Village of Imagine, Orlando

Hello,

I currently have deposits on 2 studio units at the Village of Imagine in Orlando. It is a condo Hotel by Intrawest. It will be run by Westin as a 4 star hotel and is directly across the street from the Orange County Convention center. (search google for Village of Imagine for all the details)

This is my first real estate investment purchase and I am concerned becuase it appears (from my calculations) that these units will likey not benifit from positive cash flow. Considering the 2 studios I am looking at buying will cost me almost $6k/month in mortage/taxes/fee’s, I am concerned that I will have to fork out a lot of money each month to own these units and am thinking of only getting one. The only thing keeping me interested in two is this is their first release of units (which should be their lowest prices) and the location. I think the units will rent very well, but I have no idea how well or for how much the nightly rates will be.

I was thinking getting two units and selling one and help pay for the other…but I am not sure if I will even be able to sell them once they are finished. i.e. - if they don’t pay for themseleves (forget making a profit) who would by them?

Your thoughts on this would be much appreciated.

Thanks

One would have thought that these thoughts would have crossed your mind BEFORE purchase.

This, BTW, is not a “real estate investment purchase”, it is a Real Estate speculation.

You are now the proud owner of, not one, but two “alligators”…

I would see how much you stand to lose monthly and how much you can sell for and cut your losses…there may be someone that still wants to buy into this phase.

Keith

Well I actually have not purchased these units yet. I still have time to “back out” if I want too. I only have deposits on them. I gathered tons of data on this and similar projects before I even got involved. But now…as I approach the point of no return… I am getting nervous about buying in to a project that will not be completed for 2.5 years. I was wondering if anyone heard anything about this project or has ony thoughts in it.

To answer your question I stand to lose the $6k/month it will cost to own these units. Though that is assuming they do not rent at all. The occupancy rate on I-Drive in that area around the Convention Center has been around 90% over the last 5 years. And 4-star hotels in that area run around $200+/night. My plan was to save about 3-4 months worth of rent over the next 2.5 years…to hold me over when the project is done. So if they don’t rent…I will have about 4 months to try to sell them. (though I doubt they will sell if they don’t rent )

Thoughts?

Still, very speculative…especially when you base your projections on occupancy rates in vacation areas…

How do think the speculators in the New Orleans market are making out right now…? It would take something les catastrophic in Orlando to run the numbers down the tube…I’m conservative by nature, though.

Keith

I totally agree. This (and any investment for that matter) is speculative. There is no garuntee that any property you buy will rent or sell for you. But I guess what I’m looking for is feedback from anyone who has experience in these types of investments. (good or bad)

I think to make the stretch that this speculation and all REI are the same because “…there is no garuntee that any property you buy will rent or sell for you…” is not rational and it will get you in trouble by a bad property that blind-sides you.

Life has no guarantees but you can take it to the bank that when I buy a property and rehab, I will:

(1) Get over 95% of my capital investment back,

(2) Have a strong positive monthly cashflow (in excess of $200 a month), and

(3) Have at least 20% equity

…and none of these properties have cost over $65K total! I paid $64,900 for the most expensive one. Once I rehabbed it, it appraised for $77K and has a $300+ PCF. I have a system, it works for me, I stick to, and repeat. And…in this area, I can repeat it over and over and over…

But, I’ve not made any speculations, so take it for what it’s worth!

Keith

I’ll try to help you with the last part of your question first: I don’t believe that cash flow (or lack of) will be a problem when you put these things up for sell. That’s probably not how they were sold in the first place - which is probably the reason why you don’t know how much the rental rates will be. People buy these condo hotels for all kinds of reasons: vacation homes, a place to park cash, potential appreciation. Rental income is - or should be - just one part of the equation. What makes these things winners or losers is location, amenities and operations - with particular emplases on location. I’m not familiar with this particular one, but I took a quick look at it. Efficiencies at $270,000 across the street from the new convention center in Orlando with close proximity to the airport and theme parks doesn’t look bad to me.

IMO, these are not the types of properties that requires cash flow to be good investments. In fact, if they cash flowed easily, they’d probably sell for a lot more than they do because more people could afford them. These are buy and hold (and hope). And the “hope” part of it means that you shouldn’t bet the farm on them. Bad things can and do happen to speculatative properties. In the end though, quality property wins. Quality property that looks high now will look cheap 10 years out.

Regarding “selling one to help pay for the other” - I wouldn’t recommend it. If you can’t close and hold on to them both, don’t go to hard contract on both. With all the bubble talk and other bad press, there is not the pool of potential buyers that might have been begging for your property this time last year. (If you were thinking of flipping before closing, you should check and see if the developers even allow for that - not all do, especially with condo hotels).

Thank you WiLe, you did help me, that is exactly the type of feedback I was hoping for.

If there’s no cashflow, there’s no “investment”…there’s only speculation!

In investing, cashflow is not “just one part of the equation”, it IS the equation!

Period.

Other opinions and mileage may vary depending upon your brain and your personal driving habits…

Keith

Almost any property will cash flow if you put enough cash into it, so the dividing line between speculation and investment is pretty thin. If one has the financial resources, there’s nothing wrong with speculating and nothing wrong with calling it investing. That’s all semantics. What matter is whether you understand what you are doing and have calculated the risks vs rewards.

The fact is, over the last few years, fortunes have been made doing exactly what wannab is considering and very little money has been lost. The party might be over for awhile. Or not. I’m not going to tell him he shouldn’t risk going for it. I’ll tell him what I know and let him decide. His decision shouldn’t hinge on a label. It should center around risk - reward and he should gather enough information to make an intelligent decision - which looks like what he’s doing. He hasn’t risked a cent that he can’t get get back at this point. Tying up a property at no risk and doing your homework is smart.

<<Almost any property will cash flow if you put enough cash into it>>

If you have to infuse cash into a property to make a cashflow, it’s not cashflow…it’s a money swap.

<<…the dividing line between speculation and investment is pretty thin.>>

Not in my mind…it’s black and white…no gray. If you are at negative cashflow, an alligator eating out of your back pocket, waiting on appreciation, you’re speculating. Like Denny Crane said: “It’s that simple”.

I never told wannab differently…you’re absolutely right – it’s all about risk and reward. It’s no skin off my nose if another investor loses every nickel. But, it’s speculative and risky and not for me. And the statement “very little money has been lost” is misleading at best…tons of money have been lost in shaky real estate ventures…tons more will follow.

Keith

No, “very little money lost” in this particular type of investment in Florida, the last several years is not misleading. Hence all the lotteries and flipping. Did you see where I said that the party might be over for awhile? In other words, the past is not necessarily any indication of future profits.

We could argue semantics all day long and still be where we started. Investing or speculating, what difference does it make, as long as one has weiged risk vs rewards.

Wannab asked specific questions relevant to his area of interest. Any other advice is superfluous.

I didn’t tell him to proceed. I told him what I knew about his particular area of interest.

<<We could argue semantics all day long and still be where we started. Investing or speculating, what difference does it make, as long as one has weiged risk vs rewards.>>

Between you, me, and the lamppost, it probably doesn’t make a lot of difference symantically…however, there are a butt-ton of inexperienced investors in here looking for guidance and consistency.

When you have kids, you don’t point at the cow and tell them it’s a horse one time, a dog the next, and then a cat…you call it a cow because it has a name and that’s what it is…

People learn through consistent repetition:

“Practice doesn’t make perfetct…perfect practice makes perfect”.

Keith

I can agree with that.

Thing is though, investing (speculating, if you like) in Florida preconstruction condos is about as different from buying inexpensive RE at a discount and fixing up to sell or rent as an apple is to an orange.

The fact is that some people can afford to speculate for greater profits. Not everybody’s future hinges on the next deal. Some people, and some of them are inexperienced investors, can afford to buy and hold precons and feed the investment until it turns positive or reaches a point that they can sell for a profit - not to mention use the property themselves. Heck, many of these people can afford second homes and just let them set there. If they’re sitting in the right place, say on the water or on top of a pretty mountain with a nice view, more than likely, they will appreciate to the point one day where it will pay for all those vacations.

I was fishing on the beach a few years back and I struck up a conversation with someone who owned the home in back of me. He said that even though he could afford the payments, he had to talk himself into the deal by calling it an investment - his rationale, being that there’s only so much sand on the beach. That was about 8 years ago. I would guess that his “investment” is worth probably 5 times what he paid for it. And remember he had no alligator nipping at his heels, because he could afford it.

The fact is that prime property is limited - be it beach or across the street from a major convention center. Time will make all of it winners. The “make it or break it,” IMO, doesn’t hinge on whether prime property will appreciate - it hinges on whether one can afford to do the deal and hold it until it pays. It helps to get a bargain also, and in theory, that’s what precons are.

My philosophy is right in line with yours WiLe. I do have the funds to afford the mortgage on this condo/hotel IF it doesn’t rent. (My personal rule for investing, “Invest what you can afford to lose.”) My hopes are that it will rent fairly well and I will not have to put too much out of pocket. I am “speculating” that this property will become more valuable overtime than what I paid for it. But I am prepared for the worst case scenario. So I was hoping maybe someone out there had experience with a hotel condo purchase and could give me some feedback.

And no offense to you Keith, but you totally got away from the intent of my original post and turned this in to a discussion about your personal investing philosophies and how the one I presented here is an “alligator”. As I originally stated, I am looking for feedback on the scenario I presented. You stated it is not something you would recommend, which is fine. But if you are going to continue to say that this purchase is a bad idea and making purchases in this manor are bad in general, could you at least provide some data or documentation, because that is exactly what I am looking for. And by documentation, I do not mean your personal formula for success in real estate. I mean documentation as it pertains to condo hotels.

Wannab have you been here:

http://www.condohotelcenter.com/ask-expert/resalevalues.html

If you haven’t, there is some good info explaining the concept.

The reason that you probably weren’t given rent projections is that the developers are wary of entangling themselves in securities law.

Yes thank you WiLe, that is one of my many bookmarks.

I never said that this purchase is a bad idea (for you)…I said, “Call a cow a cow, don’t call it a horse”…it has four legs, a tail, and flies like a horse does, but it is a cow…

At least here you have relented and called it what it is a “speculation” in future valuation while hopefuly having some (or perhaps all) of the costs offset by rental income…

There are a ton of people making a boatload of money in speculation – in real estate, in rare metal, in oil…in lotsa stuff…I’m not saying it’s bad. I’m saying it’s speculation – pure and simple. I understand your concepts, your investment strategy, your hopes (well, as much as you’ve outlined them here…I’m not stupid…but, I am stubborn and we need to call things what they are and not muddy the water. Your concept is solid: don’t speculate with money that you can’t afford to lose…just like I don’t go to the ‘boats’ and play blackjack with the mortgage money.

As I said, remember: There are younger inexperienced investors here. They are looking for consistent and sane investment guidance.

Keith

Understood, but at no time did I ask, “Would you call this an investment or speculation?” And true, you never said the words “this is bad”, but you certainly are suggesting it.

FYI, some of the many definitions of “investment” and “speculation”:

Investment

“1. Property acquired for the purpose of producing income for its owner. Just as plants and equipment are investments for manufacturers, stocks and bonds are investments for individuals.
2. Expenditures made for income-producing assets.”

Speculation

“Speculation involves buying something on the basis of its potential selling price rather than on the basis of its actual value.”

Based on those definitions, the scenario I presented here qualifies for both, as do all real estate investment purchases. Since every “investor” buys something on the basis of its potential selling price rather than on the basis of its actual value. Cash flow and selling for a profit are both “income producing”.

You even support this with your own statements:

“…and none of these properties have cost over $65K total! I paid $64,900 for the most expensive one. Once I rehabbed it, it appraised for $77K and has a $300+ PCF. I have a system, it works for me, I stick to, and repeat. And…in this area, I can repeat it over and over and over…”

You are not engaging in this system of yours with a goal of breaking even. Again, remember this particular definition “Speculation involves buying something on the basis of its potential selling price rather than on the basis of its actual value.” I’m sure you rehab these properties with the goal of potentially increasing the value of the property.

I think the whole point you are trying to make is that the scenario I present here has a much higher risk associated with it than other investing formulas such as the one you use. I agree, it has much higher risk associated with it. Having said that, can we now stick to the original intent of my post?

I am hesitant to insert myself into this very lively discussion, but since I am have some close hand experience in this deal I thought I would offer it.

Condo/Hotels are a tough resell if they not cashflowing. They are a business, not a second home or a place that a prospective buyer can consider home.

2 years ago two members of my investment network invested in condo/hotels. They are not cashflowing. Now, this particular establishment charges a $15K membership. Given the cash outflow, appreciation has to be pretty darn healthy to make up for the monthly bleeding.

But it isn’t.

It isn’t because the prospective buyers are looking for a business opportunity and looking at operation expenses vs revenue. The math doesn’t add up and that creates a weak exit strategy.

It seems to me from your posts that you really want to do these deals and are just looking for some support in that area. If so, go for it. I wouldn’t, but only time will tell.