resort condo buying for passive income. Need ideas please.

16 Replies

Hi Folks,

I am looking at resort condos. These are owner deeded properties. You own them, not time share. Here are the specific financials.

proposed sale price : $400K

Net operating income

after association dues, property mgmt fee, utilities, maintenance and repairs
insurance, real estate taxes: $28,500 (average value over last three years)

Their insurance that they charge is for replacement of building, replacement of personal property and liability coverage. Do I need to get more insurance?

planning down payment : $100K
loan amount : $300K
loan rate : 4.5 APR fixed for 30 years

Cap rate : 7.5%
Monthly cash flow : $865
Cash on Cash ROI : 10%

Does this seem OK? I am looking for passive income. What are some considerations and questions to ask.? Do I go with a real estate broker to deal? or just approach the resort seller agent and use it as negotiation for better price. This is a reputable resort which is fairly busy and we have stayed there before. We like them.

I am a newbie in this. Any help is deeply appreciated.

Peter

My biggest questions are:

  • How did you come up with gross income?  
  • Is that NOI the actual values over the last three years?  
  • What is your personal goal and does this help you get there?  

It maybe doesn't sound like you are happy about 10% CoC. On my deals, on the conservative end I'm looking for at least 10% cash flow and 15% actual (counting the principal being paid down). But the deals I've done have been value add, so in reality it looks worse than that for 6ish months and then much better than that after.

Around here in Destin when working with investors, I'm typically looking for the gross to be at least 10% of the property price, if not 12%+ before we even start crunching the numbers.  

Another thing to consider is heads in beds.  AirBnB investors want to maximize occupants (with regard for safety and local regulations of course).  In many areas, it doesn't cost 2.5X as much to go from a 2 bed condo to a 5 bed house.  

If you're open to self managing, you could keep even more, but then that's a J-O-B.  My investor friends here in the Panhandle mostly self manage because it isn't too tough.  But from a afar it's tougher for sure.  

I guess my answer is: if you are confident in the actuals and happy with the cash flow, then go for it!  (this is me speaking as an investor only)

There is no way I’d touch a 400k beach condo that cash flows $800. Would need to be close to double that. 

How is this property being managed? 
mare you aware this would be a non warrantable loan and 4.5% is not likely. 

I’m not quite even sure you’re asking about short term rental (Airbnb/VRBO) but you are. And you should do some digging on the short term forum about self management and locations. 

If you can self manage this thing and up your cash flow could be do-able!  

@charlie  Thank you for responding.

@lucas

Thanks for the reply. This is a water park resort area in Wisconsin Dells. This unit is attached by walk way to indoor water park and hence gets decent revenue all through the year. 

relatively, a stable investment. But, things can go wrong . Trying to understand what things to look for. I am generally happy with proposed returns but not sure what other risks are lurking.

@Peter Jakonovisky - I'll echo @Charlie Cameron 's comments.  You definitely want to see how the property has performed historically.  I'd also compare that to AirDNA or Mashvisor.  Sadly, there's not one source that is always correct.  This is more of an art than a science when estimating gross income.  

Another massive piece of the puzzle is definitely management. If you only have one or two properties, I'd recommend self managing. It is definitely doable with a full time job. You can utilize some great tools like Pricelab, iGMS, Hostfully, etc. to really automate most of your "work". You'll also be able to give yourself a bigger buffer with your numbers as your enter the market self managing. I'm not sure what you're planning on paying for STR management, but around here (Destin, FL area), it ranges from 18-30%.


@Peter Jakonovisky I see several potential pitfalls: one, as @Lucas Carl pointed out, the unit is very likely a non-warrantable condo and therefore will not qualify for a conventional loan.  Two, with any condo you run the risk of special assessments or rising HOAs that you have no control over.  Three, if the principal/only draw is the water park, you're tied pretty completely to the success of that park.  I realize there are other things happening in the Dells, but I'm not sure how much year-round you could expect without that draw?  How would your investment fare if attendance fell at the park, or it went out of business, or was shut down due to some safety concern?  And finally, you definitely need to find out if more insurance is warranted.  I find it unlikely the building's insurance covers your liability if someone gets injured in your unit; usually condo insurance just covers liability in common areas.

If your NOI is actually correct (I'm skeptical, forgive me) then it's a pretty good return considering it accounts for the management fee. However, I encourage you to triple-check those numbers; see what additional fees the PM might charge you, check into insurance costs, and get a real view of the financing options since I don't think you'll be able to go conventional.

Good luck!  And go read in the short-term rental forum, you'll learn a lot :) 

You are all so awesome. Thanks so much. I will look into those numbers carefully. But, the resort owner agent gave the rental income and expense history for last three years. I asked , if they were projections , but I was told they are actual rental history and actual expenses for last three years. 


One of the biggest risks is, if the property has a bad reputation or something bad happens, the rental income can easily cut in half. 

i will look at other points you mentioned - non warrantable condo.

Thanks folks. 

Peter



Is it Chula Vista? Just be aware of the reoccurring bed bug issue in many of the hotels in the Dells. Check out short term rental University on Facebook.

I never went to Chula Vista because they repetitively have bed bug issues from what I've heard. I like Wilderness Lodge or Kalahari but I heard even Kalahari has had bed bugs...hard I stay in AirBnBs now when I'm out in the Dells. 

All bed bugs come from guests. You can't really hit a particular Resort or hotel for bed bugs because any of them can get them any day.

Originally posted by @Rebecca Knox :

I never went to Chula Vista because they repetitively have bed bug issues from what I've heard. I like Wilderness Lodge or Kalahari but I heard even Kalahari has had bed bugs...hard I stay in AirBnBs now when I'm out in the Dells. 

 

I don't know why people like to make complicated deals. 28000 a year taxes? That's insane.

if I get a $400,000 property, I expect to gross 80-100 thousand from long-term rentals without all the noise and complexity like this. And the taxes would be like ten thousand a year maybe. And I don't need a property manager. And short-term rentals are worth maybe $0.70 of a long-term rental dollar..

posted by @Peter Jakonovisky :

You are all so awesome. Thanks so much. I will look into those numbers carefully. But, the resort owner agent gave the rental income and expense history for last three years. I asked , if they were projections , but I was told they are actual rental history and actual expenses for last three years. 

One of the biggest risks is, if the property has a bad reputation or something bad happens, the rental income can easily cut in half. 

i will look at other points you mentioned - non warrantable condo.

Thanks folks. 

Peter

 

Ok English guru,

this is what I posted. Everyone else understood this fine. Also the colon refers to NOI. Read the whole paragraph carefully. You don't have to be argumentative. Just relax.

Net operating income

after association dues, property mgmt fee, utilities, maintenance and repairs
insurance, real estate taxes: $28,500 (average value over last three years)