Good Luck With That

Submitted by Rich Toscano on March 13, 2006 - 11:07pm

The LA Times is running an article on the wave of condo/hotels, which appear to be bubble's latest foray into absurdity. Why buy an overpriced condo, when you could buy an overpriced condo that you only get to live in for one month per year?

As an aside, lest you start to think that San Diego is overcome by doom and gloom, I give you a potential buyer at the Hard Rock Hotel:

"I'm buying a good investment and a lifestyle." He projects a 13% annual appreciation on his purchase and expects to break even from rental revenue.

"I view this as a long-term investment," he added. "I think I can't go wrong in San Diego."

Hold on there, cowboy. 13% annual appreciation? Where could that number possibly have come from? This guy is a professional real estate consultant, by the way. There is still plenty of deluded optimism to be found out there...

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Submitted by theplayers on March 14, 2006 - 1:52am.

Hey Gregerson, did you do the math? Let's say that Mr. Gregerson, professional real estate consultant, buys one of these condo/hotels for $700,000. He puts 20% down (unlikely, but we'll give him the benefit of the doubt), and finances $560,000 at 6.5%. His monthly payments will be $3540, and property taxes will probably be $650 per month. That's $4190 per month. Assuming that he is extremely lucky and is able to rent out his cool "lifestyle" pad 100% of the time, he still will lose almost $1200 per month after giving the Hard Rock 50% of the rental revenue. At a more realistic 80% occupancy rate, his monthly loss increases to $1800. I haven't included the monthly maintenance fee that he'll have to pay the hotel, nor the lost revenue when he stays at his "investment", which makes these numbers even worse. Even creative lending won't save this deal.

Am I missing something here? No way he breaks even on rentals. Even if he get's extra revenue from candy and liquor in the mini-bar, from phone calls made in the room, or from daily safe rentals, I can't see positive cash flow.

But who needs positive cash flow when your condotel will double in just over 5 years due to 13% annual appreciation?

Remember, you can't go wrong in San Diego. After all, there are 5500 people on the Hard Rock waiting list!

And this guy's a professional real estate consultant? I wonder how many new clients he will pick up as a result of this article???

Submitted by I am the greate... on March 14, 2006 - 8:54am.

13% a year?!?! After 30 years that's over $27 million for a hotel room?!?! Someone is in serious need of brain cells.

thereisnohousingbubble.blogspot.com shows how silly that much appreciation expectation is. Maybe we should email him a link?

Submitted by Dougie944 on March 14, 2006 - 10:38am.

I know the Diegan (condo-hotel) down the street was going to have between a $500-700 HOA/month. Also, I think when you use the room, you would have to pay a fee for the maid service.

Submitted by tliacono on March 14, 2006 - 8:07pm.

Remember about six months ago there was an article in the L.A. Times about doing the same sort of thing for cruise ships?

What will they think of next - an equity stake in an airplane seat for frequent flyers?

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