resort condo buying for passive income. Need ideas please.

[Peter Jakonovisky]

Hi Folks,

I am looking at resort condos. These are owner deeded properties. You own them, not time share. Here are the specific financials.

proposed sale price : $400K

Net operating income

after association dues, property mgmt fee, utilities, maintenance and repairs
insurance, real estate taxes: $28,500 (average value over last three years)

Their insurance that they charge is for replacement of building, replacement of personal property and liability coverage. Do I need to get more insurance?

planning down payment : $100K
loan amount : $300K
loan rate : 4.5 APR fixed for 30 years

Cap rate : 7.5%
Monthly cash flow : $865
Cash on Cash ROI : 10%

Does this seem OK? I am looking for passive income. What are some considerations and questions to ask.? Do I go with a real estate broker to deal? or just approach the resort seller agent and use it as negotiation for better price. This is a reputable resort which is fairly busy and we have stayed there before. We like them.

I am a newbie in this. Any help is deeply appreciated.

Peter

[Julie McCoy]

@Peter Jakonovisky I see several potential pitfalls: one, as @Luke Carl pointed out, the unit is very likely a non-warrantable condo and therefore will not qualify for a conventional loan.  Two, with any condo you run the risk of special assessments or rising HOAs that you have no control over.  Three, if the principal/only draw is the water park, you're tied pretty completely to the success of that park.  I realize there are other things happening in the Dells, but I'm not sure how much year-round you could expect without that draw?  How would your investment fare if attendance fell at the park, or it went out of business, or was shut down due to some safety concern?  And finally, you definitely need to find out if more insurance is warranted.  I find it unlikely the building's insurance covers your liability if someone gets injured in your unit; usually condo insurance just covers liability in common areas.

If your NOI is actually correct (I'm skeptical, forgive me) then it's a pretty good return considering it accounts for the management fee. However, I encourage you to triple-check those numbers; see what additional fees the PM might charge you, check into insurance costs, and get a real view of the financing options since I don't think you'll be able to go conventional.

Good luck!  And go read in the short-term rental forum, you'll learn a lot :)