At one end the buyer;
People typically buy a vacation property to use as a second home and also as an investment property that brings in rental income to offset some of the costs of ownership. Like any investment, buying a condo-hotel unit requires a lot of research and good thinking. This is all the truer since it concerns real estate investment; a bad investment can directly lead to your loss and destroy all your efforts and hard work. To avoid ugly surprises in condo-hotel investing is Calculate, calculate and calculate!
We all know what it s take to feel in paradise
Another important thing to remember is;
In order to ensure satisfactory profitability, the study of the area is of paramount importance! It’s important to choose an area that you like and is a popular vacation destination so the property will be rented frequently. Amenities and attractions are important; choose a vacation property in an area you like but also one with plenty of tourist attractions.
After browsing online, we would suggest you work with a local realtor to help you research the area and set up appointments to view potential vacation rental properties. A realtor will be able to give you a local’s perspective of the area, including where specifically vacationers want to stay. For example, they might tell you within 1 block of the ocean are the best place to buy or somewhere else
The best places to buy a vacation property are based on the popularity of the location, their prices, your expected ROI, the local occupancy rates and the short-term market rental rates. Choose a place in a tourist area with a nearby attraction that is easy to get. Some major cities such as New York and San Francisco are ruled out due to being too expensive and not having a high enough ROI.
We all know that a place like this could be heaven on earth
Local occupancy rates of 75% or higher are a good rule of thumb when deciding where to buy. However, you do need to consider that many vacation towns are seasonal so these rates will fluctuate. Short-term market rent rates vary as well. Consider the rents in the area and then figure out if you can afford to pay your bills when the property isn’t rented or if the rents fluctuate based on the seasons.
You want to purchase in a property that you will enjoy but also makes sense financially. Once you identify a potential property, you should perform a cost-benefit analysis of your own or with a specialist to make sure you can afford the property.
Its seem impossible to fail in this type of environment
Once the right location is found
Once you find out the operating costs and the rental income, you can figure out if the property is cash flow positive.
For example, if a property’s monthly operational expenses are $250, monthly mortgage payments are $1,750, the nightly rental rate is $100, and the occupancy rate is 80%, you can calculate your potential monthly profit in the following way:
- Potential monthly income: [($100) x (80%) x (30 days) – [($250) + ($1,750)]] = $400
In this example, the property is cash flow positive if it was available for rent a full 30 days. However, remember that you’ll drastically reduce your potential occupancy rates if you live in the unit part-time and that occupancy rates will also decline during off-peak seasons.
Advantages of being an owner
Some of the advantages of being owner of a condo-hotel unit will include;
Rental revenue to generally offset all ownership expenses
A great vacation home available most of the time you want
A real estate investment in a prestigious property
Disadvantages that could also come with
Some disadvantages can also come with it and can include;
The annual cash flow can equal or be less than the annual ownership costs
Pets are usually not welcome
Your unit could be rented when you would like to use it so the most property will require you to make your reservation long in advance
The property may have some black-out dates to help each owner to at least break-even or ultimately generate some profits.
At the other end the developer;
for hotel developers, the condo hotel model is a creative way of financing. Construction debt for hotel projects typically runs 50 to 60 percent of the cost. When condominiums are added to a hotel project, equity credits earned through condominium presales can provide debt financing approaching 90 percent loan-to-cost leverage. Developers are achieving significant front-end profits on the sale of condo units in this scenario; and because the “hotel amenity” component creates a 15 to 40 percent premium value over the sale price per foot of comparable units, developers are also keen on the condo hotel model.
Hoping for the right choice
Developers need to appreciate that hotels are a different kind of real estate, and that condo hotels are an hybrid with unique issues, as well as significant opportunities.
Unfortunately, there is no silver bullet to ensure a profitable and sustainable investment, but it is still possible to make money. You will have to inform yourself, train yourself and educate yourself and establish the real purpose of buying a unit.
What is the difference between a hotel and Condo-Hotel property?
The main difference is that a hotel typically has one owner, either individual or corporate, but a condo hotel is sold off unit by unit. Therefore, a 300-room condo hotel could have as many as 300 unit owners.
A hotel guest will likely never know that the hotel has multiple owners because the property is operated just like a traditional hotel and often under the management of a well-known hotel company like Hilton, Hyatt, Starwood or W. Also, each of the individual condo-hotel units will look identical in design and décor to every other, just as they would in a traditional hotel.
Gastronomy at his best in many Resorts
In conclusion, we just want you to be cautious, there is an old say that goes like this; Sometimes the best deal is no deal.
In the next article, we will go deeper into how to finance your unit in a savvy way.
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