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Investment strategy: hotel condo's
Hotel condominiums – in Brazil, often named “flats”, are a format in which investors buy the individual units (rooms, suites, or even apartments and bungalows) and then put them in a rental pool managed by an experienced operator.
The operator - often a large chain like the French Accor group (operating under the Mercure, Ibis, Sofitel, and Novotel brands), Pestana (Portugal), and Melia (Spain) or Sheraton- operates, maintains and rents all units in the pool, and splits the net yield equally over all properties in the pool. Payout is usually done on a monthly basis – and currently averages 0.8% per month, or about 10% per year.
City units average about $40000 to $60000 each, while some units in seaside resorts go up to $150000 and more.
As a result, these hotel condos offer an interesting alternative for the “buy to let” investor, as the power of the hotel brand and the know how of the operator provides numerous advantages when compared to buying traditional apartment units for the holiday rental market.
Higher yield
The strong brand, and international marketing power of the operators, results in higher daily rates and occupancy – and safe yields of around 10% per year. Note that these are actual, realistic results with long track records. While many developers of holiday homes, on paper, “guantuee” a rental income of 6 or 8% per year for the first two years (often built into the cost) – those operators have a verifiable track record and consistently deliver a higher return, year after year.
Safety
The know-how of the operators also ensure that new units are build exactly where the market demands them. With thousands of buildings under their management, they know exactly which locations work and which don't. Also, as income is divided over all owners of the building, the cash flow is much more stable than with traditional buy-to-let property. For those wanting to further spread the risks, it's easy to spread an investment over different buildings, areas, or property types.
Liquidity
Because of their price and attractivity, those units are frequently traded by all kinds of investors – from small private owners to large institutionals. The small unit price means that all or part of an investment can easily be liquidated – it usually takes only weeks for such units to sell. In Sao Paulo alone, over 20000 units are available and fluently traded.
Hassle-free
The buildings are managed by large, very experienced operators with vast know-how – rather than a small, local rental agent – and they have been purpose-designed for easy maintenance and logistics, so they are more efficient to manage (read: more profitable). Also, the size quality of the operators takes away all the hassle and risk associated with the ever-changing local rental agents. Maintenance, housekeeping, rentals, refurbishing – all is dealt with efficiently, all the time, without any involvement needed from the owner.
Value gains
Like any other property, units can be bought off-plan at a relatively low price; which ensures that even in the first year of operations the yield is already up to speed. As occupancy and average rates rise, they usually can be resold at a healthy profit in a relatively short term.
Leverage
In new projects, the developers often finance part of the price to buyers; so your investment can be leveraged and the rental income can offset the monthly payments.
Where to invest?
Much attention has been given to the real estate boom which has just started in Brazil – driven by a dramatic lowering of interest rates. For the first time in many decades, the middle and higher classes of Brazil are getting access to affordable mortgages, which is bound to fuel an enormous growth and value increase or real estate.
Often, Western investors are initially attracted to the tourism destinations of the exotic “Nordeste”, like Natal and Fortaleza. However, they do not realize the huge divide between the poor states of the Nordeste, and the rich cities of the South. At least 80% of Brazil's GDP is produced in the south, in large metropoles like São Paulo, Curitiba, Belo Horizonte and Porto Alegre. This is where the middle and higher classes are; this is where the economy is booming; and this is where the lowering interest rates will have the fullest impact on prices.
Based on your investor profile, Brazil Estates can make a mix of properties that focus on your priority (high yield, safety, value gains, leverage...) Please contact us to discuss the available options !
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