Condohotel Investments

[ADJ]

What do you guys think about investing in preconstruction beach front condos. I've reserved two in Myrtle Beach which I should be closing on shortly. I just wanted your opinions on what the downside and upside to this type of investment. I am a little uneasy about the direction the market has taken but I plan on holding for a while. Please don't hold back. Let me know what you think. Thanks.

 

[saluki9]

Well, there was an article in Crains (a chicago business magazine) about Condohotels in which they interviewed the largest RE developer in the city. His comment was that he didn't like any project where you needed your customer to be "a complete and total idiot"

That about sums up how I feel about them. That may change in the future. During the next downturn in the economy I'm sure there will be some real deals.

 

[brewer12345]

That about sums up how I feel about them. That may change in the future. During the next downturn in the economy I'm sure there will be some real deals.

Put me down for "what he said."

ADJ, will these things flow cash?

 

[ADJ]

Saluki9 could you please post a link to that article.

Brewer, they will not cash flow unless you pay cash or put a very hefty downpayment. Frankly, I would like to sell but the developer is not really allowing reassignment and I have some money tied up in it. I did not expect the market to turn so quickly. I am sure many investors are saying that right now.

 

[brewer12345]

What do you lose if you walk away and don't close?

 

[ADJ]

$44K

 

[brewer12345]

$44K

Ouch. I guess you will have to decide if you take $44k as tuiting in the school of hard knocks or if you roll the dice and assume losses ( if any) will be less than that figure.

 

[ADJ]

That's a lot to lose. There's the option to buy one of the units outright and use the cash flow from that unit and the other financed unit to pay for both. What do you think? This does not answer the question whether this is a viable form of investment. What's your opinion?

 

[brewer12345]

That's a lot to lose. There's the option to buy one of the units outright and use the cash flow from that unit and the other financed unit to pay for both. What do you think? This does not answer the question whether this is a viable form of investment. What's your opinion?

Whether you finance or not shouldn't make any difference in what you do with the assets. Either you have a gain or loss at the moment, and your choice of financing (debt/equity) won't change that. The more important question is what will happen to the values of these things in the future? Up, down, sideways? How much income will they throw off in the meantime by way of compensation? That is what i would focus on, not how m uch you might already have lost or how you would finance any purchase.

 

[lazygood4nothinbum]

a cousin of mine bought a condo (not a condohotel but in a complex that was marketed made to be rented out) in naples and can't even rent it now because there are so many for rent. she hopes to sell. fortunately they bought early on so they won't reap the profit they hoped for but they should do fairly well. so i'd be worried if there would even be cash flow.

 

[brewer12345]

a cousin of mine bought a condo (not a condohotel but in a complex that was marketed made to be rented out) in naples and can't even rent it now because there are so many for rent. she hopes to sell. fortunately they bought early on so while they won't reap the profit they hoped for they should do fairly well. so i'd be worried if there would even be cash flow.

We don't know anything about OP's specific property, so I would declie to speculate.

 

[lazygood4nothinbum]

::::bows to the master::::

 

[ADJ]

Whether you finance or not shouldn't make any difference in what you do with the assets. Either you have a gain or loss at the moment, and your choice of financing (debt/equity) won't change that. The more important question is what will happen to the values of these things in the future? Up, down, sideways? How much income will they throw off in the meantime by way of compensation? That is what i would focus on, not how m uch you might already have lost or how you would finance any purchase.

It's hard to speculate at this point. It's beach front in Myrtle beach but 40% of the take goes to the hotel operator. It's also not possible at the moment to speculate on how this type of investment would do in the future. From what I see listed for similar condohotels in the resale market, it appears that the units have appreciated but listings are not sales if you know what I mean.

Similar units in the area are grossing between $25K to $30K in revenue per year.

 

[ADJ]

Can I be sued by the realtor for their commission if I walk away from this deal? Just curious.

 

[brewer12345]

It's hard to speculate at this point. It's beach front in Myrtle beach but 40% of the take goes to the hotel operator. It's also not possible at the moment to speculate on how this type of investment would do in the future. From what I see listed for similar condohotels in the resale market, it appears that the units have appreciated but listings are not sales if you know what I mean.

Similar units in the area are grossing between $25K to $30K in revenue per year.

Hmmm, so be generous and assume $30k gross. The house takes $12k, and you are left with $18k, net. With a generous 7% cap rate, I can try really hard and get to a valuation of $250k or so. But that is making a lot of rosy assumptions. What is the purchase price for these things?

I would have a hard time believing taht a realtor could successfully sue you for acking out unless you have already signed a contract guaranteeing them a commission (i.e. you would have to have committed to pay them even if the deal fell through).

 

[kcowan]

The contractor can sue you for the balance of the sale price . When times were good, they did not bother because they could resell at a profit.

I would talk to the guy about your choices and not do anything rash. Have a lawyer look at the contract you signed first. Your best choice at this point is trying to resell your unit if the contract allows it. If it does not allow assignments, then you will need to convince the seller to let you do it.

You will take your lumps either way but with the resulting rental glut, I would not count on any net rental revenues even before debt servicing.

 

[ADJ]

The sales price is $200K. The good thing going for this project is the fact that it's ocean front. I would like to believe that the rental will be good because it's an upscale beach front resort but who knows.

 

[Brat]

Ancient history: Sunriver (Oregon) Lodge did this in the 70s. It took a long time for the investors to conclude it was profitable. Odds are those who could stay the course are happy.

 

[thefed]

44k if u walk? hmmm...


how long would it take to 'lose' the 44k if you stick it out? what will your mortgage pymts be?

 

[ADJ]

I will have no mortgage payments since I am paying cash but I will have HOA, liability insurance and taxes of approximately $900/month. Presumbaly, the rental income should cover. On paper it seems to have appreciated almost $100K but I am willing to sell right away and breakeven.

 

[kcowan]

I will have no mortgage payments since I am paying cash but I will have HOA, liability insurance and taxes of approximately $900/month. Presumbaly, the rental income should cover. On paper it seems to have appreciated almost $100K but I am willing to sell right away and breakeven.

Fortunately that gives you some negotiating leverage if you can act on it soon enough. Get some legal advice and talk to the developer. Look carefully at his body language. That will give you a good indication of how it's really going.

 

[wstu32]

i work for mortgage co.
condotels are the hard to finance, and practically no one refi's them. Wall street investors who buy mortgages are staying clear of "condotels" too much "risk"

my opinion only...good luck