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$8.7 Million for a Condo You Can Only Live In 120 Days a Year

I almost get the math that would justify the purchase of a hotel condominium listed at Trump Soho (warning: the hotel website has music) for just over $8.7 million. As a hotel condo, you are allowed to use your unit for no more than 29 consecutive days in any 36, for a maximum of 120 in a year. The rest of the time it is added to the rental pool and offered to hotel visitors.

Owners of hotel condominiums still pay condominium and taxes all year long. In essence, it’s exactly like a rental property that you buy and hand over to a rental pool to manage. You get a cut of the profits and the management company takes a bit. As it’s in a rental pool – revenue is split between all units each month even if they all weren’t rented.

If the general rule of thumb is 1/16 of the price of housing is what you can normally rent it for so let’s assume a more generous 1/15, and add in an 81.5% hotel rental occupancy use and the room should go for.

Because there are room rates online for the studio units (425 sft) which match some of the available units for purchase, let’s try the math. This unit lists at $995,000.

$995,000 / 15 / 0.815 / 245 (days available) = daily room rate required. That works out to about $332/night required rental rate. Currently the hotel is offering ~435/day ($1.03/sqf/night) for room bookings, based on blended rates listed for units of about 420 sqf on the Trump Soho booking site.

Ok – that seems plausible that there might be an opportunity for the owner to actually make some money on the purchase. Don’t forget the owner is paying a fixed price (taxes, management, and hotel operation) no matter if the unit is rented – while the return from the pool is affected by the occupancy and average nightly rate. A 31% mark up over required daily rate might be enough to cover the costs of operating the hotel and miscellaneous costs.

All in all hotel condominiums may not be for the faint of heart. One would assume that if all the numbers where known, the management company is likely putting the following offer forward: the purchase should return about 4% (much like a good bond) with the bonus of 120 free days of living in Manhattan.  I really think that’s how simple the formula likely is when trying to sell the units to investors/part time residents.

So that $8.7 million unit – should return about $29,000/month in revenue, and cost (thinking that one couldn’t rent for less than a week such a large unit) about $17,000/week.