Miami Beach Condo-Hotels
Frequently Asked Questions
1. What are the risks of investing in a Miami Beach condo-hotel?
A. You could buy the wrong unit in the wrong building. This is possible if you receive misguided advice from your Realtor or the developer.
B. You could buy in to a Miami Beach condo-hotel that the developer doesn't finish and lose your second deposit. If the developer becomes undercapitalized due to lack of sales, inaccurate budgeting or rising material costs, he can cancel your Reservation Agreement. In this case, your initial deposit, usually 10 percent, is fully refundable. If, however, the developer ceases construction after your reservation has moved to contract, at which time a second deposit of usually 10 to 20 percent is due, and, by contract, he uses this deposit for construction, these funds may not be returned to you.
C. You could buy in to a Miami Beach condo-hotel that the developer underprices. This might cause your contract to be returned, which means if you still have interest in the property, you may have to begin the buying process from scratch and most likely at a higher sales price.
D. Hotel occupancy and room rates are subject to fluctuation. As with other consumer indexes and investments, travel and tourism is not insulated from economic factors, which can have both a positive and negative impact on the rental frequency and rate of your Miami Beach condo-hotel.
The best way to mitigate these potential risks, as remote as some may be, is to work with an authority on Miami Beach real estate like me. I can help you carefully measure the risk-reward ratio, so you can have a positive ownership experience.back to top
2. How successful have South Florida condo-hotels been?
Four years ago, Latin Americans flocked to buy units in the city's first condo-hotel, the 172-unit Mutiny in Coconut Grove. The demand was so strong that the developer built a second building, the 224-unit Mutiny Park, managed by Sonesta International Hotels as a luxury resort.
Another success story is The Ritz-Carlton Key Biscayne. Located five miles from Downtown Miami, it opened in mid-2000. Its 188 condo-hotel units in a 13-story beachfront resort and spa sold out a year before completion. The condo-hotel units in The Ritz-Carlton have steadily increased in value each year.
With a number of condo-hotel projects on the way in Miami, like The W Hotel-Condo and St. Regis Bal Harbour, South Florida has the greatest selection of condo-hotel inventory in the country and is a popular destination due to the strong domestic and international demand for second or vacation homes, and Latin American interest in the relatively secure U.S. real estate market. The Orlando and Miami-Fort Lauderdale areas each could have as many as 10,000 condo-hotel units in the next few years, up from less than 1,000 units five years ago.back to top
3. What are the advantages of placing your Miami Beach condo-hotel in a Rental Management Program?
While the developer doesn't guarantee the rental of your unit, by capitalizing on the hotel's name recognition, advertising, national affiliations, centralized reservation system and management expertise, unit owners typically receive a higher level of rental income than they would from a traditional vacation home.
As part of the rental agreement, the hotel pays for most operating expenses such as housekeeping, administration and marketing. You typically pay the real estate taxes, insurance and capital improvements.back to top
4. Will the management company guarantee the rental of your Miami Beach condo-hotel when it's not in use?
No. Developers are aware that there are potential security law issues that may arise out of the sale of condo-hotel units. In order to avoid coming under the scrutiny of any federal or state securities agencies, developers can take several simple preventative measures:
Refrain from setting rental revenue expectations for prospective buyers. Instead, the emphasis is on the real estate itself as per the marketing material and presentations. Providing anticipated financial information might give the project the appearance of a security. It is best to consider your purchase a second home or vacation home. If you buy right and choose a desirable building in a good location, there is likely to be appreciation over the years.
Institute a third-party agent to oversee the sale of condo-hotel units and distribute rental program information.
Offer a voluntary and flexible Rental Management Program, which permits condo-hotel owners to either rent their units to a third party through the hotel's management company, the Realtor of their choice, on their own, or not rent their unit at all.back to top
5.How do banks typically perceive loans for a condo-hotel?
Banks usually consider condo-hotels an investment property versus a residential property. As such, loan rates may be higher for this type of unit.back to top
6. How does the price of a Miami Beach condo-hotel compare to the cost of a comparable non-hotel unit?
Described by real estate experts as the "private jet of luxury living," the price of a condo-hotel can be as much as 25 percent higher than a traditional condo unit, but investors who desire to be treated like royalty and enjoy an abundance of world-class amenities have been willing to pay the price.back to top
7. Who has the responsibility for the maintenance and repair of common space in a Miami Beach condo-hotel?
The responsibility is allocated among condo-hotel unit owners based on their pro rata share. Charges to the owner typically cover reserves, common area maintenance, property insurance and utility expenses. The hotel operator pays for its costs of operation; that is, salaries and other direct hotel expenses.back to top
8. How do condo-hotels differ from a traditional vacation apartment or condominium?
These are not your typical second homes. They are fabulously furnished condominium suites in some of the most famous hotels and resorts in the country. The properties are usually large, high-rise, luxury hotels operated by a big name like Four Seasons, Ritz-Carlton, Sonesta, Starwood, Hilton, Clarion, Regent International, Rosewood, Conrad Hotels, Bulgari, Le Meridien and RCI. Prices typically range from $250,000 to more than $1 million for prime properties.back to top
9. How do condo-hotels differ from timeshares?
With a timeshare, you're typically allotted just one or two vacation weeks per year. They are sometimes the same weeks unless you go through a process to trade your time with someone else's. You don't actually own any real estate, just the right to use it. With a condo-hotel, you own your unit completely and have much greater usage flexibility. Additionally, when you're not using it and the hotel is able to rent your suite, you receive rental revenue.
Finally, timeshares are often difficult to resell, even if the seller is willing to take a big loss. Once you buy one, you pretty much own it forever. Condo-hotels, on the other hand, because of their limited inventory, are a hot commodity. They will likely appreciate over time and are readily resalable.back to top
10. Other important questions to ask about Miami Beach condo-hotels.
Before you make a commitment to a condo-hotel project, here are some other essential questions. This list is not all-inclusive, but it's a handy guide to things you should know. I encourage you to print it and take it with you when you visit a building. Please keep in mind that the answers to these questions can vary by project and developer. That's why it's critically important that you understand every nuance of your developer agreement.
- Is an owner required to participate in the rental program?
- How does the rental program work?
- How are rental revenues shared?
- Is my unit furnished?
- Who will manage the property?
- When are proceeds distributed?
- Will I have access to all the amenities of the hotel?
- What are my voting rights as a condo-hotel unit owner? Do I have the same access to property books and records as regular condo unit owners?
- Will I always be able to stay in my own room/suite?
- When can I use my room/suite?
- Can a condo-hotel be financed?
- What kind of room rental rotation system does the hotel use to insure fair exposure for my unit?
- May I offer my unit to friends and family?
- What if one of my guests or I damage the furniture in my unit?
- When I am not occupying my unit, may I have use of the hotel's facilities?
- What are the insurance requirements for my unit?
- Who pays the property tax on my unit?
Tell Kevin More About Your Miami Beach Condo-Hotel Objectives
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Kevin Tomlinson is an independent Realtor associated with Calibre International Realty. Kevin recommends that buyers, sellers, investors and renters of/in real estate consult legal, financial and investment professionals for specialized advice.