Condotel
Okay. Was approved for $80k to purchase a beach rental property to come and find out that the loan cannot be used to finance a condotel. Wow! I didn't know what that was beforehand and now we can't even use the pre-approved loan to purchase it.
Suggestions on loan resources for condotels in the Myrtle Beach area?
As you know, a condotel is a condominium project that is operated like a hotel in that the place is rented like a room of a hotel. The condo may have a registration desk and daily cleaning services and operates like a hotel. Most places at MB don't fit Fannie Mae guidelines in multiple ways. Non-owner occupied densities are frequently >>50% and some places are 100%.
A MB real estate broker may be able to help you with a condotel financing.
Thank you. How do condotels stack up as real estate investments?
slightly above a time share.
Resort condos at MB? My 2 cents? As an investment, I think they suck. At least for people like me. I'm sure there are people that make money with them, but for the majority, it's a lifestyle or personal consideration thing, not an investment consideration. Keep it full all the time and you may do Okay. Canadians are your friends. Get Center-ICE and post craigslist ads starting in the fall in Toronto.
(Options: You could subsidize your MB property with other 2% rule property you own in NC/SC. Let me know if you want to go 50/50 on something at The Palace, Atlantica, or Sands Beach)
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Condotels are generally a Horrible investment. The operator is usually the only one that makes any money. Be glad you couldn't finance it.
Will the owner's seller finance the deal? Does the condotel meet your financial & investment goals? If you can underwrite the deal within your parameters I wouldn't say it's a bad investment. However leverage not only plays into the acquisition but also the disposition. Even if you can obtain financing make sure you understand that your resale could be affected by the credit markets.
Historically condo hotels haven't been the best investment. A lot of product nationally was built during the boom years and was either over leveraged or wasn't able to meet projections (& was also over leveraged). It left a bad taste in a lot of peoples mouths in the hotel and vacation ownership businesses. Certain developers & operators have had success in certain locations. But in my opinion it's been far and few between.
@Chris Winterhalter
Thank you Chris for taking time to answer my question.
No, the owner will not finance.
What do you mean, "...if I can underwrite the deal within my parameters...?"
I'm new to all of this and as a result, I don't completely understand what "leverage" and "disposition" are in this context. They sound very important.
@Wayne Brooks
I have not heard about any "operator" for this condotel. Where does this person fit into this process? Thanks
He is talking about the owner/operator of the hotel. Here is a Forbes article from 2006, http://www.forbes.com/forbes/2006/1225/068.html calling condo hotels (same thing) a terrible investment. This was before the bubble burst and things got even worse.
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@Kevin CuthbertsonYou understand these things are run as a hotel, right? You have no control, or ability to rent out your own unit.
So generally I agree that condotel's are seldom good investments but I will say some of the ones in MB am thinking are reasonable (not great, but reasonable). For example, at least based on my first glance, you could buy a 3 bdr 3 bath unit with a lock-out for around $400K. A unit in 2014 that grossed approx. $60K with 12 days of personal usage by the owners. And being managed by a major hotelier (e.g. Hilton), you get that name/reservation ability, care of the property, and being at one of the largest conference centers in the area, there is a level of business demand espc off-peak.
You don't have to use Hilton mgmt, but it is desirable for the renter (and owner) because then you not only get the reservation ability but the renters and owners get access to the flood amenities at the property. They take 35%, owner gets 65% (based on what I've heard). So unless my math is way off here or their %s are off:
Income:
$60K/yr - 35% = $39K/yr or $3250/mo
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Expenses:
Mortgage (~$1400/mo @ 300K)
Taxes ($333/mo, say $4K/yr)
HOA ($850'ish/mo)
HO-6 ($50'ish/mo)
Misc (health club, phone in room, electric, $150'ish/mo avg)
Repairs ($100/mo)
= $2833/mo
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Not the best investment (not even close to the 2% rule) but frankly it doesn't look like even close to the worst either.
While I agree about the brand name appeal, I don't agree with the numbers.
Just off the top of my head, add in furnishings, local accommodation taxes (total up to 12% in MB), owner paid electric, and capital expensed items (some of these may be via special assessment.) Anything close to exterior (A/C units) have life expectancy much less than average. Calculate 3 year life span for appliances in a 3 BR. HOAs generally cover screen doors, but not stuff like your deck furniture. And check special assessment histories. HOA fees don't include special assessments, and they do happen.
@Chris Martin what’s MB?
Originally posted by @Kevin D.:@Chris Martin what’s MB?
From the Original Post (OP): "Suggestions on loan resources for condotels in the Myrtle Beach area?" MB == Myrtle Beach.
@Kevin Cuthbertson, did you ever manage to find financing for this or did you scrap the idea? I am trying to learn as much as I can about Condotels. I love the idea of Breakers 3 bd/2ba or 1/1 to start. I live in MN, but travel to MB a couple times a year for a few days. My real plan would be to rent the property all year if possible. Any information is greatly appreciated. Thanks - J