Condo-Tels in San Diego

Condo-Tels, which are essentially condos/hotel rooms owned by a particular person who can rent out the unit on a nightly basis through the hotel, are popular options in Las Vegas and Orlando, two very touristy cities. Now, it appears, they're coming to San Diego. The Diegan is being built in the historic Gaslamp district with studios starting at $450,000 and the penthouses clocking in at over two million. Diegan president Jim Trammell describes the condo-tel as thus: "It's a hybrid vacation home ownership product where you enjoy the amenities of your hotel room that you purchased as a buyer and when you are not using it you share in the revenues with the hotel operator." (Source)

Do such units make sense as an investment? The numbers don't seem to add up to me. Imagine that you purchase one of the studios for $450,000 with $50,000 down on a 30-year fixed mortgage at 6%. (Yes, I know most "investors" in real estate would rather go with the option ARM or I/O loan, but let's be real - the attractiveness of these loans are quickly losing their luster as the Fed continues its interest rate hikes and the effects of inflation set in...) That would be a mortgage payment of just under $2,400 per month on the $400k balance. Now, the units are cleaned nightly by maids, and from my understanding the hotel does the bookings. So what's that got to cost, maybe a few hundred per month? Throw in property taxes and condo insurance and we're quickly going north of $3,000 per month.

Let's assume that it does run exactly $3,000 per month, which I think is a bit low. To break even on your "investment" you'd need to book it EVERY night of the ENTIRE year for an average of $100 per night. I'm guessing that while the studio itself might run north of $100 per night, the hotel's taking off a percentage for the booking, cleaning, etc. In other words, it looks as if a condo-tel is anything but a wise investment.

Sure, if you're going to be using the unit often, it might make sense. A ~$100/night unit is cheaper than any decent downtown hotel room, plus you can rent it out on the off nights or loan it out to friends and family. Hrm, sounds an awful lot like a time share, which are pretty horrid investments to enter.

A condo-tel might make sense in more reasonably priced real estate markets, but at today's overinflated costs, dropping the money for a glorified time share seems like a losing proposition to me.