Tuesday, January 22nd, 2019

Investing in the GO Zone with a Master Lease Condo

While most of the U.S. is struggling to maintain property values, the Biloxi area is thriving with new businesses and rebuilding efforts in the wake of Hurricane Katrina. The GO Zone Bonus Depreciation coupled with the fact that the Biloxi area is one of the best real estate emerging markets in the United States makes this region a great area for your GO ZONE real estate investment. In order to have success with your real estate investment portfolio, it is crucial to make sure you are doing your due diligence when analyzing potential investments, but you know this already though don’t you? You are probably reading this article because you have heard about the master lease programs for one or more of these condo projects:

Colony Club in Gulf Shores, AL
Island Villas Sunset Bay in Gulf Shores, AL
The Enclave at Oak Hill in Gulf Shores, AL
Harbor Landing in Ocean Springs, MS
Holiday Isle in Dauphin Island, AL
Sienna in Gulfport, MS
Oak Glen Marina in Ocean Springs, MS

All of these so called “GO Zone Investments” tout:

  • 100% paid monthly mortgage payments for up to thirty (30) full months,
  • 100% paid property taxes paid for up to thirty (30) full months,
  • 100% paid homeowner’s association payments for up to thirty (30) full months,
  • 100% paid management fees for up to thirty (30) full months,
  • 100% paid maintenance costs for up to thirty (30) full months,
  • 100% paid utilities for up to thirty (30) full months

The people who sell these programs tell you that your condo would be a great candidate to rent out as a short term rental since they KNOW you won’t get enough rent from a traditional lease to even come close to breaking even on your debt service. We would like to show you why these condos are not the best purchase option for a real estate investor.

First and foremost, the Biloxi casino market is going through the roof. There are billions of dollars being spent to develop a scheduled 22 casinos. Most of these casinos are very nice and have great amenities to offer at a reasonable price. People who own and operate casinos are very smart. Do you really think they are going to invest billions of dollars and not keep guests within their doors?

Staying at a room in the casino provides things that people want on vacation like room service, restaurants and marble bathrooms. These desirable amenities are offered at a fairly cheap price. When I stayed at the Imperial Palace it was $65 dollars a night during the week and $100 on the weekend. So if I, as a vacationer, can get these prices why would I want to rent your condo (which requires me to travel to the strip) for even $80 a night? They like to tell you that rent is going to be on average $150 a night, but ask anyone who has a short term rental condo and they will tell you that they rarely get close to full asking price.

Lets break down the real numbers and see how it works.

Purchase Price: $200,000 (usually higher)
Must put 10% down $20.000
Loan amount is $180,000 for 30 years @ 6.5%
HOA monthly is $200 (1.2% of purchase price annually)
Taxes month is $217 (1.3% of purchase price annually)
Property Management 10% of rental income
Closing Costs 5% (they cover 2%) $6,000
Rent: There is no guarantee these are short-term rentals

Monthly Mortgage Payment: $1,138 + Taxes $217 + HOA $200 + Management $180 give you total monthly obligation of $1,735. This is what you need to do every single month to break even. Now how many nights is that if you were able to rent your unit out at $80 a night. $1,735/80 = 21.68

To break even on this investment you would have to rent your unit out on average of 22 days a month. Suppose we use 30 days as the standard month. That is a 73.33% occupancy rate. Do you really want to have that kind of an obligation hanging over your head every month?

The other pitch on these condos is that you are getting a “designer credit” back a few weeks after closing, which we all know is the cash back deal. This is attractive for some people because it minimizes their out of pocket cost. Realize however, that this is NOT free money, you are borrowing it!

If your credit was for 10% that would be $20,000. Besides this being border line mortgage fraud, you are essentially taking on $20,000 worth of credit card debit at 6.5%. Your unit needs to appreciate $20,000 in order for you to break even, plus there is no reasonable guarantee that your monthly obligations will be covered.

We urge anyone who is looking to invest in the GO Zone with one of these programs to really examine this program. Unless of course, you are purchasing this property for a second home and cash flow and GO Zone qualification is not important to you.

GO Zone Gateway does not have exclusivity or vested interest with any developer. Our concern and focus is with the investor and because of this we choose only the best.

Any questions about this article, or the GO Zone call 561-404-7375