Stunning architecture, the excitement of being in a new place, and room service to your property at any time – these aspects of condo hotels are quite enticing and seductive, aren’t they? This homeownership formula becomes even more interesting when you factor in a consistent monthly income flow while you are unable to use your property.
Without a doubt, the hype and sophisticated marketing and public relations engines paint a lovely picture of the lifestyle afforded by condo hotels, but are they a better deal than traditional condo purchases?
Condo hotels are a viable alternative worth considering for anyone thinking about buying a vacation property. However, before jumping in with all feet, the buyer should have a firm grasp on the condo hotel concept and the benefits and drawbacks of this investment property method.
Here is everything you need to know about investing in condo hotels so that you can decide if this is a viable investment opportunity for you.
What is a condo hotel?
A condo hotel is a legal condominium structure that serves as a hotel, satisfying the demands of both personal and corporate investors. ‘Hotel condos,’ ‘condotels,’ or ‘contels’ are other names for this type of property.
Condo hotels are high-rise constructions that are designed and operated as luxury hotels in major cities and resorts. Individuals can buy condominium flats in these hotels, providing them with a full-service vacation home. When they are not using the property, they can rent it out to vacationers and manage it like any other hotel room utilizing the hotel chain’s marketing and management team.
Who pays for what?
Costs of owning and managing a condo hotel are usually split between the condo unit’s owner (you) and the hotel, with each party being responsible for paying for different things. Here is what each party has to pay for.
Condo unit owner (you)
As an owner of the unit, you will be responsible for paying:
The purchase of the unit
Insurance
Taxes
Repairs in the unit
Added fees – these are paid to the homeowners association (HOA’s) and usually cover the cost of the upkeep of the area outside your condo or other areas of the building, security in the hotel, weather-proofing, or other building maintenance
Hotel rental agency
Here is what the hotel is responsible for:
Daily amenities including housekeeping and indoor maintenance
Cost of running the customer service desk
Marketing expenses
Administrative expenses such as bookkeeping and planning
What are the pros and cons of investing in hotel condos?
All investment opportunities come with their own risks and rewards. You understand what these are completed before you dive into any property investment. Here are the main pros and cons of investing in condo hotels
Pros
Great locations
The bulk of condo hotels are built on prime, highly sought-after real estate in excellent vacation destinations. In South Florida and the Caribbean, for example, the majority of condo hotels are either immediately on the beach or within a few blocks of the beach.
Condo hotels in Orlando are close to the area’s theme parks. On the West Coast, condo hotels are commonly erected near popular ski slopes. Condo hotels in Las Vegas are found on or near the Las Vegas Strip. When looking to invest in a condo hotel, the location of it is one of the biggest factors that will determine how much of a return you can get, so find one that is in the best location possible.
High quality proerties
Along with usually being in prime and popular locations, the bulk of condo hotels are exceptional properties. They may feature world-class spas, exercise centers, gourmet restaurants, and business centers, as well as other four- and five-star amenities.
Additional hotel services such as valet, concierge, security, and 24-hour room service may be available. Again, all of this depends on which condo you decide to invest in, but choosing one with some or all of these amenities will only boost your investment capital.
Rent offset costs
Owners of condo hotel units can make money by participating in the condo hotel’s rental program, which can help offset ownership costs while also yielding a small annual return.
Can be used as your personal holiday home
A big draw to investing in condo hotels is that the units can be used as your holiday home for some parts of the year. Say for example you own a unit on the Florida coast. Whenever you are in the state you could stay in this condo, and then rent it out to customers whenever you are not using it. You will also be able to stay there for a cheaper price than booking a hotel room of the same quality, meaning that your overall trip will be cheaper.
Passive income
It is completely trouble-free to own a condo hotel. Property maintenance, upkeep, facility operation, and guest service issues are all handled by the management company, meaning you can use the condo for passive income.
Cons
Risk of the hotel not being completed
The majority of condo hotel projects currently on the market begin selling in the early stages of pre-construction. Some condo hotel projects, like any other sort of real estate, fail for a variety of reasons, including finance challenges, partner conflicts, and so on.
Your money will be returned in those rare cases, but you may have missed out on interest or other opportunities while it was locked up.
May not get a big return at first
You could buy a property during pre-construction and see its value explode before it is built, but if the market falls out of favor, as it does from time to time in any investment cycle, you may have to wait until the market returns to get the massive profit you were hoping for.
Fluctuating tourism levels
Almost every holiday destination is seasonal, with high and low tourism numbers throughout the year. While you should be able to make enough profit during the high tourist season (usually early spring to late summer) to cover any costs and make a profit if anything unexpected happens that damages the tourism industry in that area (such as a natural disaster) then your profits for that year will be much lower than expected. It may even take a year or two for tourism levels in the area to reach their normal levels again.
Top tip for buying
Buyers should be cautious about making purchases based on rent revenue forecasts in the area where they are buying a condo.
Developers simply refuse to make projections because of SEC regulations on the sale of this sort of property. Instead of being seen as an annual return investment, a condo hotel should be viewed as a vacation home first and foremost.
Are condo hotels a good investment overall?
The quick answer is that this is completely dependent on your needs. This is an appealing choice if you just plan to use your condo as a vacation home for a portion of the year. The hotel concept allows condo owners to rent out their apartments in a systematic and organized manner.
Furthermore, most hotel chains have smart booking software that can precisely increase or decrease hotel room pricing based on demand. This type of pricing knowledge is really valuable. Rather than trying to rent out the house on a nightly basis, which is impractical, it will usually allow you to make the most money per night on rentals.
In addition to producing rental income, they give high capital or value appreciation of the property over time. Like other real estate investments, condo property value appreciation is driven by larger macro-economic issues.
Condo hotels are in high demand in tourist-friendly areas such as the United States, Dubai, Miami, Thailand, the Philippines, and other countries. No matter where you decide to invest in a condo hotel, so long as it has a high tourism industry, and if the hotel is both in a desirable location and has several high-quality amenities, you should get a high return on this investment.
Hi, my name is Matt Roberts, and I have been a financial analyst and advisor for the past 7 years.
While my job is based within the money industry, in my spare time I enjoy looking into potential new investment opportunities. From cryptocurrencies, to purchasing vintage cars, everything has the potential to gain you money if you are wise and make the correct investment decisions.
Through this site, I hope to educate others on investing in general, and hope to provide others with useful information that can benefit them and the opportunities they have. If you are not confident with finances, investing money can be a daunting step, however, it is a lot easier than many people are led to believe.
