Sell for More Trivia is a weekly blog series that playfully presents a trivia question about commercial real estate.
In popular coastal regions and attractive big cities a new form of vacation home is growing in demand. Condo hotels, also known as a condotel, can be found in booming vacation destinations like South Florida, Orlando, New York City, Las Vegas and Aspen. These unique units are the industry’s hot new segment.
What is a Condotel?
At their core, they are a unit inside a hotel which is professionally managed by a hotel management company.
The condos are sold to individual investors for the owner’s use throughout the year. However, when the owner is not using the unit, they have the option of partnering with the management company. The rental revenue can help to defray their expenses. Essentially, separately owned condos become part of a hotel’s inventory through a rental program.
These properties are attractive to buyers because they are turn-key and well-managed when in a hotel’s rental pool. Amenities offered to owners and transient renters might include dining, fitness centers, daily housekeeping, valet parking, resort-like pools. beach services and concierge services.
Who Owns the Condotel Room?
The investor who purchased the unit owns the condo. This individual retains all ownership and rights to the condominium. They are allowed to stay in their unit any time they want. But owners should inquire about specific bylaws for the condominium and check for restrictions on their occupancy.
The agreement with the management company will outline how the revenue is split. The management company takes care of all booking arrangements. Most buyers find the process of renting out the condo unit on their own to be laborious so working with a hotel makes the process smoother. Using the management company means the rental is handled professionally, the unit is well-maintained, and the company takes care of the marketing.
Who Pays for What?
The condo unit owner is typically responsible for:
- The purchase
- HOA Fees (typically include security features and upkeep to the outside of the building)
The management company is generally responsible for:
- Daily hotel amenities including maintenance and housekeeping
- Marketing expenses
- The cost of running a customer service desk in the lobby
- Bookkeeping, operational, and administrative expenses
The revenue generated by the condotel unit is usually split 50/50 between owner and the management company. Typically, the more favorable the split, the more financial responsibility you have toward upkeep.
Considering a Condotel Investment?
Does a condotel make a good investment? The consensus is that they are more of a “lifestyle investment”. They should be viewed as a vacation home or second home due to the fluctuating real estate and vacation market. If the economy takes a downturn, a condotel might suffer in bookings and revenue. Also, consider costs like association fees when looking at this as an investment.
How Much Rental Income Can Be Made?
The management company will not guarantee to owners that their units will be rented out when not in use. However, several factors can increase the likelihood of making rental income off your unit:
- Desirable travel destination
- Solid amenities package
- Good management of the unit
- Revenue split agreement
- Competition in the area
Purchasing a condotel with a branded company like the Four Seasons rather than an unknown hotel brand can help to increase occupancy. Making revenue by renting out the unit is typically considered a bonus to owning a second home.
Can you get a Condotel Loan?
As the popularity of the condotel has skyrocketed, they’ve become increasingly accepted. It’s easier than ever to secure financing for these units. These loan options are fashioned to work with the slightly higher risk associated with condotels. This means they carry higher interest rates and down payment requirements than your average mortgage. However, they are often flexible and work with fixed or adjustable rates, and foreign buyers are welcome.
Condotels are an excellent solution for people who want to own a condo in a resort area but don’t want to leave the unit vacant when they aren’t using it. They’re also an excellent solution for owners who don’t want to deal with the hassle of renting the unit themselves.
But do your homework and consider using a broker who specializes in condotels before buying one. A broker can make the difference between making an investment that is problematic and one that you can enjoy, generate rental revenue from and sell for a profit.
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About Beau Beach, MBA CCIM
Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.
Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and South Florida markets.
He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.
Beau can be reached at 800-721-3287, click to schedule a call or Beau@BeachwoodSells.com