Vacation Condo Reality Check
Vacation condos are not really much different than vacation time shares. You buy them because you want to use them, let someone else take care of them, and have short term rental on them to cover as much of your costs as possible. If you rely totally on a third party (either a property manager or the resort management) to run your condo, then I am not aware of ANY vacation condos that generate enough net rental income to cover the cost of HOA fees, taxes, insurance, and repairs.
The fact is that condo resorts compete directly with Disney and suite hotels and that is a tough game to win. The game has gotten even harder. Disney’s newest resort, Art of Animation, which is now open, has increased Disney’s supply of family suites from 200 to 1,400. In order to attract vacationers, vacation condo resorts have to offer low rates and pay very high commissions to the companies booking them. Owners who rely on others for bookings will only net $20 to $30 a night and occupancy less than 100% results in negative cash flow. If any finance is needed to buy the condo, then they are certain to have negative cash flow every month.
There are thousand’s of people out there with $80,000 to $120,000 to spend and they all see these great prices on furnished vacation condos. What is not seen is the $6,000 to $10,000 in annual running costs. Netting $20 to $30 a night will not cover that. An owner really needs to be able to net $50 to $60 a night. The only way to do that is to take control of the bookings via a site like VRBO.com or VacationRentals.com. Vacationers will pay $80 to $120 a night for a well located condo in a resort with lots of facilities and 200 nights a year is a very achievable number. The secret to covering costs is to keep as much of the rent as possible.
So, if you are looking for a vacation condo as an investment that at least covers your costs, then you must approach it as a business and be able to do bookings. If you are not willing or able to devote the time needed for bookings, then your property or resort manager will only cover some of your costs (and the honest ones will tell you that). I am happy to help clients with either goal, but it is very important to understand upfront that if you are not involved in bookings, you will not cover your costs.
Let me add a post script. Here is the VRBO site of one of my buyers who followed my advice. This is what you need to do to succeed. http://www.vrbo.com/443955 They have done so well that they actually bought two more vacation properties.
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