Anyone know of or have experience in condos in ski areas?

A property popped up to where I can utilize my existing equity for the 20% down payment and there's a local bank that may likely qualify me for the mortgage. HOA fee, which is $1,200, will cover the furnish of the condo and management of the unit like it would be as a hotel, managed by one of the major hotel chains.

So far, here are the pros and cons I've brainstormed about:

Pros:
• High HOA fee will cover all maintenance, booking for customers, resetting of the condo for the next customer, etc.
• Amenities are basically like what you'd see in a timeshare and hotel like pool, hot tub, entertainment rooms, etc.
• The condo is fully furnished and maintained by the hotel chain.
• The condo is at an affordable price point for ski town ($330 a night during the low winter season, possibly $400 during peak). I am not sure about what the hotel chain's cut is though, which is what I'm planning to learn when I go to the showing.

Cons:
• This kind of property, I cannot use the equity of this property to open up a home equity line
• Very high HOA fee and high risk (fortunately, me and my partner investors [sister and brother in law] can afford to pay out of pocket every month for the mortgage, HOA, etc. for a worst-case scenario)
• Very high upfront investment cost (20% down payment, but there's a local bank that's willing to cough up the loan for this investment property)
• The condo's like a hotel suite, so we can't exactly treat it like a home.

I have no experience in this kind of thing, but from everything I've heard from others, I wouldn't touch it with a 50 foot pole. I'm sure there are places on the web that can give you the honest truth about the specific property and its pitfalls. But from everything I've heard, it's not really an investment in anything but having a vacation. You most likely will never get your money back and the maintenance costs will kill you.

I have a fairly high tolerance for risk and this is not something I would even think about doing. It sounds like you are borrowing on one property to make the down payment on another. If I could afford the down payment in cash, and I could afford to pay the loan with $0 income from the property, then I might start looking at financials to see if it might be a good investment. BTW if you are thinking about a home equity loan on your primary residence run away fast.

After digging into the financials more, I was able to hand calculate ball park numbers on this property.

Based on the revenue of last years financials (before property cuts from the hotel chain, which is estimated to be 30-50% of the rent from the condo guests), HOA fees, minimum payment on the home equity line of 20% down payment, estimated mortgage payment with escrow and taxes and utilities, I'd end up in the red likely every year of this condo.... Around $10-11k per year, to be exact. What's crazy is that the condo's located at the base of a major ski resort with very high traffic and a decent spot. Still, the property appears to be more of an emotional buy rather than a true investment. To help me feel better about looking past the property is that if I were to pay out of pocket for a hotel for 14 days out of the year, it would cost me just shy of $7k per year.... Still less than the $10-11k I'd be shelling out for owning the property. I'll still entertain and gather more information from the realtor any ways, for some more learning!

.... The search continues! It's a great feeling to finally have some equity built up on my home to venture in the world of investments and risk. It's kinda thrilling, to be honest lol.

@bgriffin wrote:

I have a fairly high tolerance for risk and this is not something I would even think about doing. It sounds like you are borrowing on one property to make the down payment on another. If I could afford the down payment in cash, and I could afford to pay the loan with $0 income from the property, then I might start looking at financials to see if it might be a good investment. BTW if you are thinking about a home equity loan on your primary residence run away fast.

Safe money will likely never push you to the next level of wealth

And yes, borrowing from one property to purchase other properties is the way to build a portfolio of investments... As long as your net income is positive, all is gravy. Then when more equity opens up, rinse and repeat! Obviously there's risk involved when doing this, but I'm getting old and don't have the patience to save up pure cash while I'm fighting against inflation!



Edited 2 time(s). Last edit at 01/16/2018 05:09AM by Tarantado.

@Tarantado wrote:

And yes, borrowing from one property to purchase other properties is the way to build a portfolio of investments... As long as your net income is positive, all is gravy. Then when more equity opens up, rinse and repeat! Obviously there's risk involved when doing this, but I'm getting old and don't have the patience to save up pure cash while I'm fighting against inflation!

No. No it's not. And it is not all gravy. Cash flow is significantly more important. And what happens when you have 8 properties all leveraged against each other and you lose your primary income. People lose their primary income unexpectedly all the time. And suddenly you can no longer support the cash flow that house of cards needs.

My parents owned rental property. Both of my brothers and I all own rental property. I am looking for another property to purchase as we speak. I promise using equity on a property, especially a primary residence, is not the way.

@bgriffin wrote:

No. No it's not. And it is not all gravy. Cash flow is significantly more important. And what happens when you have 8 properties all leveraged against each other and you lose your primary income. People lose their primary income unexpectedly all the time. And suddenly you can no longer support the cash flow that house of cards needs.

My parents owned rental property. Both of my brothers and I all own rental property. I am looking for another property to purchase as we speak. I promise using equity on a property, especially a primary residence, is not the way.

While I hear ya, I sorta don't. FWIW, my family already have one property being rented out with a positive cash flow and a 2 year lease with a decent family renting it out. If worst comes to worst, we can bundle our money together to easily cover that mortgage and all incidentals in a heartbeat, while I can still maintain my mortgage and all bills at my primary residences.

The same goes for placing a down payment for another rental property against my equity at my primary residence... If worst comes to worst on that, I can pay the minimum on my home equity loan, while also coughing up what I need to cover for the mortgage for a second investment property as well. I understand covering your tracks for worst case scenarios; I just don't agree with you on paying only cash for the down payment, if you have a good rate with a home equity line available.

As you can tell, I'm still naive to all this with my family's (me, my sister and brother in law) single rental property we're maintaining together, so maybe a I'll think more like you as we get older! For now, I'm stuck in my ways at the moment.

I would look into buying a stand-alone property, townhome, or luxury condo in this ski resort town before I ever considered buying essentially a timeshare as an investment property. The large hotel chain will see to it that THEY profit handsomely at the expense of all their paying tenants (owners).

You would likely have significantly lower operating expenses with a stand-alone property, better liquidity, stronger appreciation, and more latitude to manage the property as a cash positive asset. You can always hire a property management company to handle the renters, cleaning, maintenance, etc. Pass most/all of this cost onto your renters as a weekly maintenance fee. Look hard at the numbers and see if this makes sense financially.

One last piece of unsolicited advice, be cautious of going in together with family, friends, or love interests as these arrangements often end badly. Treat this as a business, consider incorporating or at the very least, have some legal documents drawn up to spell out your partnership with your family members in detail.

I would never invest any money while having any debt at all, personally. I live in a house that is completely paid for, I have no auto loans, no credit card debt, zip, nada. You should do the same before investing any money, and I wouldn't even think about a home equity loan in the manner you are suggesting. Bgriff and others made sound points. Like griff said, what if you lose your primary income? It would be wise to pay off anything you already owe before venturing any stake elsewhere. Too many pitfalls, too much risk involved. Get your home paid off and any credit cards you may have, then invest, and invest wisely. Think long and hard about this before jumping. And though my father was a realtor and I don't think real estate investment is a bad idea, what you have mentioned doesn't sound optimal, from my point of view. Oh also, that HOA is likely a fluctuating fee that will increase yearly.

Back to the original subject, kinda. It has been experience (?) that vacation properties are much harder to find in a cash flow positive situation. When I say experience, I mean from research I have done, people I have talked to, etc. *MOST* people I've talked to who make it work have done so by waiting forever for the perfect opportunity, paying cash, and understanding they are getting a lower rate of return because it's a property they will also use. Obviously those have not been ski resort areas but they have been in multiple resort areas in multiple resort types.

Exactly. We have been stowing superfluous cash for a long time waiting for that property in Belize or some other warm, beachy country that is kind to expats.

Guys... I did state that I ran the numbers on the property already and came out negative.....

Again, I don't understand the concept on not risking a little to build businesses. Pay cash for everything? Sounds like a tremendously slow process to me. I'm not waiting until I'm in my 30s or 40s to begin investing. I'm young, make a sizable income to fall back on, have investments spread out everywhere I can pull out of if I need quick cash in a minute, have a 6 month living expense cash supply in my safe, home equity line as a last resort for emergency expenses, an 800+ credit score in case I need to take advantage of it any more than I already do, etc.

The whole 'only invest if you have no debts' thing does not make sense to me. I don't have any debts outside my mortgage, so are you guys suggesting I did the wrong thing by putting myself with a long term mortgage instead paying for my home in cash? You guys will probably laugh, but when I was 23, my mortgage payment that was approved with flying colors, ended up being a little more than half of my after-tax salary at the time. Crazy right? Maybe I rolled the dice on that, but I turned out just fine 5 years in.

Back to the topic of real estate investing... If I find a profitable property, which looks like is NOT in a ski town, I plan to utilize my home equity line to fund the down payment and work with that, with an obvious backup plan for worst case scenarios.

@JASFLALMT wrote:

I would never invest any money while having any debt at all, personally. I live in a house that is completely paid for, I have no auto loans, no credit card debt, zip, nada. You should do the same before investing any money, and I wouldn't even think about a home equity loan in the manner you are suggesting. Bgriff and others made sound points. Like griff said, what if you lose your primary income? It would be wise to pay off anything you already owe before venturing any stake elsewhere. Too many pitfalls, too much risk involved. Get your home paid off and any credit cards you may have, then invest, and invest wisely. Think long and hard about this before jumping. And though my father was a realtor and I don't think real estate investment is a bad idea, what you have mentioned doesn't sound optimal, from my point of view. Oh also, that HOA is likely a fluctuating fee that will increase yearly.

May I ask how old you are and when you began to invest since it sounds like you waited until your house was paid off to start doing so?

I started off from the bottom with NO inheritances, family money, nothing. I bought my home on a 15 year loan all on my own, where mortgage payment during that time was a little over half my salary after taxes. I'm sure I have a little good idea on the direction I'm going with my investments. No student loans, no debts aside of my 15 year mortgage that's about 5 years in. Are you suggesting that I shouldn't have bought a house unless it was cash, since I'd be screwed if I lost my primary income? Call me risky then (as much as I think I'm actually a pretty conservative gambler) if utilize loans to product positive income is a wrong way to go about things.

You have primary and other income. You have health. You have accesss to info about this and other properties, investments, and opportunities. You are smart. You have a personal support system.

Rich people (and when it comes to getting rich I think it's smart to listen to people who are rich) all say the #1 key to building wealth is getting out of debt and staying out of debt.

I'm not saying you should or shouldn't pay off your house before investing, but I will say you should have no other debt before investing.

I'm also not saying that buying investment property with a loan is a bad idea, although I would use it's cash flow to pay it off as quickly as possible.

What I am saying is a bad idea is borrowing money on your primary residence in order to make a down payment on a rental property. Unless your worse case scenario plan is losing your house and being ok with it (which is perfectly acceptable btw) then your worse case scenario plan is not worse case.

On the flip side, nothing will increase in value as much as your primary residence. Rental property might make income but will usually decrease in value or increase at a slower rate. It's very rare that residential rental property increases significantly in value. Property condition is generally the reason. Renters just don't keep up with property the way an owner does. Soooooo, there is a strong argument for paying off a house before investing in more real estate.



Edited 1 time(s). Last edit at 01/17/2018 02:57PM by bgriffin.

Yes, Tarantado, the house came with the husband and was paid off before I was in the picture.

I think you have it together more significantly than many people your age. I am sure you will figure it out.

I wanted to add that I didn't receive any inheritances and was a self-starter. I owned my first business by age 26. My father died when I was 31 and my stepmother got everything, not like we needed anything but it would have been nice to have some of our family heirlooms like my grandma's rocking chair and antique furniture. And when my mother passed away a few years ago, she died in debt and none of us kids knew about it because she was too proud to let on.

Edited 1 time(s). Last edit at 01/17/2018 03:43PM by JASFLALMT.

due to private info.of mine that has been taken, I'm no longer posting anything personal.



Edited 1 time(s). Last edit at 01/21/2018 04:31AM by Irene_L.A..

@Irene_L.A. wrote:

.2cents....having been married to a savvy Real Estate developer with a USC degree in fiance, who believed in taking risk to make money, and made it. When the big new deal was Timeshares and our friends were buying them, he said NO, too difficult to re-sell, too many unforseen problems ,and was even against condo's (at that time). We did own 5 properties, he believed in buying, but not selling and that goes for stocks as well. Bought AT@T 30 years ago (nice). Having learned a little through my marriage, I wouldn't buy a Timeshare thinking your going to make money on it. I'd invest in a duplex and let it pay itself off, although now prices are way too high for Real Estate Investments. Sounds like your excited, but not jumping into it.....

Yes, properties out here in the city are hard to come by.... I'd be relying mainly on appreciation and rent inflation to make any property worth getting right now. Number crunching, I've found most properties to be in the red, but I'm typically conservative when I crunch numbers on investments to begin with. If anything, the safest bet I could do right now is pay off my current home ($190k left, or 10 years paying the minimum), rent that out and jump into a different home.

I personally would look for a different kind of property. As someone else pointed out, a property manager can take care of it for you. You don't need the hotel to do it. I would look for a multiple unit situation, duplex at the very least. Anyone who has ever been a landlord knows that one bad tenant can cost you thousands. If you have two tenants in the same building then you still have income coming in.
I don't see anything wrong with using your HELOC but you need to have a really good property before you do that, and being at the mercy of a HOA and the hotel doesn't sound like a good situation. You are taking all the risk and they are reaping most of the rewards. If you are going to take the risk, you be the one to reap the rewards.

Irene, did something happen to you on this forum about your private business? I don't understand what you mean.
Best thing we ever did was to pay off our mortgage.

@shopper8 wrote:

Irene, did something happen to you on this forum about your private business? I don't understand what you mean.
Best thing we ever did was to pay off our mortgage.

Not dragging it up again, but yes my personal privacy was invaded and mods did nothing.....very disturbing, I started a thread about privacy.