Are Condo Hotels Investments? | Why It's Best to Buy Condo Hotels in Pre-construction | By Joel Greene
Heard all the buzz about condo hotels? Ready to explore this type of vacation home product? Then be sure you understand what's involved.
While many people see condo hotels as investment tools, developers, in accordance with Securities Exchange Commission regulations, sell them only as real estate. They suggest that you focus on the benefits of owning a luxury home that usually comes complete with four-star or higher hotel services and is located in a highly desirable vacation destination.
Rent Revenue Offsets Your Costs
While it's true that one of the key benefits of owning a condo hotel unit versus a traditional condo or vacation home is that you'll receive some rent revenue when you're not using your unit, cash flow should not be the main reason to buy. To set realistic expectations, think of the revenue generated by your condo hotel unit in the rental program as helping to offset your costs.
Buy in Pre-construction to Maximize Appreciation Potential
As for potential appreciation, like any real estate, if you buy at the right time, in the right location, you can make money. In the case of a condo hotel unit, buy in early pre-construction stages and you have the best chance of realizing appreciation when you eventually sell.
That's because as the condo hotel is being built, developers implement planned price increases at various stages of the selling process. You're essentially buying tomorrow's property at today's price. Plus, while the property is being built, it will likely appreciate so that when you do finally close, you'll have instant equity.
Keep in mind that your actual profit, of course, depends on the general market conditions, interest rates and competition.
Is Flipping Allowed?
Can you sell before closing? While flipping was a common practice a few years ago, today most condo hotel developers do not allow investors to sell before closing on their unit and clearly state this item in their contracts. They don't want to compete with you to sell their remaining units.
Nonetheless, if you buy a quality property in a good location, you could end up with not only a great second home but a real estate investment that appreciates with time and will net you a profit when you sell.
Why It's Best to Buy Condo Hotels in Pre-construction
Hassle-free Vacation Homes
Interested in getting in on the condo hotel trend? Perhaps you've heard about this new type of vacation home ownership, and it sounds right for you. After all, a condo hotel unit is typically located in a great vacation destination. It's in a three-star or higher property. And a management company takes care of all the hassles typically associated with ownership, including finding renters when you're not using your condo hotel unit.
Buy Condo Hotels in Pre-construction Phase
With many new condo hotel properties coming on the market, when is the best time to buy? The answer is easy. In early pre-construction phases.
Most condo hotels begin selling their units long before the property is built, and often before even the first shovel-full of dirt is overturned. The idea behind a pre-construction purchase is that you're buying tomorrow's property at today's price.
A Deposit Holds Your Condo Hotel Unit
In some cases, you simply place a reservation with a deposit of usually 10% to 20%. The deposit goes into an escrow account of the developer. The funds are invested in a low-interest passbook account, and any interest paid on the account (usually minimal) is applied to the purchase price.
You can expect to go to contract once the developer has sold enough units to meet lender requirements (usually about 50% of the total number of units?) and has applied for his construction loan.
At that time, your reservation will be converted into a hard contract, a binding agreement. Depending on the recission period of the individual state in which the property is located, you'll typically have 7 to 15 days to decide whether you want to proceed with the purchase or cancel.
The Construction Process
How long does it take to build a condo hotel? Well that depends on a number of factors such as whether the property is to be built new or whether it's a conversion of an existing hotel or resort, the weather and the permitting process. Generally, for a new property, it takes close to two years to build; conversions take six months to a year.
Appreciation Makes Pre-construction Appealing
Some people wonder why they should buy in pre-construction. After all, your deposit monies are tied up for one to two years. The answer is you get in on the ground floor when prices are lowest and unit selection is greatest.
As the condo hotel is being built, it is gradually appreciating. Developers implement planned price increases at various stages of the selling process. If you purchase your unit at a pre-construction price, it potentially could be worth significantly more at completion. When you sell, that translates into a higher profit for you. The actual profit of course depends on the general market conditions, interest rates and competition.
If buying a condo hotel unit in the early pre-construction phase is best, how you do you find out about projects? After all, it's not as if there's a building structure to catch your eye as you drive by.
Your best bet is to find a realtor who specializes in condo hotels or to sign up for a condo hotel newsletter, one that will keep you apprised of new condo hotels coming on the market, as well as building trends and hot developers.
ORGANIZATION
Condo Hotel Center
A Division of Sheldon Greene & Associates
http://www.condohotelcenter.com
13499 Biscayne Blvd., Ste. 210
USA - Miami, FL 33181
Phone: 305-944-3090
Fax: 305-948-0460
Email: info@condohotelcenter.com
posted by James Haft at 2:14 PM
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