
gamble is beginning to look like a savvy financial move. In 1994 Bickford and
McCarthy paid $310,000 for the 1.5 acres with the old house, and $129,000 for
the adjacent 1.5-acre parcel. Each has its own private driveway, a bonus in the
Hamptons, where seclusion commands top dollar. Today the Cape Cod alone is
insured for $800,000, and Bickford says the property it sits on is worth more.
Then there is the guesthouse itself, boasting an airy 24-by-24-foot great room,
along with two bedrooms, two bathrooms and a full kitchen.
“I always
considered it a good investment because it was a good location, and the
separateness of the properties meant I could rent one and cover my overhead if I
had to,” Bickford reflects. “In the East Hampton market, a summer rental of a
house with a pool could pull in $40,000.”
Subdivide and Conquer
Turning a home into a compound is not as simple as
calling an architect and contractor and telling them to start building. Zoning
rules can be difficult to navigate, and depending on how extravagant one’s
tastes are, costs can quickly skyrocket. But families across the country are
increasingly creating their own Kennebunkports, driven as much by the chance to
increase their home’s value by up to 300 percent as by the emotional
satisfaction of being master of their own manor.
Bickford and McCarthy’s
ideas may seem idiosyncratic, but one aspect of their plan is typical of many
owners who want to build a guesthouse, particularly those in the Hamptons.
Zoning rules in East Hampton restrict new building to one dwelling per
residential parcel of land. To have a guesthouse, you must make a choice: either
buy a separate lot, as Bickford and McCarthy did, or buy an older estate that
already has a separate guesthouse grandfathered in.
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