Wussup With Those "Condo Hotels" Under Construction In Orlando FL ?

[AwayWeGo]

When we were vacationing in Orlando FL last year, we noticed a high-rise "condo hotel" going up right there on Rt. 535, behind a strip mall, not far from the county line between Orange & Osceola Counties.

Then when we were in Orlando again last month, we noticed a place that looks like a former Holiday Inn under heavy-duty remodeling-style construction right off Rt. 192 -- in that "V" between Sherberth Road & Black Lake Road -- with large signboards saying it was also becoming a "condo hotel."

What's up with that? I buy a condo-style hotel room, pay my monthly condo fee, & show up any time I want? What's the advantage? I mean, PriceLine & HotWire could undercut my condo-hotel fixed cost just about any time, right? Or am I supposed to buy a room, pay my condo fees, & expect my mailbox to bulge with rent checks coming in week after week?

-- Alan Cole, McLean (Fairfax County), Virginia, USA.​

 

[wackymother]

Condo-hotels we've stayed in have usually been just like hotels with apartments instead of regular rooms. We booked them like hotels, too. Some can be rented by the night, some require a minimum stay of two nights, three nights, or more.

 

[PerryM]

Build Cycle is key

The best advantage of a condo-hotel is the 3 - 4 year build cycle. Put down 20% and control the other 80% with no extra money.

Then 3 - 4 years later you take possession of the CH and then decide what to do with it - flip it, our use it. I recommend to folks that they plan on a 5-year hold once possession has taken place. If you don't have the cash flow to manage it for 5 years with 1/2 the forecasted income you should not buy.

 

[Steamboat Bill]

I am not Bullish on condo-hotels in general...but the ones you are describing at those locations scare me...the only one that may work is the one next to the convention center.

You can't just show up anytime you want...and you might not even get your own room. Most require a 6-12 month reservation to guarantee your room. Besides...who cares as they all look alike and you can't change a thing in your own room as you are restricted...it is a hotel after all.

The speculative nature of Orlando in general would indicate a renter would almost always beat out a buyer. When I see 2 BDR condos or TS rent out for less than $100 per night...forget about any upside here....this is NOT NYC.

I would also disagree that you can make it work on only 20% down....I think the number is more like 50-75% down and you may break even as compared to leaving the cash in the bank....don't forget about taxes and accountant fees (must file a return in Florida if you are out of state as you earn income here).

 

[AwayWeGo]

Florida Tax? Who Knew?

....don't forget about taxes and accountant fees (must file a return in Florida if you are out of state as you earn income here).

Whoa! I thought 1 of the attractions of Florida was no state income tax down there.

-- Alan Cole, McLean (Fairfax County), Virginia, USA.​

 

[PerryM]

That beautiful build-cycle

I am not Bullish on condo-hotels in general...but the ones you are describing at those locations scare me...the only one that may work is the one next to the convention center.

You can't just show up anytime you want...and you might not even get your own room. Most require a 6-12 month reservation to guarantee your room. Besides...who cares as they all look alike and you can't change a thing in your own room as you are restricted...it is a hotel after all.

The speculative nature of Orlando in general would indicate a renter would almost always beat out a buyer. When I see 2 BDR condos or TS rent out for less than $100 per night...forget about any upside here....this is NOT NYC.

I would also disagree that you can make it work on only 20% down....I think the number is more like 50-75% down and you may break even as compared to leaving the cash in the bank....don't forget about taxes and accountant fees (must file a return in Florida if you are out of state as you earn income here).

Bill, there are 2 phases to condo-hotel (CH) ownership:

1) Pre-construction
2) Post-construction

Pre-Construction:
This is where you get wind of a super CH and stand in line 24 hours to put down $20k for the right to buy a unit. This leads the actual sales event by several months. During those months you investigate and “Work the number backwards” as to the financing which takes place 3 – 4 years down the road.

The actual sales day normally has you coughing up 10% of the sales price – deposit you put down to get this far ($15k - $20k+) then 6 months later another 10% is due and you don’t need to add anymore money until 3 years later when the unit is constructed and ready for closing.

During those 3 – 4 years you control 100% of the real estate price with just 20% down. If the market does well you do well, if the market cools you then have planned for that day and sit tight for 5 years.

Post-Construction
The actual sales day arrives 3 – 4 years after you put down 10% - 20% of the sales price. If real estate has been doing ok you are happy. If you use Zillow and find that the average real estate appreciation is 9% for the past 20 years then you are looking for your condo to be worth 9% compounded for 3 years or 30% and for 4 years to be 41%.

This is what Ka’anapali Maui has done for the past 35 years – where we bought our second CH. Our build cycle is going to be just about 4 years.

Once you "work the numbers backwards" you might need to put down 50% or more of the purchase price to make the projected rental income = the absolute cost of the mortgage and MFs. The better you are at making these forecasts the more reliable your forecast.


Conclusion:
Buying a CH as an investment is no more difficult than buying stocks – you need to do your homework and decide if the numbers make sense. Do folks always make a profit in 100% of their stock purchases – I sure don’t. Life is full of risks and rewards.

 

[Steamboat Bill]

You may be correct about Florida taxes....I forgot about that...that was one negative feature of a property I bought out-of state and I had to file taxes in that state. However, you will have reported Federal income that will be taxed.

I understand the two phases of real estate and made a killing on a spec house in Boynton Beach FL that I did spec in 2003 and when it was completed in 2005...I sold it in 30 days for almost $200k profit. However those days are behind us now...many real estate developers here are looking to get out of the business or are going commercial.

Maui may be unique or rare or simply unlike other condo hotels. I would rather buy SPY stock or a nice dividend stock rather than a condo hotel...or simply pony up and buy a real condo. My experience has taught me that the condo-hotel market benefits the developer and hotel chain much more than the individual owners.

 

[travelguy]

Real Estate Investment

...many real estate developers here are looking to get out of the business or are going commercial.

You are correct about the migration of real estate developers to commercial. As a commercial only real estate developer/investor for 25 years, I have always viewed real estate investment as follows:

Commercial Real Estate (Retail, office, warehouse, etc.) = Investment
Residential Real Estate (all types other than personal, primary home) = Speculation
Travel Real Estate (Fractionals, Timeshares, etc.) = Losing Investment

I have benefited far more over the years by long-term cycling of cash through commercial real estate vehicles and equities (stocks) than I would have made (or lost) through speculative residential or travel real estate investment. And when I say "benefited", I mean both financially and my peace of mind!

There may be some wisdom to be found from the multitude of legitimate real estate developers and REITs who are running from the Spec market back into Commercial, unless your name is Trump!