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Condo hotels: Are they a good deal (conclusion)
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Let’s review. Revenue rarely lives up to expectations. Expenses are usually higher than anticipated.
Here’s another thing. If the rental business was so fool proof, so reliable, why would the hospitality company want
to cut you in on the action? It’s kind of like the investment guru with the foolproof way to time the stock market,
or the odds maker selling the “can’t lose” betting tip. If either were true, they wouldn’t be selling it to you for
$29.95; they’d be reaping the benefits themselves.
Instead the hospitality company is triple dipping. They no longer need to worry about renting the condo unit – they
no longer own it. They no longer need to worry about maintenance – that’s your headache now. And they still get a
healthy percentage of any revenue generated by the unit.
What can hurt the income? Things that never happen. You know, like gas prices spiraling out of control, so that
possible guests are reluctant to travel to your resort. Or massive lay-offs and high unemployment, making guests
reluctant to travel to your resort. Or real estate prices plummeting, causing your investment to drop in value.
Things that never happen.
Most management companies have fairly rigid requirements on the furnishings that go into a condo, right down to
color schemes, if you want to be part of a rental program. The television needs to be a minimum size, and almost
certainly a flat screen. A dvd player is likely mandatory, though many properties limit the type of sound system
you can install, out of consideration for the neighbors.
There is one group of owners that have historically stood a good chance of making money on their investment, and
that would be early phase and pre-construction buyers.
Most condo hotels are built in several phases, with the prices steadily increasing. So if you purchase before the
first building is built, you may get such a good price that you could “flip” it relatively quickly at a profit.
But that’s really looking at it as an investment.
The condo hotels I’ve seen have been universally well run and pleasant places to stay. As far as their status as an
investment, they are usually better than traditional timeshare. The marketing budgets per sale are considerably
less, so the values are more in line with the market value of comparable non-vacation properties. Therefore, they
are more likely to appreciate in a favorable market.
As to the idea of using the condo as a rental to cover the costs, if you are not in a position to pay the mortgage
with out rentals, don’t do it. There are just too many factors out of your control to make it a reliable
investment. If the rental program is just a source of extra money, they can be a relatively turnkey way to offset
some of the costs if you are willing to cede a certain level of control and access, and you are cool with the idea
of someone sleeping in your bed and eating off your plates.
To return to part I, click here
To return to part II, click here
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