How I can calculate the monthly rental income on a condo hotel unit that I'm considering buying?
The problem with trying to answer your question, besides it being an SEC violation to try to sell condo hotel units as anything resembling a security sale, is that there are too many variable factors that can result in a large swing of potential return. That's why I prefer to work with buyers who are looking at a condo hotel purchase as a second home with expected long-term appreciation rather than the straight investment-minded individual like yourself. However, since you asked... Obviously, to start out, you'd take the expected rental rate of your unit, (this will vary from property to property and will be determined by your unit's size, floor, view and location in the building). Multiply the rent by 365 days, and then multiply that by your expected occupancy, i.e. .65 for 65%. This will give you your gross revenue. Next, you must reduce this total by whatever share the management fee will be. Typically, this ranges from 40%-55% of the gross revenue, but this varies from property to property. From your share of the remaining income, you would deduct your monthly maintenance, real estate taxes (approximately 2% of purchase price) and debt service. Divide your final number by 12 and you have your monthly income/deficit. Of course, any time you spend using your unit would have to be factored out of your net result. And, you will have to factor in the economy, threat of war or terrorism, cold winters up north or heavy rains out west, prices for plane tickets, the sun, the moon, the tides etc. I realize that I'm not being too helpful, but there really is no safe answer to your question. Basically, as I have said to anyone who has asked this investment type of question before, do not expect a big cash on cash return. South Florida real estate has been appreciating rapidly, especially on the beach. Furthermore, demand for condo hotels is really heating up. Inquiries to our web site have more than quadrupled in the past three months! Focus on that appreciation, and buy a unit in a building with a good name, good management, location and amenities and you can't go wrong. One thing you shouldn't do if you're truly interested in a condo hotel unit, is sit back and do nothing (analysis paralysis) because these units are selling fast, and their values just keep going up.
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.