A Three-Year Ride
On a Resort Caboose

Investor: Tom Fox, 38, is a sales executive for MCI Inc. who lives in Roselle, Ill., a suburb of Chicago. Since 1993, he has been investing in Florida land and Midwest properties under $100,000 and has about a dozen residential and small commercial properties that he leases out. "I dabbled in the stock market and wasn't doing so well," he says. "Real estate was a tangible asset."

The property: Mr. Fox owns a retrofitted railroad caboose in a "condo-tel" development in Lake Geneva, Wis., a popular summer resort outside Chicago. In a condo-tel community, residences are rented out by their owners on a short-term basis, like hotel rooms. The caboose has an open floor plan and includes a kitchenette, bedroom, common area, and bathroom with a shower, in under 300 square feet. With an antique bed and pullout sofa, it can accommodate up to four guests. The development, called End of the Line Vacation Station, is home to 42 other cabooses and has an outdoor pool.

Purchase price: $26,000 in 2002. Mr. Fox bought the caboose outright with cash from the sale of land in Florida.

Additional investment: $2,000. Mr. Fox furnished the caboose with antiques and vintage décor, including old railroad postcards he found on eBay. He also painted, retiled and replaced carpeting.

Strategy: Mr. Fox said his plan was to buy and hold, as well as collect rental income ($89 to $119 per night, depending on season). He also has used the caboose for vacations.

The pitfalls: The rental-management company that the development's homeowner's association contracted with quit its contract last year. (Mr. Fox had been paying up to 50% per nightly booking for the on-site management.) When the company left, Mr. Fox decided to sell because he didn't want to manage rentals and cleaning remotely, nor did he want to wait for the association to find a new management firm.

The payoff: potentially $18,150, if Mr. Fox gets his asking price of $49,900, after subtracting the original price he paid ($26,000), three years of association dues and assessments ($4,800) and three years of taxes ($1,650) and adding to that figure the net proceeds ($700) from rental income after deducting management-company fees. Not included in the calculations are the $2,000 he spent on remodeling and furnishings.

Next time: Mr. Fox says if he invests in another "condo-tel," he will work only with a property that has a mandatory rental program. This homeowner's association didn't require all owners to use the rental-management company, which meant those who used it paid hefty fees, which cut into his profit. He'll also think twice before selling properties to acquire other assets, he says. To finance this and other deals in Illinois, he sold five Florida lots for less than $100,000. If he had held the lots, they'd have a value of $500,000 now, he estimates. The properties he bought with the proceeds from these sales generated only a fraction of the profit he would have realized had he held on to them, he says.

Do you think this was a good investment? Share your thoughts on this property.

-- Ms. Hodges is a free-lance writer in Seattle.

Email your comments to rjeditor@dowjones.com.