# Condo-Hotel  - any interest ?



## GregGH (Mar 3, 2007)

Just trying to be fair and balanced ... with so many HCC posts -- any chance we can move this thread over ( or copy it ? ) on Condo-Hotels?  ( Did a search - not many threads on Condo-Hotels   10 if you use Condotel and 32 on Condo Hotel)

http://www.tugbbs.com/forums/showthread.php?t=24412&highlight=condotel

I also saw this ...... quote "December 2005
Smith Travel Research reports that there are 227 condo hotel projects in the development pipeline, representing more than 93,000 units—close to the average annual supply of traditional hotel rooms in a “normal” year. That is a boom!  This meteoric rise in condo hotel development has caused some to wonder about the product’s long-term viability, but industry experts say that it is the fundamentals of the project that will determine its success—or failure."   from
this url ...  http://www.hotel-online.com/News/PR2005_4th/Dec05_GHACondoBoom.html

So - we are in 2007 ---what has changed?   Can Condo-hotels still be a good option for time to use balanced with some cost offset thru rental income?

Will the 'glut' of units be good or bad?

Anyone want to offer some first hand ownership experience?   Looking at some 'modest' condo's and one is a Condo-hotel option in Florida - does it sound right that HOA fees are 3xs regular condo's?

How has the re-sale market been on condo-hotels?   Buying a re-sale - does one look for some discount to reflect the original marketing cost that is a 'sunk cost' - perhaps offset by appreciation in property - then offset by a decline in overheated markets ( bubble ? ) = good value ?

Regards
Greg H


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## Steamboat Bill (Mar 4, 2007)

I own a condo-hotel in Whistler at the Delta.

I would NOT reccomend condo-hotels to anyone as they are NOT a great deal for the consumer/investor.

Unless you see PROVEN revenue that works...stick with timeshares or real condos.


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## BocaBum99 (Mar 4, 2007)

Condo Hotels will be a good investment again once everyone hates them and the prices tank to 20% or more below the underlying real estate value.

Given the high expense structure of a condo hotel, it's tough to generate a positive cash flow with a decent return on invested capital without factoring in capital appreciation.  Once it hits 20% undervalued, then you can factor in a 5% apprecation in value to help offset negative cash flow.  Then, you will be in business again.

Until that happens, stay away from Condo Hotels.


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## caribbeansun (Mar 4, 2007)

Everyone knows Bill hates his condo-hotel, he posts the same thing on every thread.  Obviously he's not had a good experience.  Boca I'm guessing is referring to Florida properties many of which lost touch with their "true" underlying real estate value and we are seeing some return to more "normal" values with the air having been let out of a number of markets in the US.

My first comment is this - not all condo hotels are created equal so it's very dangerous to paint them all with the same brush. 

Key points of differentiation:

Usage - some are unrestricted, some are very limited.  I personally have no use for the restricted use model as it impairs you for your own use and who needs that when you've bought and paid for it.  Most of the co-branded Intrawest/Starwood/Marriott properties are using this model now.  On resale this could come back to bite you so be aware going in.  I haven't seen too many of these that can generate positive cash flow in a leverage situation and without leverage you're hoping for 5-8% return annually which isn't all that great considering the real estate appreciation piece is untested.

Rental pool - some restrict your ability to enter or exit the rental pool.  Again, more restrictions hurt your ability to optomize the property.  Most do not allow the owner to rent their own unit which can be good and bad although I must admit I've switched over to seeing this as a positive despite initial resistance - consistency of product and price is IMO a positive.

Management fees - these are imposed at two levels.  First is the share of rental proceeds which can range anywhere from 20% to upwards of 50%.  The closer to 50% you get the more you are providing the capital to sustain the operating company - I really don't like this model from the buyer's perspective.  The second level is strata - the more upscale and bulky the management company the heavier the strata.  This can really hit your returns hard if you aren't careful.  Having said that some are actually quite reasonable in comparison to others.

Build out - the closer your date of purchase is to occupancy date the less appreciation you will get with having minimal capital tied up in the property.  Deposit requirements and instalment payment schedules are all over the map.  However, if you can put down say 20% with a two year build out you are going to get some pretty nice appreciation without having to actually lay out that much cash.  This can be a very good deal indeed.  You would need to consider transactional costs relative to appreciation at the time of completion to determine if selling at that point makes sense.

Location and price - what I've seen are a number of projects that are overpriced relative to their location and of course locations that simply don't make sense from a real estate perspective so you need to be selective.  I know a number of people that were buying up units in the Intrawest/Westin project in Orlando near the convention center - some people thought this was great but it didn't fit with my own requirements as I'd like to use a place I own from time to time and may well retire to one of them at some point.  We bought in a location that we believe is still undervalued even though our unit has appreciated over the past couple years (not the unsustainable %'ages in some markets).

Foreign currency - you need to be aware of this if you are buying in a foreign country and hedge accordingly.  I purchased in Grand Cayman which uses CI pegged to the US$ - we locked in US$'s at 90 cents and also used some US$ debt to match cash inflow with outflow in the same currency.  The exchange rate has since dropped to about 84 cents so we've picked up some gain there as well.

Those are some but not all of the pieces we consider.




GregGH said:


> So - we are in 2007 ---what has changed?   Can Condo-hotels still be a good option for time to use balanced with some cost offset thru rental income?
> 
> Will the 'glut' of units be good or bad?
> 
> ...


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## Steamboat Bill (Mar 4, 2007)

caribbeansun said:


> Everyone knows Bill hates his condo-hotel, he posts the same thing on every thread.  Obviously he's not had a good experience.



I don't hate condo hotels...I have owned FIVE of them and I simply want to advise people about pie-in-the sky visions of hugh profits.

I have bought and sold for various personal reasons (taxes) but they have mainly been money burning vehicles. On a studio unit, I made a small amount of money on capital appreciation (about $15k on a Holiday Inn) and the other 1 bedroom unit (Whistler Delta) I LOST about $75,000 when I sold. I still have three studios at the Delta and would probably lose a little money if I sold them right now.

I just have NOT seen one single condo-hotel that makes money! Let's forget about the pre-construction buy-it right now mentality as this is NOT a sustainable business model, unless you travel the world looking for deals.

What I am talking about is...show me a condo-hotel that generates a respectable 5% ROI (or more) when all the expenses are paid out such as management fees, real estate taxes, accounting fees, assessments....

So far......I have not see it!

The BEST advice to anyone that is considering a condo-hotel is to *ONLY BUY STUDIO UNITS!!!*!...you should avoid 1 and 2 bedroom units as they have a much lower ROI than studio units. 

Geeze....I made MORE money with my DVC renting excess points than my condo-hotels.


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## BocaBum99 (Mar 4, 2007)

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.


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## JMS (Mar 4, 2007)

I was offered a chance to buy a condo hotel on the Gulf of Mexico (texas) for only $59,000 which wasn't bad except that it was not financiable or at least I could not find anyone who would lend on it.  The monthly MF was $350 which would have been covered if the unit rented at least one week each month but it would need to rent out 3 weeks each month to come close to 8% return after taxes and MF plus other costs.  I just didn't want to tie up my money in just one unit with so little return.


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## Teresa (Mar 11, 2007)

*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.




BocaBum99 said:


> 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.
> 
> ...


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## Steamboat Bill (Mar 11, 2007)

Teresa said:


> 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 am happy to hear about your success...but I think you may be in the minority. In addition, you bought in 1998, when condo-hotels were rare. I am surprised that you DID NOT know you bought a condo-hotel and I am not 100% sure that I would classify it as such.

Most condo-hotels do NOT let you modify any internal furniture or decorations, limit you to 60 days or less personal usage, FORCE you to use their management company, and pool the hotel revenue among all owners.

I am still looking for anyone that bought a hotel-condo AFTER 2001 and made or is making money. I would really like to hear from someone that bought into a "brand hotel" like Hilton, Trump, etc.


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## PerryM (Mar 11, 2007)

*Our experience*

Just as the advice on TUG is to “Buy where you want to vacation” so is the advice on a condo-hotel (CH) “Buy where you want to vacation”.

We bought our first condo-hotel with the idea of using it, renting it and selling it in 5 years.  We have 2.5 more years to go.  Will we make a profit on the sale?  2.5 years is an eternity in the real estate market – I can’t make a guess.

We use it when we want and it then goes into the rental pool – the place always looks like they just opened it on day 1.  We had just a .5 year build cycle on this CH since it was a restoration of a 100 year old hotel.

Our second CH will be ready in the middle of 2009.  It has a 3.5 year build cycle and we bought it for the same reason – use it, rent it, and hold it for 5 years at least.  Will it make money?  I can’t even guess at the moment; I believe we will.

Our second purchase is what I recommend folks interested in CHs do – get a 3+ year build cycle.

You put down 20% and get 3+ years of appreciation on the unit.  Then you pay/finance the other 80% after the unit is built.  In our case we bought into a well known developer and in an area that is virtually impossible for more condos to ever be built.  Hopefully this will result in higher real estate prices.

We did not want to buy a condo and worry about it 365 days a year – we wanted a condo that we could use, in unlimited quantities, and get rental income when we were not there.

If you do your homework and “Work the numbers backwards” to find the down payment that results in forecasted rental income equaling mortgage, MFs, taxes then you have done as good a job you can in the area of Due Diligence.

If your goal is to flip CHs and make big bucks you have been watching too many TV shows that show some bumbling fool buying a beat up home, spends 6 weeks fixing it up and then makes 50% on his money – only in Hollywood does this happen on a regular basis.

Caribbeansun has great points that must be read and fully understood – no cursory reading here.

I think the right attitude towards a CH is “Our personal usage and when not in use make a few bucks renting” is the right attitude.  If you happen to luck into the right part of the housing cycle you can make big bucks too on the real estate appreciation side.

P.S.
In our first CH, about 25% of the folks never signed up for the rental pool – they use the CH as a condo and when not there it gathers dust.  They do have many “Guests” that do use the front desk to get their key cards.  I have a suspicion that this is a gray market of rental income.  The owner in both of our CHs always had the choice of either signing up for the rental pool or not.  In both cases you can use your CH 365 a year.  However, in our first CH you must vacate the place for 1 day every 60 days, if you are in the rental pool.  (like someone ever checks)

In our second CH, about 25% of the folks just bought it as a condo, and have no intention of ever renting it out.  They just jump on a flight and use it whenever they want.  These folks do plan to modify their CH.  If they ever enter the rental pool, any personal items must be removed and the unit must look like day 1.


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