I have one and here's my story
We bought our 'condo-hotel' unit in 1998. Didn't even realize we had bought one until we went to refinance it a few years after we bought it (owner financing got us that far). We thought we were buying a condo.
I found out, from the bank, that these 'units' are classified very differently by lenders (versus a 'regular' condo). It's because there is a front desk in the building to handle rentals. Yep - the front desk makes our building a 'condo-tel'.
Purchase price was $72,900. I put down $10K from another real estate investment sale (but did not do a Starker Exchange - bad timing). Owner carried the rest at 8% interest. Balloon in 3 years. No closing costs or points. Just the filing fees (minimal) and escrow service fees.
We have a two bedroom condo. Rents have been between $11,500 and $15,000/year (9/11 really put a snag into the market and it took a few years but we've now climbed out). Costs (in 1998, 1999, 2000) were running about $850/month so our profit in the beginning (before depreciation on Schedule E) was between $1K and $2K each year.
There are 64 units in the building - one and two bedroom units. Every unit pays the same m/f regardless of which size unit is owned. M/fs were at $228/month when we bought (turns out this was too low but was 'corrected' by special assessments periodically).
When we refinanced (in 2002?), we took out $90K (so I got my $10K initial investment back - right?). Interest currently at 5.865% and due to ratchet in 2009.
The owners in this building have a really nice set-up regarding rentals. I am SURE we would not have bought here had the situation been that you MUST be in the rental pool.
We are free to do our own rentals, have the front desk handle the rentals, have an outside company handle the rentals or some combination of all three.
There's more. Even if we do our own rentals, the front desk handles handing out the keys and getting them back. They also do the cleaning for us (for a fee of course) unless we tell them someone else will do the cleaning.
They also handle the parking lot by handing out parking passes (so all renters are 'required' to check-in at the front desk anyway!).
We have TWO management companies in the building. One handles the building - just like you'd have with a 'regular' condo set-up. The other management company handles just the rentals. They pay rent on the office space (has not always been the case) to the condo association. They are the eyes and ears on what is going on at the building and can report when there are problems (lights not working) to the building management.
My r.e. taxes in 1998 were $1600. Due to the drastic upsurge in the real estate market, those have risen to over $5,000 for 2006. YIKES! The county tax appraiser says our place is worth $253,000. Part of this hike is that several of the units in our building have sold for over $400K at the top of the bubble (it has since cooled a bit). Certainly, I can't charge more than the rental market will allow (or I'd be sitting vacant). Rents have not kept up with costs. Other than the taxes, the m/fs have gone to $373 month and this is with 'lowered reserves'.
The rental management gets paid through commissions (35%) on rentals they book plus cleaning fees and maintenance requested by the unit owners for maintenance inside their units. MOST of the unit owners use the services of the rental company - at least to some degree. I'm in their rental pool but because I do most of my own rentals (advertising costs me about $400/year plus my time for paperwork) they don't make much money off of me (cleaning fees mostly plus I refer people to them if my unit is booked so that counts for something). That means that the rent I collect on my unit is mostly mine. If the rental company did the same 'volume' on my unit as I do, I'd net about 30% less (they charge more for each rental) after they took their commissions.
M/Fs cover all the common areas. Pool (heated), hot tub, lawn, elevators, hallways lighting, trash hauling, water, sewer, cable and general maintenance and cleaning. Fee to management company in there to 'coordinate' all the vendors (who would do it otherwise?). Reserves cover common area furniture, pool furniture and all the components related to the building (roof, exterior painting & repair (stucco), parking lot, common area a/c, storage units (not used by unit owners).
We've been hit with some hurricane assessments over the years - the highest one being $3,000 to cover the deductible on the insurance policy. Those cut into your bottom line too.
So ... the r.e. taxes are taking a huge chunk out of what would be profits (but those are based on the 'value' of the property). M/fs have risen (but so have costs to get things done so it's mostly valid). My mortgage payment remains the same.
I've gotten my initial investment (and a few extra bucks) back with the refinance but in the last few years I've had to kick in a bit to cover the 'extra' taxes I get to pay because the value has gone up. And don't forget the hurricane assessments!
But - I OWN a place on the beach and I 'have to' visit it at least twice a year for 'maintenance' and to check up on the place (so I get to write off mileage to/from and expenses along the way). Cool.
I stopped keeping track of my ROI a few years ago. I already own the condo so I don't have to decide if it's making money or not (like you would if you were looking to buy it) and, like a timeshare, you have to pay the yearly costs no matter what. I'll sell it some day soon (so I can cash in on a long term investment!) and take the money to the bank (or put it into some other real estate deal).
The point of this story? Each building has a different set-up. The building where I own is remarkable as to ease of use by the owners - and the flexibility too. I'm sure that if more of the owners (about 1/8 of us do the bulk of our own rentals or don't allow rentals) decided to handle their own renting, then the front desk wouldn't make enough money to make it 'worth it' to them to stay. It's all a balance.
I realize that some condo-tel situations are 'yougottabekiddingme!'. And some go so far as it make YOU pay the commissions the rental company would have made on the time you use (ridiculous!!!!). I hate that our building is even classified as the same thing as those. Overall, owning a 'condo-tel' has been good to us.
One more thing - part of our 'satisfaction' is that our unit is a 2 bedroom. There is a bigger market for two bedrooms than one bedrooms or studios so more of the time gets rented - and for more money. And there is a bigger resale market for 2 bedrooms too.
As always, JMHO.
Caribbeansun,
It is true that the lion's share of my direct experience with Condo-hotels is in the Florida market. That is where I have collected data and crunched the numbers. What came out of that analysis was a general model for evaluating condo hotels as an investment vehicle. I could have used that same model for evaluating any condo hotel in any market. I have since lost that model in my computer archives, but it wouldn't be difficult to recreate.
So, the principles that I describe above are general ones I determined as a result of my modeling exercise.
It is true that usage rules and rental programs vary by condo hotel project. But, it is my belief that these rules simply make the property less valuable, not more relative to a residential condo. That's because the management company will tend to take more than its fair share of the profit. You are in essence losing return since you are outsourcing the management and rental of your condo to a monopoly provider and you will have less use rights than a full condo owner.
I'd like to see anyone on this board post an offering that generates an 8% return on invested capital without considering capital appreciation. If you find one, I am willing to fly out there and evaluate it for myself. If it's legitimate, it will sell out quickly. But, more than likely, there will be serious flaws in the assumptions for the business case like rental rate and expected occupancy rate is way too high and unrealistic.
