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The uncertain future of cabins in Minnesota

As baby boomers prepare to transfer assets — including the family cabin — to the next generation, things are getting complicated.

You know it’s summer in Minnesota when it’s early on a Friday afternoon and northbound traffic on I-35 is backed up out of the Twin Cities and and both ways on I-94. Inside the cars are families, fishing poles, coolers, life jackets and other implements for a weekend at the lake.

There are an estimated 124,000 seasonal home land parcels in Minnesota, according to the Minnesota Department of Revenue, with cabins making up many of the residences in counties like Cook, Aitkin, Cass, Lake of the Woods, Hubbard and Crow Wing.

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In the coming decades, baby boomers in the U.S. are expected to transfer an estimated $30 trillion in assets to subsequent generations. For many families in Minnesota, that’ll include the family cabin.

Or will it?

In their early adulthood, millennials have developed a reputation for being more interested in experiences than ownership. They make less money, on average, than their parents did at the same age, and many are saddled with college debt.

Meanwhile, cabins, once little more than a roof over bunk beds — no electricity and no indoor plumbing — are getting more expensive to buy and maintain. What’s more, services like Airbnb and HomeAway have made it easy to rent a cabin for a few days, leaving the maintenance and tax bills to someone else.

Do cabins as we know them have a future in Minnesota?

Aging owners

One thing’s pretty sure: we’re on the precipice of a change in ownership for cabins.

The average lake home or cabin owner in Minnesota today is 68 years old — firmly in the boomer generation, according to a 2016 survey by Minnesota Lakes and Rivers Advocates. That’s up from 58 in 1999 and 62 in 2005.

That means the average cabin owner will likely age out of cabin ownership in the next couple decades.

“We are looking at the largest intergenerational transfer of land in the history of the country,” said Jeff Forester, the organization’s executive director. “What happens to that land is going to be significant.”

Many baby boomers opt to move to the cabin full time in retirement. But for an increasing number of families, selling the cabin is a way to pay end-of-life medical bills, Forester says.

For other families, the question is whether the kids and grandkids will want to inherit the property, or, if it goes up for sale, who will want to buy it.

Forester thinks about his family’s cabin, a modest log structure his great-grandfather built on an island. It’s not fancy, he says — it’s got an outhouse — but it’s beautiful. The place has hosted family members, Boy Scout troops and many friends over the years.

He was interested in keeping it up and keeping it in the family, but he’s not sure if the next generation will be. “I don’t know how we’re going to work that out,” he said.

Cabins or lake homes?

Cabins like Forester’s are increasingly rare in much of Minnesota. “What is fairly common now is that aged housing stock is bought, torn down, and because the value of the property is so high, someone will build a correspondingly high-priced home,” said Crow Wing County Administrator Tim Houle.

It’s getting to the point where Houle wouldn’t exactly call the Brainerd lakes area where he lives and works “cabin country.”

“I don’t think that is what we have, and we haven’t had it for 20 or 30 years,” he said.  “These are lake homes.”

Department of Revenue figures show the value of seasonal recreational residential homes, i.e. cabins, increasing at an even faster clip than other types of properties from 2000 to 2006. They dropped during the recession, and have since begun to increase, albeit at a slower than pre-recession pace, again.

Estimated market value percent change by property type
This chart shows percent change in the total estimated market value of the tax base in each category. 2017 numbers are preliminary.
Source: Minnesota Department of Revenue

“Over the past few decades, lake properties have greatly increased in value, making them harder and harder for the average person to obtain,” wrote Cameron Henkel, co-founder of LakePlace.com, a lake property real estate brokerage, in an email. Despite becoming more expensive, Henkel doesn’t see the dream of having a lake place going away in future generations.

These days, he said, tight supply means there’s not a lot of places available under $300,000, but the farther you get from metro areas, the more you get for your money.

That varies across the state — with more bigger homes on bigger destination lakes like Gull, Vermilion and Mille Lacs. But with lakeshore property values increasing at a fast clip, the people who can afford to buy lake homes can often afford nice ones. Property taxes for lakeshore properties, likewise, have increased with the value of the homes, making it harder for some to keep up.

That prompts the question: Will millennials, who are currently cash-strapped, even be able to afford second homes like these? If they can, will they even want them?

Ways to make it work

As time goes on, some families struggle to decide who inherits the cabin. Can one sibling or cousin buy the others out? If not, how to handle joint ownership?

Many families handle the transfer of cabin property from generation to generation by putting it in a trust.

When Kelly Asche, a research associate at the Center for Rural Policy and Development, was surveying property owners, he was shocked at how many homes property tax records showed were in trusts.

This enables multiple family owners to have a stake in the property, and reduces the hassle of property transfer by allowing it to skip the probate process, making it more feasible for multiple people to own the property and more affordable to maintain it, with costs spread out.

Asche wonders if that will increase as families look for ways to share the cost of owning a home on the lake.

There’s also the question of home-sharing sites, like Airbnb and HomeAway, which enable people to rent homes on the lake. That’s a departure from the traditional cabin ownership, where the place belongs to a family and generally isn’t in use when they aren’t there, but by allowing owners to raise some cash to cover the mortgage, maintenance and taxes it could make cabin ownership possible for some where it otherwise might not be.

Both Houle and Asche said there are a few houses listed on home sharing sites in their areas, and wonder if that will increase.

Buying a cabin

Conor and Madeline O’Phelan, both in their early 30s, bought a cabin about three years ago, before they even bought a single-family home.

Neither grew up in families that owned cabins, but they wanted a place for their friends to congregate, and for their son to grow up at the lake.

When they were in the market for a lake place, the No. 1 thing was affordability, Conor O’Phelan said. It was more a question of how many bunk beds and pull-out couches they could fit into the place than how many square feet it was.

“We do fine, but we’re not from money by any means,” Conor said.

They purchased a small place in the Hayward, Wisconsin, area from its original owners, who built it in the 1970s.

For some millennials, having experiences might mean spending money on trips instead of property. But O’Phelan puts the cabin in the category of experiences.

“We love to spend time with our friends and family, and having a cabin fit that vibe. We wanted a place that was something that we were regularly going to bring our friends to,” he said. “I think one of the things people have to balance out is what you want to do on the weekends. We like going to the same place.”