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Things To Consider Before Buying A Condo Hotel
Or Resort Residence
Resort home ownership, such as condo hotels and fractional
shares, is different from typical home ownership. So it is
important to ask certain questions before signing the purchase
agreement on a resort property. The following list of questions
typically applies to most types of resort property ownership
unless otherwise noted.
Pricing and Initial Purchase
-Is the price negotiable and do you need to purchase through a
certain company or representative? Who gets a commission off
the sale? Some properties have a small percentage of
flexibility in price while others are basically set in stone.
This will usually be determined by demand, as well as overall
policy of the developer or management company. Also, if you
know who stands to profit from the sale and how much, it could
help you in your negotiations.
-Is the property already completed or is it in
This question is important because the answer will likely
affect the price of the unit. Many properties in the beginning
stages of development will be sold at a discount to attract
buyers, but as it becomes a more certain investment or units
increase in demand, the price will go up.
-If the property is in pre-construction, when will it be
completed and what will the overall property look like?
You may be anxious to get into your unit or have a certain
occasion in mind. If completion is two years out, you may not
want to wait. Also, a property in the early stages may look
great to someone who wants a small facility with a low-key,
less populated atmosphere. But there may be plans for hundreds
or even thousands of additional units and large clubhouses,
retail areas or other features that will draw many people. If
you plan to keep your property for many years, you want to be
sure it will fit your needs when it is finished.
-How many other owners are there?
This question is important for those considering purchases of
fractionals. The price and amount of time available each year
will depend on the number of other ownership opportunities
offered in the particular unit. More than eight or ten other
owners will make competition for primetime more difficult.
-What type of financing is available for this type of property
in general and for this specific development?
Both condo hotels and fractionals are considered timeshare
properties. Even if they are viewed as a second home, the bank
considers all three types of properties discussed here as a
secondary obligation Ė one that is less important than your
primary home mortgage. As a result, you may have to pay 10 or
20 % down and the rate may be higher than a traditional home
Some developers offer financing, which can be helpful, but be
sure you understand the details. Some may require a smaller
amount down, but will ask for a large payment upon taking
possession of the unit. This arrangement may be fine with you,
but you donít want any surprises.
Another financing option is to take out a second mortgage on
the equity in your existing home. If you choose this route, be
sure the interest rate does not make it much more expensive in
the long run. Also, you need to be aware that if you use a home
equity loan to finance your purchase, you have only 90 days to
refinance to a regular mortgage.
Information About the Management
-Who are the developers? Who will manage the property?
The first question will be important in determining the quality
and reputation of the property. The second question will help
determine if the management organization is well-known,
professional, and likely to increase your rental income or
resale value. These two questions are critical from an
Costs Associated With Ongoing Ownership
-What are the ongoing costs and who pays for them? Is there an
annual membership fee?
There will typically be costs for insurance, real estate taxes,
and improvement of the facilities. Although owners generally pay
for these items, especially in a condo hotel setting, it is
still important to ask. Other expenses to verify include
housekeeping, marketing, administrative and general maintenance
of the property. These are usually paid by the facility but one
shouldnít assume this is the case.
Rental Plan & Income Generated
-Is there a rental program and is it voluntary?
You will want to know if you can choose whether or not to
participate in a rental program. This is true for all
properties as some hotel residences and fractionals also offer
this option as a means of generating income.
-How is the property marketed and does it have a history of
success or features that will make it competitive in the
vacation rental market? If you plan on receiving rental income
from your property when you are not there, it is important to
find out what the managementís experience and approach is.
Somebody like Hilton or Four Seasons has a reputation for
luxury and good service and will likely attract more renters
than an unknown management company. In addition, if the
property has a popular restaurant, is located near a convention
center, shopping area or other facility that will draw people
in, you are more likely to find interested renters on a regular
It is important to note that due to the unknowns involved in
marketing and renting vacation properties, you should not count
on rental income to cover the costs of ownership. Instead,
experts recommend that you view this income as a bonus, if and
when it is paid to you. The main consideration should be
finding a property that you enjoy and will use.
-How is rental income distributed?
Gain a clear understanding of the percentage of rental income
that will come to you, as well as any fees or charges that will
come out first, such as furniture and decorating charges, and
savings accounts for replacement of items. Some properties
offer a better ratio than others.
Availability and Usage
-How often can you use the property? How long can you stay? How
do you reserve time and how far in advance do you need to notify
someone? These will be important questions for condo hotel and
fractional owners. But even in a hotel residence, you may need
to call ahead to let someone know you are coming. Otherwise,
your place may not be cleaned and stocked with supplies.
-What if you want to cancel your time or reschedule? How far in
advance do you need to let someone know? Is there a penalty? Can
your friends and family use your allotted time if youíre not
For condo hotel and fractionals owners, the guidelines that
dictate what happens when you canít be at the property are as
important as those for when you are using the unit. Be sure
there is plenty of flexibility so that you can easily make
adjustments and get the most out of your property without being
-Are there other properties in the same management group that
you can use? Some properties are managed by companies that have
other properties available for you to use as an alternative.
This can be an ideal feature, especially if you like to travel
or want to share your available property time with family and
Amenities and Services
-What amenities and services are available for residents and
what do they cost?
It is important to have a full understanding of the services
and amenities offered and the charge, if any. Some properties
seem less expensive at first, but if you find that you will
have to pay for things such as laundry, maid service, and
furniture, appliance and decorating upgrades, the price doesnít
seem so great anymore.
Be sure you know the actual price it will cost you to get the
unit with the furnishing you want and the services you use on a
regular basis. These expenses are all part of the overall cost
of a property.
If You No Longer Want the Property
-What if you change your mind about the purchase?
In response to high pressure sell tactics of some standard
timeshare properties, the State of Florida enacted a rescission
law that allows you to change your mind about your purchase
within a certain timeframe. If purchasing a new property, you
have 15 days to change your mind and receive your deposit back.
On a resale unit, the timeframe is 3 days.
-Can I sell or transfer ownership of my property, and if so,
are there restrictions or penalties?
There may come a time when you want to sell your property or
give it to your children. It is important to know the rules
about this before you purchase. Some properties may say that
you can only transfer ownership to family members. Others may
require you to list the unit through the management company.
You may also be required to own the property for a certain
amount of time before you can sell. It is important to ask
these questions before purchasing.
-What is the resale value of the property?
In general, the types of ownership we have described have good
resale value and are typically much better than that of
standard timeshares. Of the three, fractionals are the most
questionable when it comes to resale, but the risk can be
greatly minimized if you pick an exclusive property with a
well-known management company.
The resale value of your particular property will depend on
several factors, including the reputation of the management
company, the number of other similar properties available in
your area, the condition of the property at the time of sale,
the overall real estate market, and the popularity of your
location. Some of these things canít be predicted, but if you
do your research it will help you to select a property with
high resale value.
This list of questions covers many of the different aspects and
issues associated with these innovative forms of resort property
ownership. There likely will be other questions you want to ask
as you become involved in the process. It is a good idea to
enlist the services of a reputable real estate attorney or
agent who is familiar with the specifics of condo hotels,
fractionals, and hotel residence purchases. It may cost you a
bit more, but could end up saving you thousands in the end and
can provide you with the peace of mind and freedom to enjoy the
experience and to feel satisfied with the process and the terms
of the final purchase.
About The Author: Leon Altman is the founder of the InvestingIN
Real Estate Letter
by Leon Altman
http://www.InvestingIN.com/realestate/LtrSignup3.htm - and its
parent website, http://www.InvestingIN.com ;
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