Dear Mr. Berko:

I’d like your thoughts on buying three condo-hotel units in Fort Lauderdale, Fla., at $625,000 each. These units recently sold for $675,000, but the developer is closing out. He said they could easily be rented 30 weeks out of the year, and the hotel management company is the best in the business. This looks like a superb investment that would easily pay all my costs, including mortgages on the three properties. The developer will also give me a $33,000 cash bonus if I buy the three condo-hotels, which I could use to pay the cost of a limo driver who would pick up the renters at the airport. What do you think of this idea? It’s like having three second homes and it won’t cost me a dime.

H.E., Syracuse, N.Y.

Dear H.E.:

I think your developer is a big fat liar, and I think he’s in trouble with his lenders, his wife, his girlfriend, his contractors and even the Internal Revenue Service.

The real estate market in most parts of Florida is quaking on its foundations, and prices that have been pushed into the ozone layer by carpetbaggers and unctuous speculators may fall like tears from a tall camel’s eye. The maniacal and insane rush to build condominiums and homes in Florida has finally exceeded the unhinged hyperhysteria to buy. The potential people consequences could make the 2001-2003 tech bubble look like a game of musical chairs.

The prices of homes and condominiums are at levels where fairy tales begin, and when Floridians with adjustable-rate mortgages get slammed in the next six months, those fairy-tale prices may become horror stories.

Do you think you want to own three condo-hotels in Fort Lauderdale? Most folks don’t know that numbskulls can purchase individual hotel rooms from slick developers at prices ranging between $200,000 and several million dollars each. These units are refashioned, modernized and furnished, then turned over to hotel management firms, which will try to rent your individual room at a price from $200 a night up to $1,500 (or more) at the more exclusive and upscale properties.

Many condo-hotel buyers are told that these rental programs will pay their annual costs (taxes, insurance, maintenance, etc.) as well as a substantial portion of their huge mortgage. Well, they might if the hotel management firms can keep the properties fully rented for 26 to 28 weeks a year. However, your property is among the hundreds or thousands of condo-hotels they manage. In most instances, the available units far exceed demand, and in most instances a visitor would be far more comfortable in a hotel that has broadband, a bar, room service, on-demand maid service, a workout room, a restaurant and cable TV.

There are currently some 28,000 condo-hotels in Florida, more than in any other state, and, according to Smith Travel Research, 32,000 more condo-hotel rooms are under development. These things are sprouting up like weeds (especially in Miami, Fort Lauderdale, Boca Raton and Palm Beach), and a developer with whom I’ve talked compared this phenomenon to the “extended-stay” hotel craze of the late 1980s. Today’s developers will be hard-pressed to make money and certainly end-stage buyers like you are destined to lose a bundle.

I suggest that you keep your money liquid. If you’re foolish enough to be a buyer now and it doesn’t work out, there will be hell to pay later if you think you’ll get your investment back. Because of the huge oversupply, you might be exposing yourself to a potentially significant loss, or you can (if you prefer) get stuck making principal and interest payments as well as insurance, maintenance and taxes on three units that could remain as empty as Mother Hubbard’s cupboard.

Walk away. That developer is giving you a heck of a sales pitch and making promises that I doubt he can keep. He’s stuck with inventory that isn’t moving and it sounds like he’s getting desperate.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.

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