Financial Aspects
of Purchasing a
Condo Hotel
Q:
What is the typical cost for a unit in a condo hotel
development?
A: Prices for condo hotel units vary depending on
quality and location, franchise, amenities and more.
On average, studios range from $300,000- $750,000,
one-bedroom units could go for $600,000-$1,000,000+,
and two-bedroom units can go from $800,000-$1,500,000+.
Some cities are currently offering condo hotels that
are particularly good values, such as Orlando, Florida
where prices are considerably lower and units could
go for half as much as you might pay in say Miami
Beach or Fort Lauderdale, Florida. Keep in mind, however,
that the rental rates these condo hotel units will
generate will be commensurate with the lower purchase
prices, as you might expect.
Q: What kind
of rental yield and capital appreciation can a buyer
hope to enjoy?
A: I always tell my buyers that assuming you buy a
unit in a property that has a good location, with
full amenities, and a well-known franchise with a
strong reservation system, you could expect the unit's
rental revenue to cover the cost of your monthly maintenance,
real estate taxes and all, or at least most of your
debt service, and possibly, give you a single digit
return above that.
From my experience and from everything that I have
seen, read and heard about condo hotels, the returns
that can be expected are no more than 2%-7% per annum
and it could be less.
But if you could get just a 2%-3%
return on investment, plus 16% appreciation, which
has been typical of Florida markets five years and
counting, and also get a couple of weeks a year where
you are not paying $500 a night to have a luxurious
five-star vacation, then you might be looking at a
legitimate 20% return, before factoring in any tax
advantages.
Other markets, like Las Vegas, have
even seen higher appreciation levels, as much as 45%!
If this is not an attractive enough overall return,
or if you are primarily focused on getting a good
cash flow from your investment, condo hotels may not
be right for you.
The above questions were submitted via e-mail
by a visitor to www.condohotelcenter.com.
The answers were prepared by Joel Greene, a licensed
real estate broker with Condo Hotel Center which specializes
in the sale of condo hotel units and fractional ownerships
in private residence clubs.
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