Question on condohotels in Myrtle Beach

What do you guys think about buying condohotels in Myrtle Beach. The Hardrock Cafe is opening soon in Myrtle Beach and they’ve been doing some downtown redevelopment. I bought two during the presconstruction phase. What do you think is the long term outlook.

The condos generate great rental income but half of that goes to the hotel operators. I am a bit worried that I may not be able to off load these when I am ready. What’s your opinion?

People have gotten rich off condotels and people have lost their ass bigtime. It really depends on where you buy it in the cycle, if you’re one of the first in you will do ok. If you are buying towards the end you might end up with a dead asset that eats money like the Cookie Monster eats Oreos. We are currently looking at a falling market in nearly every area so your chance of failure when speculating is significantly higher. And I do say speculating because in reality apprecitiation is probably the only way you’ll make money on this, I’m thinking you’re not going to see much/any cashflow, probably negative cashflow. It’s probably going to be a hold, pay and pray situation. I’d steer clear on most any deal like that without a damn good reason to sock that much $ into it. What are the numbers on this?

One of these condo, I closed on about a month ago and the place has been packed to the hilt with guests so far. Supposedly similar buildings are doing around $25K per annum. You are correct, it will be a negative cash flow situation since half of that goes to the operators. I have another one I am waiting to close on but I have cold feet. The problem is, I have a deposit of $25K tied up. Not sure I can get out of this.

I did get in early; paid $200k for one bedroom ocean view and $244 for one bedroom ocean front. As far as appreciation, does it not depends on where the condohotel is located. My gut feeling is that people who are interested in a second home would find condohotels in a place like Myrtle Beach appealing since part of your operating costs are covered by the rentals. It sure beats buying a second home that you may not be able to rent out. Is something wrong with my logic?

Prices are falling nearly everywhere, now is definitely not the time to bank on appreciation unless you can hold for a while and maintain paying some of the cost out of your own pocket. For me the condohotels would only make sense to me if I was looking to buy a nice vacation spot for myself and using the rental money to offset my costs. I could only go down and enjoy a weeks at a time so I think having someone else manage the hassles of filling it and keeping the money coming in during the time I’m not there would be nice. If I’m not there its just a dead asset without having someone renting it so it does make sense in that respect. From an investment point of view frankly I think it sucks. When you invest you put money into something that will definitely bring in money based on your reseach of the market, analysis of costs, etc. Gambling is putting money into a losing situation that is definitely negative cash flow with the HOPE that you will get your money back. At least if I play roulette I KNOW I have around a 49% chance of getting my money back, that’s guaranteed…I don’t even have that much of a guarantee speculating.

I looked into beachfront condohotels way back, at Captiva and Sanibel Islands.

Since I had regular condos that I rent out, I understand “special assessments”, can play havoc with investment returns.

I learned that on top of the the regular P&L, I have to make provisions for replacing furniture every few years, as well as assessments for beach erosion, that could be costly, and comes about at unpredictable intervals.

Due to meager normal returns, I concluded I didn’t want to take my chances with beach erosion, furniture replacement, expenditures that can come about unexpectedly.

Frank Chin

Let’s not forget hurricanes either, we all know how much insurance companies HATE to pay claims if your property is destroyed. And lest we forget while it is being repaired from hurricane damage your unit is vacant.