Why a Condominium? Why Not?
GEORGE RANDOLPH’S WIFE ALMOST LEFT him after that summer holiday in Galveston three years ago. It wasn’t that Jean was so fed up with George. It was that she was fed up with all of George’s friends mooching. Plus the fact that she’d had it, as she put it, “with four weeks of being nothing but a bloody maid.”
“You call that a vacation?” she asked as they packed up the car and headed back to Dallas after a month at their modest cottage on the Gulf.
“I didn’t get to play tennis once,” she said, her normally cheerful features distorted into a scowl of martyrdom. “All I remember about the month is buying groceries for those big-eating, so-called friends of yours, going to the laundromat with the kids’ clothes and communing with the cook pots in the kitchen. That was no vacation. That was a seminar in hotel management on the cheap—with me giving all the demonstrations!”
So good old George, kind and considerate, upper middle class but not very rich George, promised to put the cottage he had inherited from his family on the market and look around for an alternative vacation.
It was just after the Randolphs had priced a two week vacation for the six of them (including kids, 10, 12, 14 and 16) at a resort hotel—estimated minimum cost $1000—when George sold the family place and decided to put the proceeds into a condominium at a resort.
“This really gives me the best of both worlds,” George explained to me a year later. “Sure, it gives us another mortgage payment to come up with each month. That’s tough for us at this stage. But I really like the idea of owning my own place. Why should I keep bankrolling some motel and then have nothing to show for it?”
“Besides,” he added, “this is a really nice resort where the kids have plenty to do, and Jean and I can get in some tennis with people we like. We go there several times a year. And we rent our unit to other vacationers when we’re not there.”
“I like it,” said Jean, “because it’s compact and efficient. There’s not enough room for guests, but that’s a plus as far as I’m concerned. Everyone knows we’re doing this as a business venture. We’re not making any money, but it allows us to refuse family and friends who’d otherwise like to borrow it when we’re not there. We just tell them ‘Sorry, that would spoil it with the IRS.'”
George Randolph isn’t the only guy who has decided that when it comes to vacations, dialing for deductibles might beat dialing for dollars. Like other families who are snapping up resort condominiums, the Randolphs like the arrangement between resort developer and condominium buyer: namely, that the developer builds and sells a modern unit, complete with electric kitchen, washer-dryer, the works. Each condominium unit, which may be called a villa, apartment, patio home, casita, townhouse or cabana, is owned outright. In real estate vernacular you buy the horizontal air space, although the walls and the land around the multi-unit structure are held in common by owners of all units. Each owner pays his share of total exterior maintenance. When the owner is not using his unit, he may (and usually does, for this is the lure of such condominiums) rent his place through the resort, at a commission of 15 to 50 per cent, thus giving the resort more available “hotel” rooms without any capital outlay, while giving the owner some income out of which he may pay for maintenance and other expenses.
You have to look at a condominium as a resort, not with the greedy beady eyes of a big-time land investor. Forget all those rules about a good real estate investment requiring a 12-14 per cent profit. That’s not the point. The point probably won’t be monetary. You’re investing in fun and games—hoping like blazes that your property will appreciate in value, of course. But unless you are lucky enough to buy in an early phase of a resort which is sensationally popular (and sensationally reliable) thereafter, it’s highly unlikely that you’re going to make your fortune here. In fact, even if you never stayed in your condominium and left it available for rent lOO per cent of the time—which seems pretty absurd—you might break even.
Moreover, long gone are the days of running such a place as a business—as in “Schedule C (Form 1040)—Profit (or Loss) From Business”—and deducting expenses including travel, way beyond minimal income, giving you a lovely tax loss. According to recent complex and somewhat vague regulations (best discuss this with your tax advisor for the latest scoop, as IRS is currently looking at this type of investment with the same critical eye they have cast on “hobby” ranching of late), you must prove that you are engaged in business with “an intention to derive a profit,” in order to deduct expenses beyond income. The burden of proof is on you.
IRS also insists that expenses must be allocated so that portion attributable to personal use is not deductible (taxes and interest are, however, 100 per cent deductible). The IRS will look with a jaundiced eye at a condominium owner who occupies his own unit during prime vacation time, rarely rents to others the rest of the year, but still deducts expenses for the latter portion on Schedule C.
It also means that the ideal location for a profitable resort condominium is going to be a year-round resort where rental arrangements are efficient. Excellent builders and honest resort developers who operate as rental agents have come to grief over their inefficient housekeeping departments or their unreliable reservations divisions. Some builders just build condominiums in an attractive resort area, sell them and move on to other sites, assuming no responsibility at all either for the quality of surrounding development or for any rental arrangements. So a prospective buyer needs to look at the rental side of resort operations and the master plan for the area around him, not just at the quality of the particular unit he is considering buying.
Reputable resort developers will not emphasize the financial advantages of condominium investment. If they were to make any rental guarantees, by the way, they would by law be required to register their venture with the S.E.C. As with so many other types of real estate, look for the soft sell if you’re considering buying a condo. The most successful complexes sell more by word of mouth, friend-to-friend, than by expensive promotional gimmickry—sweepstakes, free trips, etc.
In other words, proceed with caution. Consider fully all the pros and cons, problems and pleasures.
First of all, condominiums are expensive. It’s hard to find one these days for under $25,000. If you can’t scrape up the 10-30 per cent down payment by borrowing on your life insurance or hocking the family jewels, forget it.
Second, that down payment was just for starters. There are also closing costs, often up to and over $1000 (watch out especially for bank add-on “points” in lieu of a higher interest rate) and furniture. Early attic decor is not only discouraged at most of these places, it is often forbidden. The resort, if it is a first class resort, may demand both quantity (“everything on the attached list is required: service for eight, broom, vacuum….etc.”) and quality. Under such stipulations, rarely can a two or three bedroom unit be furnished for under $4500. Most large condominium sales organizations offer optional “package deals” to furnish units in a choice of decors; a few include all furnishings or all but linens and kitchenware in their selling price.
Rental agents claim that the more attractively furnished a condominium is, the more it will rent and the better care renters will take. Unlike hotel owners who are considered faceless corporations, condominium owners make their renters feel like personal guests. They often leave guest books for renters to sign, notes on what to do where, and a few enterprising owners (checking on what they fear is the sloppy maintenance job of the rental agent) leave self-addressed post cards for renters to send them reports on anything which displeases them—a broken toaster, a dirty refrigerator, or the like. My friend, George Randolph, tells me he has received several completely unsolicited “thank you” notes from renters, complimenting him on the way he furnished his unit and telling him about their good time.
That’s a good point, for renters rarely steal from people they seem to consider their hosts. When glasses disappear from units, though they may have been broken, it’s more likely that they have “travelled” next door to the adjoining unit. Often friends get together and rent two or three units in the same area, then visit back and forth, sharing meals, silverware, and what have you. Most rental units do include lock-up storage areas where owners’ personal or fragile items (liquor, for example) may be stored while they’re away.
There are some disadvantages in all this. Wives seeking a respite from household chores still get stuck with the cooking, unless the family budget can stand eating in the resort dining rooms. If a family has several small children and the resort has no children’s program, old Mom and Dad may end up getting little recreational time for themselves. Still, most condominiums provide all the comforts of home, plus a pool at least; and many have supervised play programs for little ones and golf or tennis clinics and beach parties for the older kids.
Another drawback: you’re stuck with your resort as a permanent vacation spot. Which brings up an important bit of advice: if you’re going to commit yourself to all those vacations at the same resort, not to mention all those mortgage payments, better take a long hard look before buying. Visit the place. Talk with owners. Rent someone else’s unit. Who knows? You may end up hating it. Better to find out before the marriage.
Not only will you feel tied to your second home once you own it (“Why spend all that money to go somewhere else, when we can go to our own place for nothing?” is the usual reasoning), but it is imperative that you check over the place from time to time—say at least three times a year. Since every unit is different and reflects each owner’s taste, no matter how efficient the management, how frequently they take inventory (and many places never do), only the owner in residence can spot what’s missing and what’s malfunctioning. Routine maid services provided by the resort keep things tidy and renters will complain about big obvious problems, but 100 per cent absentee ownership rarely works out.
According to common practice, once a specified complex of condominium units has been sold, the common property is deeded to all the property owners who form a property owners association. This association is thereafter responsible for outside maintenance, landscape upkeep and beautification, and for assessing its members to pay for same. It’s worth mentioning that such a system has a few built-in risks for an individual owner. For example, which owner is going to take the responsibility for seeing that the place does in fact keep looking attractive? What if everyone wants to be absentee? Or what happens if you have a majority of penny-pinchers who don’t rent and don’t much care about upkeep—who instead vote for low assessments and let the exterior go to pot?
All right, Let’s say you’ve listened to all the warnings and you’ve still got the inclination and the cash. Where do you start looking?
Plenty of Texans were investing in condominiums as far away as California, Colorado and Arizona before any were available in the state. So-called condominium fever has hit resorts in Hawaii, the Caribbean, Acapulco and Spain, to name but four.
But the final selection of where to buy depends on the buyer’s budget (for buying and for travel), time and athletic preferences. If you’re a skier, Colorado has literally hundreds of condominium complexes, one of the best known being Snowmass at Aspen. Both Aspen and Vail have successfully moved from being just winter resorts to year-round resorts now, what with golf courses, golf schools, music festivals and convention business.
Tennis and golf enthusiasts can find condominiums from California (at Pebble Beach or La Costa, for example) to South Carolina (at Sea Pines Plantation, Palmetto Dunes or Shipyard Plantation at Hilton Head Island, S.C., for example).
Most of the aforementioned resorts have hit the big time in popularity, so much so that condominiums that were bought for $32,000 and $65,000 in Sea Pines a few years ago now sell for $65,000 and $100,000 today. Sounds astronomical, but don’t forget buyers in such resorts are in a position to judge the efficiency of rental management and aesthetic controls over nearby property.
That means that those of you with tight purse strings and mini-budgets might better look in your own backyard—Texas, that is—where the newness of the condominium concept probably spells lower costs (and possibly higher risks).
There are so many Texas resorts with condominiums under construction or on the drawing boards that a complete run-down is simply impossible. But to give the reader a taste of what’s available, we’ll mention just a few of the existing and projected complexes, with apologies to the many resorts which are not included.
The name of the game at tennis-oriented condominium complexes is just that: big names in the game. At least four different resorts here have picked up an idea used by Sea Pines Plantation in S.C. (Stan Smith, touring pro) and Shipyard Plantation (Billie Jean King, touring pro) whereby a top tennis star acts as tennis consultant, visits from time to time and gives tennis instruction, usually under “tennis week” or “tennis weekend” packages.
John Newcombe’s T Bar M Guest Ranch and Tennis Resort in New Braunfels has been a going year-round tennis resort for five years, with John Newcombe and Tony Roche conducting Ladies Clinic Weeks, Husband and Wife Clinic Weekends and a children’s camp. As of this July, T Bar M Tennis Ranch will be offering for the first time 32 one to four bedroom condominium villas ranging from $26,000 to $47,000. A total of 240 villas and 23 single family homes are planned eventually at T Bar M, as well as 44 new tennis courts in addition to the 24 (four of which are covered) already there.
Just 18 miles west of Austin on Lake Travis, Lakeway is a ten-year old, 6000-acre, recreational community consisting of homesites (500 homes are already built), the Lakeway Inn, full marina, and, more recently, of condominiums. The first 50 patio homes at Lakeway, built in 1970-71 (all pre-sold at $30-46,000, now at resale $50-65,000) and a new group of 34 (when completed, selling at $56-64,000) clustered around the fifth tee of the Lakeway golfcourse, were designed primarily for the golf enthusiast.
A much more ambitious l00-acre project—a joint venture between Lakeway (recently bought by Alpert investment Corporation) and World Championship Tennis (Lamar Hunt and Al Hill, Jr.)—will be the Lakeway World of Tennis. This will have Jean and Cliff Drysdale as resident touring pros, but eventually it will get the entire WCT stable of tennis superstars playing on their stadium court now under construction.
In Lakeway World of Tennis’ first phase, 103 two, three and four bedroom townhouses (around $65-85,000) will be arranged in clusters of 12 to 30, each group surrounding two tennis courts and a stone’s throw from the posh new Racquet Club (dining rooms, bar, shops, etc.) which prospective owners must first join. What does it take to get in? According to Keith Abell, vice president, “all you need is money.”
Lakeway has another condominium complex planned on the lake, to be known as Rock Cove. This one will feature one to three story luxury ($76-125,000), “Mediterranean type” villas. All these high prices have not scared off buyers apparently—already 50 of the tennis villas and 15 of the Rock Cove villas are pre-sold.
Almost every good-sized lake in Texas is spawning recreational communities with condominiums and homesites for sale. National Resort Communities, Inc. a subsidiary of mammoth National Homes Corporation, has two condominium developments under construction on Lake Travis (Lago Vista and Highland Lakes Estates) and one on Lake LBJ (Horseshoe Bay).
Point Venture on Lake Travis is building its second l00 two and three story townhouses this summer ($35-45,000). These have been designed in such a way that owners may, if they wish, rent each floor separately. For example, a two story, two bedroom unit could be rented in its entirety for $60 a day or for $22 a night for a bedroom and bath and $40 for living-dining-kitchen-bath-bedroom.
Southwestern Savings Association and Bruce Belin, the developer of Elkins Lake, hope to complete construction of their tennis-oriented April Sound resort on Lake Conroe in a matter of weeks. Though prices and plans are still undetermined, April Sound will include 40 or 50 tennis villas near the tennis center and plans now call for a series of tennis weeks this fall, featuring Rod Laver and Roy Emerson.
There are a number of recreational developments on the 500-mile shoreline of Lake Livingston, the largest lake inside Texas. There the developers of Memorial Point (25 homes and 45 townhouses so far), where fishing, sailing and water skiing are big, have tennis on their plans now. Their 340-acre Woodharbor project will have Cliff Richey and his sister, Nancy Richey Gunter, and their spouses as touring pros. Long term plans for WoodHarbor include homesites (1000), townhouses (400-500), and a new concept to get things started, known as cabanas.
The first cabanas, to be completed this summer, will be built around the initial 15 courts and will be small (250 square feet), resembling a motel room with bath, pullman kitchen and patio. They are projected to sell furnished for about $12,000. Second and third phase of building will be larger units—450 square feet, with sleeping loft (projected price $15,000) and some with two bedrooms, 650 square feet (projected price $19,000)—until there are two or three hundred cabanas. WoodHarbor, like Lakeway, will have a large clubhouse with restaurant, pro shop, teen center, pools, ect.
Just across Livingston from WoodHarbor is Cape Royale, a resort project of Mitchell Energy and Development Corporation, where a second 20 two and three bedroom townhouses ($37,500-$38,900) will be built this summer. Cape Royale, which has four tennis courts, full marina, golf course and clubhouse is also the big-name-in-tennis route, having had Margaret Court there on exhibition for the opening of the courts and featuring Texas tennis champ Daryl Gralka as a teaching pro this summer.
Mitchell has a well advertised program already set up whereby vacationers are encouraged to spend a “Mini-vacation” (three days and two nights) at either the Cape Royale resort on Lake Livingston or at their Galveston project on West Bay, called Pirates’ Beach.
Pirates’ Beach gets the golfers (owners join the Galveston Country Club) and fishermen, but especially beach lovers. Their two bedroom cabana units to be built on the beach this summer will sell for around $20,000.
For beach freaks who will settle only for the likes of Padre Island, Padre Island Investment Co., which originally owned 5000 acres of land there, has built and sold out three high rise (two, three and six story) condominium complexes since 1969. Ranging from $25-32,000 in price originally, these units are now reselling for $39,000 and up, possibly because of their high rental occupancy.
Of late, most resorts in Texas and elsewhere (with the obvious exceptions of Florida, Honolulu, and Acapulco) eschew high rise condominium design. Instead the order of the day seems to be condominiums which blend in with the natural topography—buildings which are hidden in trees or which hug the side of hills. Perhaps that’s all part of the recent back to nature zeitgeist.
But whether horizontal or vertical, condominium complexes are not only here to stay but are fast replacing the little cottage at the beach or the old farm in the country as the ideal second home to many Americans.
What’s that? You say they’re all too expensive? And besides, you hate tennis golf and fishing and just want to get away from it all? You distrust people and you’re writing your first novel?
Anyone for camping?