Things To Consider Before Buying
a Condo Hotel or Resort Residence
by: Leon Altman
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 pre-construction?
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.
the property is in pre-construction, when will it
be completed and what will the overall property
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
- 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
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 don't
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 investment
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 shouldn't 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 management's 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
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
-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 you're not able to?
For condo hotel and fractionals owners, the guidelines
that dictate what happens when you can't 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 penalized
-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 friends.
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 doesn't 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
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 can't 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.
For more on finding and buying the right condo-hotel,
check out Make Your Next Home a Resort, the 2005
Guide to Condo-Hotels, Fractional Shares and Resort
Residences. You can download the Guide as a pdf
file at http://www.InvestingIN.com/realestate/resorts/resort4u.htm
About the Author
Leon Altman is the founder of the InvestingIN Real
Estate Letter - http://www.InvestingIN.com/realestate/LtrSignup3.htm
- and its parent website, http://www.InvestingIN.com
- which provides articles and newsletters about
opportunities in different areas.