Author Topic: Help me assess the investment potential here?  (Read 2972 times)

eldub

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Help me assess the investment potential here?
« on: January 03, 2013, 04:36:13 PM »
I have started looking into an opportunity for a 1/4 ownership in a downtown "resort" in my tourism-driven town of Victoria, BC (Canada). We would put the unit into a rental pool for 12 weeks of the year, 4 of those being in the best month of August.  I have more work to do but here's what I am working with so far:

List price $99,900
Would put down $20,000 (or 20% of purchase price)
Property transfer tax and legal fees on purchase $2000
Monthly fee that covers property tax, maintainance, utilities etc $1302 for the year
Rental management company fee currently unknown. I have asked for this information.

With a 25 year mortgage of $80,000 at current rates, the unit would cost us $5838/year

Based on 2012 financial statements, in 2012 we could have expected to bring in $6781 for the year. This is based on the RevPAR numbers for the peak August time block plus an average for the remaining nights on the off-season. There is a potential for a few more rental nights in the year as there are 3 remaining weeks in the year to be split between the owners and potentially added to the rental pool.

So that leaves us with an expectation of approximately $943 profit per year, and an initial outlay of $22,000. I have not factored the rental management fee yet, which could very well wipe out any profit, and then some.

As I mentioned, tourism is a major economic factor in Victoria and general opinion is that it will increase as the economy recovers, particularly the US economy as Americans make up a large portion of visitors here.

Assuming that the unit simply holds it value (i.e. increases only with inflation), and we only break even every year for 25 years, we will realize just over 6% annualized return. This is, of course, a lot of assumption. We could try to predict interest rates, real estate markets, and spending habits of vacationers but I almost don't dare being optomistic on any of them.

Is this worth looking into further? What else would you ask in order to assess this opportunity?



Another Reader

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Re: Help me assess the investment potential here?
« Reply #1 on: January 03, 2013, 04:46:59 PM »
This is a time share.  Run from this as fast as you can.  You will lose money on its operation and it will be difficult if not impossible to resell.  Invest $100,000 in a rental house somewhere other than Victoria if you want to invest in real estate.
« Last Edit: January 03, 2013, 04:49:30 PM by Another Reader »

Self-employed-swami

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Re: Help me assess the investment potential here?
« Reply #2 on: January 03, 2013, 04:48:19 PM »
I would look into what happens if there is a repair needed.  Will you be given a special assessment to pay, or is there a reserve fund?  This investment doesn't pass the 50% rule that is usually suggested for real estate investing though. 

I wouldn't do it.

eldub

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Re: Help me assess the investment potential here?
« Reply #3 on: January 03, 2013, 04:53:52 PM »
Another Reader, I certainly take your point to heart. It could very well be a bad idea, but the exercise of assessing it has been interesting.

Though I will say to SES: does the 50% rule still apply here? My understanding of the "extra" 50% is to cover maintenance, vacancy, etc. I have factored those already with the monthly maintenance fee, and by using the average daily room rate x # of units in the rental pool.

I don't know how a major repair would be paid for, whether by special assessment or reserve fund.

Another Reader

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Re: Help me assess the investment potential here?
« Reply #4 on: January 03, 2013, 05:06:59 PM »
You have no idea what your vacancy will be in these things.  You may be able to book all of August, but whose units get booked first in the less desirable months?   Probably the ones that belong to the developer or whoever else controls the development.  Average occupancy may be 80 percent for them and 40 percent for you.  Do you have to use their management company for rentals?  Expect a big chunk of your revenue to disappear there.  Is the unit furnished, with dishes and linens?  You are going to have to pay the rental company to maintain all that stuff. 

I suggest you research time shares before you put down that deposit.  Also, talk to other owners about what their experience has been.  Look at resales if any are available or have sold, in this development and its competition.  A little up-front research will save you a lot of money and stress in the future.

arebelspy

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Re: Help me assess the investment potential here?
« Reply #5 on: January 03, 2013, 07:06:07 PM »
There is much more profitable ways to invest in RE. Timeshare is not a good way, IMO.

And $943/22,000 is a 4.3% return. There are some virtually risk free ways to earn that with no work. Real estate should return much more than that for the work/risk it includes.
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