RSS
Home
Condo Hotels: are they a good deal? (Part II)
Print
Email
RSS
Subscribe
If you are in the market to buy a vacation home, a rental program may be a way to offset some of the overhead. Most vacation homes are used less than 60 nights per year by the owner, or the owner’s family. Sometimes a lot less. So the additional revenue can be a benefit. If someone has made the decision to purchase a vacation home, and they can afford it regardless of any potential revenue, then the rental revenue is just gravy. The problem occurs when the owner depends on the rental income in order to pay the mortgage.
First of all, the tax deductibility will be impacted by the percentage of time the unit is owner occupied vs. the time it is commercially available for rent. Check with your CPA.
Next, the management company may require that the unit be available for certain peak demand nights, which obviously puts restrictions on the availability of the condo for the owner. The management at a ski resort may require that the condo be in the rental pool for dates including Christmas and New Years, or the President’s day weekend. Maybe not every year, but at least every other year. Certainly, that limits the high-demand dates that the owner may be able to enjoy their own resort.
By the way, most states restrict what the sales people can say in terms of income projections in order to induce a sale. Many find ways to tiptoe around the regulations, giving some sense of what the revenue stream can look like.
This creates a lot of the difficulties associated with condo hotels, which other wise don’t have many complaints.
Many people who purchase cannot afford a full time vacation home. Instead they get blinded by the dollar signs, seeing themselves as mini-moguls, building a real estate empire. They figure that with a condo hotel, they can have their cake, and rent it out, too.
They see the upside of renting out the property, bringing in $300 per night. They love the idea that they don’t have to do anything to bring in the guests, yet somehow block out the fact that the management company skims a hundred off that three off the top.
Then of course, they get over-optimistic, assuming the property will be used the 330 nights they are not there. Okay, they know it’ll probably be vacant one or two nights a year, but still – “ca-ching.”
The appeal is they get to refer to “their place in Aspen”, (or Vail, or Tahoe, or any other high prestige vacation spot), and someone else is paying for it.
This, of course, is seriously flawed logic. The vacancy rate is always higher than you want it to be. Even the revenue generated each night it’s rented is lower than anticipated – incentives and other offers cut into the take.
Then there’s maintenance issues. The furniture is not usually provided by the hotel/management company. The owner of each unit furnishes their own unit. However, the furnishings have meet the standards set by the company.
They may dictate the size of the television, requiring plasma instead of LCD; the type, and even color of carpeting, sofas. Even the pots, pans and plates.
And ultimate responsibility for the condition of everything inside the unit rests with the owner (our mini-mogul). A credit card is taken as security deposit by the hotel, but that doesn’t mean they are able to collect 100% of the time when a sofa cushion is ripped or stained, or even a TV is broken.
And then there’s normal wear and tear. When the property is used so much of the time, things wear out faster. And mini mogul is responsible for the replacement.
To return to Part I click here
To go to Part III, click here
