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Actually all similar units should have the same cap rate. Their valuations will be different though because they have a lower NOI.
I don't know what you mean by this. Every unit in the hotel is different by virtue of its location and view and occupancy rate. The CAP rate in the hotel program will be significantly different for the same room on different floors.
Valuations will be different if based on CAP rate ... however cap rate is not the sole reason to buy a condo hotel room, as many buyers are not that concerned about the cash return from the unit.
This is quite irrational. You control neither occupancy rates or the operational costs.
Things get slow the last things leased are the condohotels. Things get good you up the fees and the oerations cost.
Basically a sucker bet...just like a time share...which can also be real Real Estate.
Had this argument on the LV forum many times. You get a good deal on a condo hotel unit, it's a good deal period and can return cash each year. That is virtually impossible for any timeshare. You just need to know what to look for. If you can't look past the generalization, then you have a problem with being objective.
So you can get a 5% cap rate on that $1M Kailua home IF you can get $4,500/mo rent
If?? You missed that $4,500/month is bare minimum on the crappy $1,000,000 Kailua homes - of course you left that out.
You must have some badly maintained places to need to fix them up so much. Or, that you'd even need property management. Perhaps you just ooze bad luck?
I actually like the arguing here as I'm learning a lot.
Here's my feedback. Trump units earn 1.5% to 2.5% CAP in the rental program if you pick good units and I consider that to be a direct comparable to the Ritz. 70% occupancy is low for a branded hotel right now unless you buy a near bottom floor unit (investors should be aware of this), TAT & GET are added on to that avg daily rate, not netted out, 60% management fee is in my opinion completely unheard of (but if that's really the Ritz rate that is very bad ... I'm going to be skeptical of this until I see documentation since Irongate developed both projects), and your electricity rate is too high for a modern hotel unless you are running some incredibly inefficient window AC unit in an old unit with no insulation. Last I checked it was about 120 or so for a studio sized unit. Repairs come out of FF&E so you can't double count that.
I have seen near zero cap rates, but those tend to be on the near bottom floor / no view units and in my opinion anyone who buys into that should have an inkling the room won't get booked out that much.
I believe there are other fees Ritz imposes on its hotel room participants. They are not reflected in my off the cuff analysis.
While $400 is a high estimate, $120 is awfully low unless the mechanical component being charged to the owner is only the air handler - and not the condensing side of the system (this is rare in new buildings). Regardless of HVAC efficiency, $120 is a tall order unless the guest is a tourist from a very warm climate.
Ritz currently commands a premium over Trump because it's a brand new product. Trump's product is turning 7 years old in two months. Brand new projects always experience suppressed cap rates right out the gate.
I've never experienced owning in a luxe condotel, but I know FF&E is the required contribution to a fund that provides cash to "refresh" units after X amount of years (3-7 years depending on the brand and product). This means a significant portion of the furniture and (some) fixtures will need updating/replacing inside of 5 years on average. The $200/mo fee is conservative considering the quality and finish of furniture used in the Ritz. You can't go to Target to replace items that need refreshing. Repairs (paint, electrical, plumbing, drywall, flooring, cabinets, etc) are exclusive of this FF&E fee and needs to be included.
I also didn't cover the cost to eventually gut and renovate the unit. Most people don't factor this in because they will bail from the investment far before the unit needs a complete gut and remodel. But to run an appropriate cap rate analysis, this cost should be included. This was omitted from my analysis.
LostVector Cap rates are a valuation tool. They are not a profit metric.
Also there are no uses for cap rates on condos and SFR's. You look ignorant trying to use them in those asset classes.
You're on a roll.
Cap rates are a "valuation tool" and not a "profit metric"??
There are "no uses" for cap rates on condos and SFR's??
If?? You missed that $4,500/month is bare minimum on the crappy $1,000,000 Kailua homes - of course you left that out.
You must have some badly maintained places to need to fix them up so much. Or, that you'd even need property management. Perhaps you just ooze bad luck?
Newsflash, there are many $1M SFH properties on Oahu that rent for less than $4,500/mo. And yes, these homes are also in Kailua.
I use cap rate on these condo hotel rooms all the time to understand how much I'm sacrificing in safe return just to have a nice place to stay or in the hopes of future appreciation. After all, I could just put it in an index fund or a mix of safe dividend stocks, etc. How is that ignorant?
You can't argue cap rates with someone that fundamentally doesn't understand what a cap rate is.
Newsflash, there are many $1M SFH properties on Oahu that rent for less than $4,500/mo. And yes, these homes are also in Kailua.
Care to post some examples? Rent and value - Kailua.
Let's see the math. My former home in Kailua gets well over 7% cap although it's more luxury category. It's not hard to get 5% cap in Kailua or Hawaii Kai.
Care to post some examples? Rent and value - Kailua.
Let's see the math. My former home in Kailua gets well over 7% cap although it's more luxury category. It's not hard to get 5% cap in Kailua or Hawaii Kai.
I see what yr problem is. You are using 1970s sales prices.............................lol. You need to define what cap(dunce maybe) rate or return on investment metric you are using. A $1,000,000 Hawaii Kai home surely doesnt bring in $10,000 a month in rent.
This thread hasnt come far as at least 2 ne.nd-rth,ls STILL think timeshare are real estate......
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