Buying a Unit in Condo-Hotel?

By
Real Estate Broker/Owner with Daytona Condo Realty, 386-405-4408

Here’s the definition I found on the Web:

Condominium Hotels
Customers purchase fee-simple equity in the units - the hotel's guestrooms. Unit owners may live in the hotels permanently or use them as second and third homes. Depending on the hotel's policy, unit owners may rent their units independently or through the management company's rental program and derive income through a revenue-sharing arrangement. Unit owners also incur budgeted maintenance and operating expenses. Depending on the management company, unit owners have varying degrees of access to their hotel's amenities and services.

We sell condo-hotels in greater Daytona Beach Area and here are a few things buyers need to understand when buying a condo-hotel. First and foremost, for the most part there is no financing. So it is all cash. Now that we are done with financing (or lack thereof), we can move to buying a condo-hotel.

Expenses:

Association fee (aka Maintenance fee). It has nothing to do with rentals, and is due whether you are in the rental program or not.

Property tax is NOT included in the Association Fee. You pay it separately.

Each Condo-Hotel has a Master Insurance policy maintained by the Association (and therefore it is part of the Association fee), however damage to the room is not covered by it, and you need your own insurance for the unit, which includes liability and content (HO-6 policy)

There may be (and will be) Special Assessments, which is the way for the Association to pay for any expense which was not budgeted and for which there were no reserves. You may foresee it (deteriorating physical condition), or it may be a surprise (a lawsuit not covered by the Association Insurance).

Condo-HotelExpenses ARE guaranteed.

You Have to pay Association Fee, and the amount may increase and is not capped.

You Have to pay taxes and the amount of tax may increase.

You may be faced with Special Assessment tomorrow or in 10 years

Income:

Income is what you get as your share of rental revenue for your room.

Income is NOT guaranteed.

Last year income is not a guarantee of next year performance.  It may be affected by factors under your control (how you use it, and alterations that you make to the unit), and by factors not in your control (economic slowdown, obsolescence of the condo-hotel and of the area, change in vacation patterns, etc).

Income may or may not cover your Association fee plus Taxes and in Daytona Beach area will not be enough to cover mortgage.

There are many factors to consider when buying a condo-hotel in Daytona Beach. If you are looking at the economics, look at the price and compare it with the highest price in the Condo-hotel.

With few exceptions I would not consider rental income. Consider future resale value. Even if you will have to chip in $40 a month to break even, and you will have to wait 5 years for the market to rebound, if you buy a unit for $35K, and will sell for $120K, you would have spent $40K, and would get over $70K after all expenses are paid.

In Daytona Beach it worked perfectly. I do not know about other places. But I know a thing or two about our Daytona Area condo-hotels.

After all, real estate is local.

*  Image courtesy of miamism via Flickr.com

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Rainmaker
447,863
Malcolm Johnston
Century 21 Lanthorn Real Estate LTD., Trenton, Ontario - Trenton, ON
Trenton Real Estate

I own a unit in a condo-hotel in Toronto, and after an initial rough start it has become a monthly source of income for me through the hotel room program.  It also provides me with a great place to stay right downtown when I'm there.  It's definitely a business model worth considering.

Oct 16, 2010 01:54 PM #1
Rainmaker
570,044
Bill Gillhespy
16 Sunview Blvd - Fort Myers Beach, FL
Fort Myers Beach Realtor, Fort Myers Beach Agent - Homes & Condos

Hi Jon,  Our office has done a lot of condo hotels and nromally the buyers who have done the best are the first buyers ( probably pre-construction ! ) .  With the market " beat down " there are many condo hotels at or below the pre-construction prices.  And then there is the financing issue !

Oct 16, 2010 01:54 PM #2
Rainmaker
865,052
Steve Loynd
Alpine Lakes Real Estate Inc., - Lincoln, NH
800-926-5653, White Mountains NH

Jon...I feel like a broken record as I go over the finer points of Condo-hotel ownership as well, it is not for everyone and as I tell my buyers if you don't want to go that route you wouldn't break my heart...moving on!

Oct 16, 2010 01:59 PM #3
Ambassador
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Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Selling Daytona paradise for heavenly good prices

Malcolm - as I said, it is all local, and in our area it varies from insignificant income to insignificant loss.

Glad you, guys, do well.

Oct 16, 2010 02:16 PM #4
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Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Selling Daytona paradise for heavenly good prices

Bill - in many of our condo-hotel prices are way below the pre-construction prices. Future resale opportunities are exceptional.

But rental income dwindled with the slowdown in economy, and in our local tourism. Daily rates are lower, and occupancy is not great.

It is a cycle, though. And it will rebound

Oct 16, 2010 02:19 PM #5
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Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Selling Daytona paradise for heavenly good prices

Steve - I hear you. I go through this routine with everyone, who wants to buy a condo-hotel. If they still do it, they know exactly why and what they get.

The wirst thing is wrong expectations. They breed frustration. If you know what to expect, and this is something you can handle, then it is fine.

Oct 16, 2010 02:21 PM #6
Rainer
147,103
Deborah "Dee Dee" Garvin
W. J. Bradley Mortgage Corp. - Carlsbad, CA
WJ Bradley Mortgage Corp.

Jon, This type of purchase is not for everyone, but you have done a masterful job of clearly defining the risks and rewards.  I agree completely that the long term rewards could be huge.  The fact remains that Florida is Florida and California is California....as the market rebounds, both states will recapture the top place in the real estate hierarchy of where American's want to live.  Love the complete disclosure of this post!!

Oct 16, 2010 02:53 PM #7
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Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Selling Daytona paradise for heavenly good prices

Deborah - after all, why people buy condo-hotel now, when the price is so low, and why will they be buying it tomorrow when the prices will be so high? Because they are on the Ocean, and what people will be paying is the price to be on the ocean.

not because of the amenities (thought they affect the price), not because of the income that may or may not be, but because this is a small place on a huge ocean, and we love to have a piece of it.

Oct 16, 2010 03:03 PM #8
Rainmaker
1,884,867
Gabe Sanders
the BlueWater Realty team specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Very nice explanation of the risks of owning an investment unit in Florida.  Then when they see the area they will see the benefits!

Oct 17, 2010 07:17 AM #9
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Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Selling Daytona paradise for heavenly good prices

Gabe - if they buy, they buy because of the Ocean, and the ocean is always a huge draw. But avoiding some disappointment makes sense

Oct 18, 2010 10:29 AM #10
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Jon Zolsky, Daytona Beach, FL

Selling Daytona paradise for heavenly good prices
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