Occupancy Rates - Need Advice - Posted by Dominick

Real Estate Investing Vacation Rentals
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Occupancy Rates - Need Advice - Posted by Dominick

Posted by Dominick on March 31, 2004 at 02:10:02:

Hello,

I am currently looking at investing in a resort condominium which would be placed in a rental pool. The resort is in the construction phase so no history is available for it. At a 50% occupancy rate I would be looking at around a $4,000 cash loss after debt service. However, at a 75% occupancy rate I am looking at about a $32,000 positive cash flow after debt service. I am not really sure what I should figure for the vacancy rate or really what to base it on. Any advice on the issue would be greatly appreciated. Thank you very much.

-Dominick

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Re: Occupancy Rates - Need Advice - Posted by Maggie Danner

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Some additional thoughts - Posted by RobH_WA

Posted by RobH_WA on March 31, 2004 at 10:21:53:

A big issue is who is the manager. Do they have a strong local presence? Or do they have a national brand and marketing? And what are you paying in management fees? For example, a Westin, Marriott, or whatever is going to pull in more customers, but is also going to charge higher fees.

Your figs indicate $400/night after management costs, which seems high if they take 30-40%, but it totally dependent on size of unit, resort location, and unit size/quality. You may want to post the specific resort to the main board for better feedback on that.

I disagree with David’s earlier post on resales. 50% is applicable to timeshares, but not condos in rental pools, unless you buy a real dog. In my experience what drives the resale value of rental pool condos are the general market for condos in that location adjusted up or down by their relative financial performance - ie a successful (not necessarily cheap) manager will influence the price relative to local alternatives. Reason being many people buy these units as a combination of vacation home and investment, so a mix of the 2 criteria will affect the value.

Resale value may also be affected by terms of use. For example, if owners are restricted to 14 days in summer and 14 in winter, and balance must go into the rental pool, that would be less desirable than 28/28, or whatever.

Assuming there are competing properties currently operating you can go and talk to the manager (as a prospective buyer of one of their units…) about their occupancy rates. They should be able to show you indicative numbers, which will of course be at the high end of reality.

Finally, whatever you expect to be the stabilized occupancy pecentage to be, bear in mind that resort condo occupancies are much more volatile than, say, apartment occupancies, and it will take some time for any manager to develop a sufficient presence for repeat business. Resort condos that I am familiar with have seen swings in revenue of over 30% year-to-year.

R

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Re: Occupancy Rates - Need Advice - Posted by David

Posted by David on March 31, 2004 at 07:40:45:

Call a local appraiser. You don’t need an appraisal you need them to find and comfirm occupancy rates on comparable properties. Also resales of these units are typically sold at 50% of what the new units are sold for. Check the internet and local brokers for resales. What area of the country are you buying in?

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Re: Occupancy - Posted by Paul

Posted by Paul on March 31, 2004 at 07:18:19:

That’s a tough one. First, is the resort seasonal? If so, you should consider vacancy as a percentage of the season. The only advice I could give is to ask around at some local realtor/appraiser/property manager offices. Also, what is the local rental market like now? Is there demand for additional rentals. If your condo project is large and your unit is not one of the more desireable ones, you could have a tough time renting or might have to ask less rent.

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Re: Some additional thoughts - Posted by Leslie Edwards

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Re: Occupancy Rates - Need Advice - Posted by Eoin McAleer

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