Don’t Buy a Condo Hotel Until You've Read This
All Condo hotels are not alike! Be a smart investor says Frank Arena.
St.Croix (PRWEB) September 7, 2006 -- Before investing in a Condo Hotel project potential investors need to read a case study prepared by Frank Arena Editor of investsmartnewsletter.com
Case study 101
There are many different types of condo hotels. Condo hotels sell for $300,000 to millions of dollars. Let’s review two examples of condo hotels being offered in the Orlando/Kisssimmee Florida area.
One option is new construction ranging from $400 per square foot to $700 per square foot.
A second option is conversion of an exiting franchise hotel. These units are 331 sq.ft. and sells for $272 psf. Let’s compare the two investments and see which one makes good dollar and cents.
If you purchase a 400 sq. ft. unit for $600 per sq. ft., your purchase price would be $240,000. With 10% down and 30 year amortization at 6.5% interest rate, payments would be $1,390 per month.
The monthly income for this condo hotel based on the national occupancy rate average of 57.1% (percentage of hotel rooms used) and national average daily rate of $94.94 (the amount charged per room), according to Smith Travel Research would be $1700. per month. Most condo hotels take 50% of the profit as their fee for handling daily operations plus an HOA fee. For this example let’s keep the HOA, property taxes the same on both case studies.
57.1% (national average rented) x 30 days per month = 17 days rented
17 days rented X $100 per day = $1,700 per month income
50-50 split with management company = $ 850 per month to them and $850 per month to owner
Monthly mortgage $1,390 per month
HOA fee 515 per month
Property Taxes 100 per month
Insurance 200 per month
Total Expenses $2,205 per month
Expenses $2,205. – Income $850 = Monthly loss $1,355 X 12 months = $16,260 loss per year
This would obviously not be what you would call a smart investment.
Now lets do the math on the existing franchise conversion unit selling for $272 psf. For simplicity sake, rounded cost is up to $300 psf.
57.1% x 30 days per month = 17 days rented
17 days a month X $100 per day = $1,700 per month
(So far all is equal regarding income)
4% Management Fee = $68 per month to them and $1,632 per month to the condo hotel owner
Monthly Mortgage $567
HOA fee 515
Property Taxes 100
Insurance (included in HOA fee) 0
Total Expenses $1,182
Income $1,632 – Expenses $1,182. = Net monthly profit $450 X 12 months = $5,400 income
Now that is what you would call a smart investment.
That seems like a very fair deal. Don’t even look at condo hotels that are splitting revenue 50-50. Pay no more then 10% per month in management fees. The best management programs are under 5%.
Savvy people are always looking for real property in their state. But smart money goes where the deals are. Even if the value is thousands of miles from home, in today’s real estate market you have to go where the investment makes dollar and cents.
We hope this article helps prospective investors in condotel short for condo hotel smarter investor. Make a smart condo hotel investment
About Frank Arena
Frank is a free lance journalist who writes for http://www.investsmartnewsletter.com
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