Thinking of Buying a Condo Hotel? Here Are 20 Things You Need to Know!
December 12, 2016
1. What is a condo hotel or condotel?
Think of a condo hotel (also sometimes called a condotel or hotel condo) as buying a condominium, although one that is part of a four-star caliber hotel. Therefore, as an owner, when you are on vacation, you’ll get the benefit of more four-star services and amenities than you’d get in a typical condominium.
2. What types of services and amenities are found in condo hotels?
If you can imagine the niceties you’d find in an upscale hotel, then you can picture a condo hotel. Among the features are often resort-style pools, full-service spas, state-of-the-art fitness centers, fine dining restaurants, concierge services and room service.
In some locations, like Las Vegas, you’ll find condo hotels with their own casinos, retail areas, and entertainment venues. In places like Orlando, you’ll find condo hotels with their own water parks and convention facilities.
3. What is the difference between a condo hotel and a traditional condominium?
The big difference between a hotel and a condo hotel is that a hotel typically has one owner, either individual or corporate, but a condo hotel is sold off unit by unit. Therefore, a 300-room condo hotel could have as many as 300 unit owners.
4. Is it evident to hotel guests whether they’re staying in a condo hotel or a traditional hotel?
A hotel guest will likely never know that the hotel has multiple owners because the property is operated just like a traditional hotel and often under the management of a well-known hotel company like Hilton, Hyatt, Starwood, Trump or W. Also, each of the individual condo hotel units will look identical in design and décor to every other, just as they would in a traditional hotel.
5. Who typically buys condo hotels?
They’re primarily sold to people who want a vacation home but do not want to deal with the hassles typically associated with second home ownership such as maintaining the property or finding renters in the off season.
6. What is the demographic of the typical condo hotel buyer?
The spectrum of condo hotel buyers is pretty broad. There are families that want a second home in a vacation destination. There are baby boomers who are at or nearing retirement and want somewhere they can “winter.” There are also plenty of investors who purchase a condo hotel unit with little intention of ever using it; they’re in it for the potential appreciation of the real estate.
7. Can you live in a condo hotel?
Condo hotels are not typically offered as primary residences. In fact, many of them limit the unit owner’s usage of the condo hotel unit (typically 30-60 days per year) because the unit is expected and needed in the hotel’s nightly rental program where it can be offered to guests and generate revenue.
8. Who gets the money when your condo hotel is rented out?
The hotel management company splits the rental revenue with the individual condo hotel owner. While the exact percentages vary from property to property, the typical rental split is in the 50%-50% range.
9. Who finds hotel guests and then cleans and maintains the condo hotel units?
The hotel management company markets the property and books hotel guests. It also maintains the unit and ensures the smooth operation of all of the hotel’s services and amenities.
10. What are the advantages / disadvantages of purchasing a condotel over purchasing typical rental properties?
· Hassle-free ownership; no landlord issues
· Rental revenue to offset some or maybe all ownership expenses
· A fantastic vacation home available for use whenever you want
· A real estate investment at a time when other investments may seem less attractive
· Strong likelihood of appreciation
· Pride of ownership –“I own a piece of a Trump”
· Annual cash flow could be equal to or less than annual ownership costs
· Pets are usually not welcome.
· An owner’s condo hotel unit may be rented when the owner wants to it, so advance reservations are required to guarantee availability.
· The condo hotel unit is subject to the same dips in the market that affect all hotels in the competitive market set: hurricanes, terrorist threats, warm winters up north, price of gas, etc., all of which can affect a unit’s occupancy rate and the amount of revenue it generates.
11. Are condo hotel units difficult to finance?
Not at all, but they do take 20% down typically, whereas condos can be purchased with less cash down. It’s also important to make sure you use a mortgage broker who has had success in getting condo hotel financing deals done. Many banks still do not do them, but more and more are getting involved as condo hotels become more widely available.
12. How long have condo hotels been around and where are they located?
Condo hotels have been around for several decades, but the huge surge of four-star and five-star condo hotels that have been making their way across the country, started around year 2000 in the Miami area. The Miami-Fort Lauderdale area still has the most condo hotels, but areas like Orlando and Las Vegas are developing condo hotel properties at an even faster rate and will likely surpass South Florida soon. Other up-and-coming areas are places like the Bahamas, Panama, Dominican Republic, Mexico, Canada and Dubai.
13. How much do condo hotel units cost?
That’s like asking how much a car costs. There are different quality condo hotels. Some require greater amounts of money than others, obviously.
There are inexpensive condo hotels out there for as little as $100,000. These are typically found in properties that have converted their use from an existing hotel. They are hotel room-sized, lack kitchen facilities, luxury franchises, and other first-class amenities.
Then there are the four-star or greater properties that may start in the $300,000 to $400,000 range, but can go all the way up to $800,000 just for a studio unit. One- and two-bedroom units cost substantially more than a studio. Of course, the studios do come fully furnished and finished, and will be significantly larger in size than a typical hotel room, and may attract guests because of its name like St. Regis, Ritz or W.
14. What are typical maintenance costs?
On average about $1.00 to $1.50 per sq. ft., but the range can exceed $2.00 sq. ft. in the most luxurious properties.
15. Do you buy condo hotel units after they have been built, or can you purchase condo hotels in pre-construction?
Unless you are in a hurry to get started vacationing or you need to complete a 1031 exchange, it’s best to buy condo hotels in pre-construction as early as possible. That’s when prices are lowest and unit selection is greatest. You will likely wait two years or longer before closing on and taking possession of your condo hotel unit, but you will have locked in the price and will get the benefit of maximum appreciation.
16. Is there anything else investors should want to know about condotels?
There is more to buying this type of real estate than the old phrase, “location, location, location.” While most condo hotels are located in desirable resort and business area locations, what is most important is a good franchise with a strong reservation system.
Also, do not be fooled by an aggressive rental split. One way or the other, the developer of the property will have to staff, maintain and operate the hotel and its services like the restaurants, bars, spas and pools from his share of the proceeds. If he’s giving you a very favorable share of the rental, he’s also more likely to be charging you a higher monthly maintenance fee. Of course, this goes both ways. If the maintenance split that is offered is closer to 50-50, then your maintenance should be more reasonable too.
17. Any suggestions to investors in choosing which condo hotel to buy?
Get good advice. That means you don’t want to rely only on the pitch provided by an onsite salesperson at a condo hotel. You want to talk with a broker who specializes in condo hotels and who knows and understands the entire condo hotel market, not just the facts pertaining to a single property. He or she will listen to your wants and needs and then offer recommendations as to which properties best match your requirements. You’ll have an opportunity to comparison shop and consider the pros and cons of each available property.
A good broker can be the difference between your buying a condo hotel that will be problematic and not live up to your expectations or one that will provide you with years of great vacations, good annual revenue and a substantial profit when you sell.
18. Does it cost more to use a real estate broker to purchase a condo hotel than buying a unit on one’s own?
No. With new condo hotel properties, the prices are always set by the developer and are exactly the same whether you buy directly from an onsite salesperson at the property or using a broker.
The broker’s commission is always paid by the developer and is already built into the price regardless of whether an outside broker participates in the sale or not. Since a broker’s representation is free to buyers, it does make sense to enlist their aid and get the benefit of their advice before making a purchase.
19. How can prospective buyers find a good condo hotel broker?
Ask friends for broker recommendations or search online for “condo hotel broker.” Visit condo hotel broker websites and see if the information they provide seems comprehensive and unbiased. If their website seems to focus on selling homes or office space, and the condo hotel information appears to be an afterthought, steer clear. Your best bet is to work with a condo hotel broker who specializes.
20. How can buyers learn about new condo hotel properties coming on the market?
Condo hotel brokers can be good information sources as they often learn about properties prior to their release to the general public. Another option is for them to subscribe to a condo hotel newsletter such as the one we publish called Condo Hotel Property Alert. We offer it for free on our website http://www.CondoHotelCenter.com and it features a different condo hotel property coming on the market each edition.