Don't even bother with condo-hotel
Dear B.R.:
Condo-hotels ... ugh -- and at $1,000 per square foot! I marvel at the consummate gullibility of a trusting, easily exploitable and greedy American consumer.
While I don't offer guarantees, I'm going to make an exception in your case and give you an outright guaranteed maybe that today's value of this condo-hotel in Las Vegas will be a heck of a lot less when you try to sell that property six months or a year later. I will also give you an absolute guaranteed maybe that your interest costs, insurance expenses, maid service, condo fees, real estate taxes and maintenance can exceed, by orders of magnitude, the rental income you want to believe you will earn.
I will give you a definite guaranteed maybe that, while annual hotel occupancy rates average 75.3 percent, the yearly occupancy rate for your condo-hotel unit will not exceed 40 percent. I will offer you as well a solid, guaranteed maybe that the rental income you naively believe you'll get will be enormously lower than your expectations. And I'm giving a straight-out guaranteed maybe -- even if your condo-hotel unit has a 75 percent occupancy rate -- that your rental income will fall steeply short of your rental expenses and at the end of the year, you will have a bleak, black tax loss.
If you try to sell that absurd investment a year later, I doubt that you will get 70 percent of your money back. I don't know of a single, living soul whose rental income from a condo-hotel exceeds expenses. The phenomenal rate at which these silly things are being converted or built in popular hot spots around the country reminds me of the boom/bust cycle in the tech stock and dot-com fiasco five years ago and the recent explosion/implosion of the condo-housing market. I think you're looking at a potentially devastating condo-hotel glut in a couple of years that may force a large percentage of these properties into foreclosure.
Before you shell out $690,000 for that glitz, glint, glimmer and gleam, try some common-sense research, which may be difficult. After a $70,000 down payment, you are going to pay 7 percent on a $620,000 mortgage, which is $43,000 in interest costs. Assume that your unit is rented 75 percent of the time (that's a generous assumption) at $275 a night, which is $75,000 a year in rental income. However, 50 percent of that rental income stays with the hotel, so you keep $37,500. Right off the bat, you're $5,500 in the hole. Include taxes ($5,000), maintenance ($5,000), management fees ($4,000), maid service ($10,000), plus insurance ($2,000) and your losses exceed $31,000 a year.
I hope you recall the enthusiastic time-share boom 20 years ago and remember how it went bust with a bang. Tens of thousands of saps and schnooks like you fell for the razzle-dazzle sales pitches, got gulled by sweet-tongued salesmen and signed their names on the proverbial "sucker's line." A year later, when they told their sales agents to sell the property, their agents responded, "To whom?"
I believe that most American consumers would eagerly buy a camel if a clever camel herder could figure out how to sell his camels for $100 down and $50 a month. Heck, Americans have already invested big bucks in herds of buffalo, ostriches, llamas and pot-bellied Vietnamese pigs, so why not a camel or an elephant?
"A sucker is born every minute, and a promoter born every hour to make certain no sucker is spared."
If you buy that condo-hotel in Las Vegas or even one in Miami, Orlando, or Fort Lauderdale, Fla., make sure that your group health policy covers psychiatric care because you're going to need it.
It's soon to be hotel city instead of a small hometown feel. :nono1:
