Understanding Condo-Hotels In Daytona Beach. Condo-Hotels vs. Condos. Safety of your Investment is a second post in the series. The first was Understanding Condo-Hotels In Daytona Beach. Condo-Hotels vs. Condos

Today we will look at some aspects of the safety of your investment.

I keep saying the same thing to those who walk in my office. If you can afford a residential condo, it most probably is a better choice.

Condo-hotels are when you can't afford a condo on the ocean, and you want to have a place on the ocean. So far condo-hotels are an affordable alternative to vacation condos. So, if your budget pushes you into a condo-hotel, that's fine, but it is still a good idea to understand the difference between the two type of properties in terms of safety of your investment.

Residential condos in Daytona Beach area are those where the majority of people live permanently, and a lesser part own units as vacation properties. Even though they are governed by the Board of Directors of the Association, as in condo-hotels, they are less vulnerable, as the aspirations of the owners of condos in residential condominium are much closer, than in a condo-hotel. Here's why:

In residential condo the owners pretty much want the same: security, stability, and good value. Even if people may fight for details, they usually agree on the major goals.

In Condo-Hotels in Daytona Beach area you have 3 different groups of owners, and their interests do not coincide.

• Owners who bought for a long haul and who wants the stability and value. They are sensitive to the needs of the property and are willing to go with Special assessments if they help in achieving those long term goals.
• Owners, who bought it for investment, and who would flip them at first opportunity, and who want the units to be rented as much as possible, and who can't care less whether it is rented to prostitutes and drug dealers for as long as it is rented. They would fight any attempt of Assessment for beautification, would fight the reserve requirement. They do not care that the owners need to collect money for future roof replacement, elevator replacement, painting of the building, etc. They hope they would sell before this time comes.
• Owners that do not rent, and who use the units for themselves. Telling them that the property needs an upgrade so that it could attract better clientele, and allowing raise the rates is like talking to a wall. They do not care about your rent. Fewer people coming to stay even better for them.

Now, you are in the hands of the Board of Directors, and who they represent. If the board is split, there is very little you can do. If it is a 5 member board, 3 against 2 will always win, and if you are not lucky, these 3 can run the property into the ground with fanfares.

So, though the condo-hotels are like residential condos in legal structure, they carry significantly higher risks of instability.

If you are looking for a long term, it may make sense even to look at residential condos on the Halifax River. They are less expensive than in direct oceanfront buildings, and a trade between stability and 10 minutes walk to the beach can make sense. At least you may consider this alternative.

Add to that that in a recession like we have now, people fight for their primary residencies, and even when some condo owners of residential properties are in trouble and stop paying maintenance fee, the percentage of these people to the total number of units is still manageable for the association. Condo-Hotel owners in Daytona Beach area do not live here, and if they hit the wall, they would fight for their primary residence in New York or New Jersey, but would easily stop worrying about losing their condo-hotel units. And when it happens, they stop making payments not only to the Bank, but to the association to maintain the property. But the association has to pay the bills. Guess what they have to do? Right, assess those who are paying to cover for those who are not.

I understand your indignation, and I know that you want to tell me that the association can foreclose on the unit, so why is the problem. Not so fast. They often can't, but this is the topic for our next discussion on Tuesday.

Do not forget to come back.