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I have not looked at the Ritz's actual rental program, but 60% is far beyond anything I have seen from a rental program. Are you sure it's not 40% gross to the hotel? Every condo hotel I've seen in Hawaii will make money if you own the condo in cash. I'm not sure how you get to a 0 pct return in a rental program.
40%-60% is standard. Higher end products like the Ritz will command a higher management fee because of a higher staff-to-guest ratio. The budget/standard rate hotels may be in the 40%-50% range but they don't invest nearly the same into the product and service they provide. And don't forget about the name. Branding high-end products costs a lot of dough and that comes out of your pocket via those disproportionate revenue splits.
It's not unheard of to see a 0% CAP on condotels.
Here in Hawaii, real estate is extremely desirable... so this means very low CAP rates for investment property in general. The more desirable the real estate product on Oahu is (i.e. location, condition, age), the lower the CAP rate will be. I can find you an old beat up walk-up building on Aniani Place in Waipahu and tell you the property will see a true 8% CAP. Those are real numbers... but the area is scary... demographics of tenants scary... buildings in a state of disrepair... and very little mid or long-term upside in terms of appreciation. When you get into the really desirable areas and real estate products on Oahu, the CAP rate will plummet.
Any cash buyer of a new higher end condo in the urban core (not condotel) is going to see ~2% (TODAY'S prices) as a typical rate of return (legal long term rental). And this is with the management company taking only 10% (not 60%). If anyone tells you the CAP is higher on these types of properties, they are dishonest realtors or don't fully understand what's involved in real estate investing.
So if 2% is the norm for a higher end condo, 0% for the Ritz is very plausible considering how much of the revenue the hotel is taking and the fact that ALL revenue is subject to TAT.
If you look real hard you can buy RITZ type condotel on mainland for under $200k. 3-4% ROI. I wont diclose where due to the fact im going after one and i dont want Hawaiians buying up the inventory...............................hahahahaha haha.
Kindly show the calculations to get a 0% cap rate. LOL
It's simple really. 0% cap means a free and clear property generates zero cash flow. Believe it or not, a property could also have a negative cap rate.
Cap rates in high demand areas are the lowest in history. Even in the mainland, cap rates are in the 3-3.5% range. Or much less.
Not everyone is lucky like you and bought at the very bottom of the market and made 500% and 20% cap. The rates I'm talking about represent the investment climate for NEW purchases of NEW property made TODAY.
I'm actually not surprised at current prices the Ritz and many condotel properties are at or near 0% cap rates - and condos in general (again at today's prices). Single Family Homes are regularly getting over 5% cap rates even at today's prices for properties that don't require a lot of maintenance
SFH in HI getting 5%. What ALT universe are you living in? For a single house to make sense, ex $750,000 house would need to rent for a LOT...................hahahaha. Way more than what they actually are getting.
AIRbnbing a condo for 15-20 years might get you a good return over time.............otherwise go out of state!
It's simple really. 0% cap means a free and clear property generates zero cash flow. Believe it or not, a property could also have a negative cap rate.
Even better, show the calculation for a NEGATIVE cap rate. This will be a real hoot.
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