In the early 2000s, we met a young entrepreneur in Nicaragua whose family owned a piece of land on a lake. He'd begun, with family money, to develop the land into a resort. He had no prior development or construction experience. The lack of construction experience didn't bother us. You can hire that out. And we didn't worry about the lack of development experience because his vision was strong and his family backed him, because it had the financial resources and the local connections to follow through. The location was excellent, and the guy had prioritized the lakeside amenities—a restaurant, bar, and activity area—which were already in place when we visited for the first time. This was smart; these kinds of services help foster rentals.

The developer positioned the product as turnkey. The bungalow investment would be supported by rental and property management. As an owner, you bought your unit then waited for your income checks. That was the promise.

We invested early then watched, over a couple of years, as the developer sold a couple dozen more bungalows. Construction was slow at times, both because construction is always slow at times in the developing world and also because in this case roads and foundations were being dug from the side of a caldera. The dramatic setting was a big part of why we bought. Still, the developer stayed reasonably on schedule.

After our bungalow was completed, we visited to create a punch list of construction items to finalize and to furnish the place. We discovered that the developer wasn't offering furnishing packages. He didn't recognize the value of keeping all the bungalows similar or recognize that putting the burden of furnishing on the owners interfered with his representation of this as a turnkey proposition. That was our first clue that rental and property management hadn't been thought through.

We bought tables, chairs, beds, mattresses, televisions, bedsheets, towels, and so forth, as did the other buyers whose units were completed. Construction continued farther up the hill on additional bungalows, but, with the first 10 built and ready for guests, the developer announced the grand opening of the resort.

And nothing happened. No bookings. None at all. The restaurant and bar continued to attract tourists to the lake, but they came for lunch or dinner. No one was staying overnight.

What was the problem?

The developer had no marketing plan. His strategy was build it and guests will come. He didn't begin to think about how to fill the bungalows until after they'd been completed.

This was before VRBO (Vacation Rentals by Owner) and Airbnb. Travel agencies were still a key part of the travel industry, and that's where this developer went to try to drum up business. He planned travel trade excursions and fam trips, inviting agents to stay at the property with the hope they'd recommend it to their clients. He met with Nicaragua's Ministry of Tourism to try to get them to include the resort in their materials. He made reasonable efforts, but it was too little too late. Months, then a year passed with just a handful of bookings, and the developer had sold and was building 30 more bungalows.

The developer's biggest problem, we can see now, was a reluctance to delegate. He was involved in all decisions, no matter how small. Running a construction project and running a hotel are both full-time jobs. He was trying to fill both roles at the same time, and he had experience in neither.

Over the next couple of years, as the remaining bungalows were completed, occupancy picked up slightly, but the developer burned out. He was managing complaints from early owners upset about the low rental yields while fielding questions and concerns from new buyers. It was too much for any one man to handle. Finally, he succumbed to pressure to engage an experienced rental manager. The decision, again, was made too late, and the pool of labor he had to draw from was limited. He engaged an expat couple whose experience amounted to managing a couple of houses in nearby Granada as short-term rentals.

Then came the final nail in the coffin. We learned that the developer hadn't formalized the homeowner's association (HOA). HOA fees had been increased to cover the salary of the new rental managers, but, when owners realized they weren't legally obliged to make their monthly HOA payments, they stopped. No one wanted to cover the rental management costs when there was next to no rental income. Unable to draw their salary from the HOA funds, the management team moved on, leaving the place in a bigger mess than it had been in before they took over.

By this time, the developer had bailed, too. To his credit and though he was under no obligation to do so, he signed over the amenities to the homeowners before walking away. The restaurant and bar threw off a small stream of income but not enough to compensate for the rental cash flow that never materialized.

We eventually sold our bungalow for $1 to someone who lived in Nicaragua and was up for managing the property as a rental personally. He planned to extricate it from the completely nonfunctional group management program. Fortunately, the investment wasn't large so the loss wasn't painful, just humbling.

Analyzing the experience now, nearly 20 years later, we agree that the premise was sound. The developer owned the land and had no debt. The family had the wherewithal to build out the infrastructure and the amenities. What we paid for was delivered; our bungalow was built.

However, the developer flat out had no business acting as a resort manager and was too slow to give up control and engage professional help.

What are the important takeaways? One is not to let a failed investment like this one turn you off making another similar investment in the future. This Nicaraguan developer was trying to build what would be considered a condo-hotel. Condo hotels can and do work. The most successful ones sign a hotel brand for the marketing and have an experienced management company in place before breaking ground.

Had this opportunity been presented as buy a bungalow and rent it out rather than as a turnkey rental investment, it could have been successful. The developer could have focused on building and managing the resort amenities, and owners could have handled their rental units as they saw fit.

If the project were built today, the developer would have the benefit of online marketing to support his rental program. Airbnb and Booking.com have helped to make small rental projects like this one more viable.