Village of Imagine, Orlando

[WiLe]

Wannab have you been here:

http://www.condohotelcenter.com/ask-expert/resalevalues.html

If you haven't, there is some good info explaining the concept.  

The reason that you probably weren't given rent projections is that the developers are wary of  entangling  themselves in securities law.  

[wannab]

Yes thank you WiLe, that is one of my many bookmarks.    

[kdhastedt]

I never said that this purchase is a bad idea (for you)...I said, "Call a cow a cow, don't call it a horse"...it has four legs, a tail, and flies like a horse does, but it is a cow...

At least here you have relented and called it what it is a "speculation" in future valuation while hopefuly having some (or perhaps all) of the costs offset by rental income...

There are a ton of people making a boatload of money in speculation -- in real estate, in rare metal, in oil...in lotsa stuff...I'm not saying it's bad.  I'm saying it's speculation -- pure and simple.  I understand your concepts, your investment strategy, your hopes (well, as much as you've outlined them here...I'm not stupid...but, I am stubborn and we need to call things what they are and not muddy the water.  Your concept is solid: don't speculate with money that you can't afford to lose...just like I don't go to the 'boats' and play blackjack with the mortgage money.

As I said, remember:  There are younger inexperienced investors here.  They are looking for consistent and sane investment guidance.  

Keith

[wannab]

Understood, but at no time did I ask, “Would you call this an investment or speculation?”  And true, you never said the words “this is bad”, but you certainly are suggesting it.

FYI, some of the many definitions of “investment” and “speculation”:

Investment

“1. Property acquired for the purpose of producing income for its owner. Just as plants and equipment are investments for manufacturers, stocks and bonds are investments for individuals.
2. Expenditures made for income-producing assets.”

Speculation

“Speculation involves buying something on the basis of its potential selling price rather than on the basis of its actual value.”

Based on those definitions, the scenario I presented here qualifies for both, as do all real estate investment purchases.  Since every “investor” buys something on the basis of its potential selling price rather than on the basis of its actual value.  Cash flow and selling for a profit are both “income producing”.

You even support this with your own statements:

“...and none of these properties have cost over $65K total!  I paid $64,900 for the most expensive one.  Once I rehabbed it, it appraised for $77K and has a $300+ PCF.  I have a system, it works for me, I stick to, and repeat.  And...in this area, I can repeat it over and over and over....”

You are not engaging in this system of yours with a goal of breaking even.  Again, remember this particular definition “Speculation involves buying something on the basis of its potential selling price rather than on the basis of its actual value.”  I’m sure you rehab these properties with the goal of potentially increasing the value of the property.

I think the whole point you are trying to make is that the scenario I present here has a much higher risk associated with it than other investing formulas such as the one you use.  I agree, it has much higher risk associated with it.  Having said that, can we now stick to the original intent of my post?
   

[Lizbuyshouses]

I am hesitant to insert myself into this very lively discussion, but since I am have some close hand experience in this deal I thought I would offer it.  

Condo/Hotels are a tough resell if they not cashflowing.  They are a business, not a second home or a place that a prospective buyer can consider home.

2 years ago two members of my investment network invested in condo/hotels.  They are not cashflowing.  Now, this particular establishment charges a $15K membership.    Given the cash outflow, appreciation has to be pretty darn healthy to make up for the monthly bleeding.  

But it isn't.

It isn't because the prospective buyers are looking for a business opportunity and looking at operation expenses vs revenue.  The math doesn't add up and that creates a weak exit strategy.

It seems to me from your posts that you really want to do these deals and are just looking for some support in that area.  If so, go for it.  I wouldn't, but only time will tell.  

[wannab]

Lizbuyshouses, the feedback you have provided is right along the lines of what I am looking for.  As I mentioned, one of my major concerns is who would buy this thing if it doesn't even pay for itself?  i.e. - The exit strategy as you put it.    But then I started thinking, ok, maybe I should just buy a house or a condo and rent that out.  Problem is, the area I live in has seen huge real estate gains in the past 3 years......and rent has not increased at the same rate.  So it is a renters market.  If I buy a house or condo, it will not cash flow either.  I will defiantly be subsidizing the mortgage and taxes on the house/condo every month.  Mathematically I think one of these hotel/condo units has a chance of at least paying for itself, based on surrounding hotel nightly and occupancy rates.

Another concern I have is, the current fees for each unit are around $5k per year, and the rent split with the management company is 50/50.  There really are no details in the paperwork I have received so far mentioning how often and how much these numbers can change.  This has more to do with the fact it is pre-construction than anything.  But once the place is built and all documents finalized and I own it, who knows if they will be able to change the fee's to $10k/year and the management split then becomes 70/30.  

Do your friends have any feedback on these points?

Do you mind telling me the name of the project or company your friends bought in to and where?

[Lizbuyshouses]

WannaB -

My pleasure to help.  A good comparison might be Mariner's Club Bahia Beach.  It is a beautiful resort with several types of type of buildings.  One is a condo/hotel.

Be careful with vacancy rates.   In the scenario you proposed, it seems that there are different types of units.  Have you considered the desirability of your particular model?  In other words, data may show that vacancy rates can be 10%, but what if its always your style of unit that is vacant?  

I would also want to the difference in rental fees between your unit and others.   For example.  If you have a 1 bedroom 1 bath that  rents for $200 per night, but the 2 bedroom 1.5 bath rents for $230 a night.....folks might fork over the $30 bucks and get a larger space.

As for your comparison to a home.  A few thoughts:   I have the same issue - homes don't cashflow easily due to low rents.  You really have to look.  However, in many areas of Florida appreciation can be generous enough to really make up for a low cashflow or break even deal.    Plus, folks are always shopping for homes.  Even in a softer market buyers need a place to live and a great looking property has emotional pull (very lacking in condo/hotels).  

In the end, you have to determine what excites you and what works for you.   Lots of money have been made in pre-construction.  Condo/hotels feature a few too many blind spots for my taste, but in the end you take that leap alone.  

Cheers,