for Condo Hotel Units
Q: I'm concerned
that the capital value or resale value of a condo-hotel
unit would be tied to its annual return. I myself
am more interested in a capital gain as in a more
typical real estate investment. Do you think I'll
have trouble reselling because of the return issue?
A: No, I don't, and the reason why
stems from the way we see the developers marketing
their condo hotel properties. The developers will
never discuss the return on investment that a buyer
can receive from the rental of their condo hotel unit.
They do not tout the return as a big benefit, even
though for many buyers it is.
Instead, the developers will only
focus their sales pitch on the building's fine location,
superb amenities, top notch management and the expectation
of long- term appreciation. These four factors remain
unchanged whether your unit is rented out 365 days
a year or not at all.
Imagine if you were comparing four
identical units available for re-sale. One is used
by an Austrian businessman for roughly six weeks a
year, at random times. The second is used by a British
family for one month during Christmas and a few weeks
around the July 4th holiday.
The third unit is sold to some elderly
New York snowbirds who use their unit for six months
out of the year. Finally, the last unit is sold to
a Latin American who bought the unit as a way to get
funds out of his country and into the safety of U.S.
real estate. However, he rarely ever uses it and he
chooses not to put it into rental program. These four
examples are typical of real condo-hotel buyers.
Now if you as a prospective buyer
come along and try to determine the value of someone's
unit based on the rental it generates, even if all
four units are identical, your return numbers will
all be different.
On the other hand, if a studio unit
was purchased for $325,000 in 2001, and it is on the
market competitively priced at $440,000 today, you
can get a better feel for the real value of the property
this way, than by the income it may have generated.
Bottom line, the emphasis on condo
hotels as an investment has and should continue to
be on the potential for long-term appreciation. The
fact that you may receive some rent revenue that can
help defer your mortgage or maintenance costs is best
considered an added bonus.
The above question was submitted
via e-mail by a visitor to www.condohotelcenter.com.
The answer was 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.