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Financial Aspects of Purchasing a Condo Hotel

Question

What is the typical cost for a unit in a condo hotel development?

Joel's Response


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.



Question

What kind of rental yield and capital appreciation can a buyer hope to enjoy?

Joel's Response


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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