Lately, we’ve gotten a ton of questions at BiggerPockets about a relatively unknown area of real estate investing, Condo Hotels or Condotels. In an effort to help understand what exactly these things are, we contacted Joel Greene, President of the Condo Hotel Center, a brokerage “specializing in selling condo hotels in the pre-construction phases,” and Condo Hotels Dubai. Mr. Greene was more then happy to answer our questions, allowing us to conduct an email interview while he was on vacation.
What is a condo hotel or condotel?
Think of it as buying a condominium, although one that is part of a 4 or 5-star hotel. Therefore, as an owner, when you are on vacation, you will get the benefit of more 4-5-star services and amenities than you’d get in a typical condominium.
The big difference between a hotel and a condo hotel is that a hotel typically has one owner, either individual or corporate, but condo hotels are sold off unit by unit. Therefore, a 300 room condo hotel could have as many as 300 unit owners. A hotel guest will likely never know that the hotel has tons of owners because every room in the rental program will look identical to every other.
Condo hotels are sold as second, third, fourth or fifth homes, for that matter, but they are not typically sold as primary residences. In fact, many of them limit the unit owner’s usage of the unit because their unit is wanted and expected to be included in the hotel’s inventory of rentable units.
As the owner of a condo hotel unit, you may place your unit into the hotel’s rental program where it will be maintained and rented out for you, just like any other room in the hotel. As owner, you receive a share of the revenue that the rental of your room generates.
What are the advantages / disadvantages of purchasing a condotel over purchasing typical rental properties?
1- Hassle free ownership; no landlord issues.
2- Rental revenue to offset some or maybe all of your ownership expenses.
3- A fantastic vacation home you can use whenever you want.
4- A safe real estate investment in a day and age where other investments may seem more risky or less attractive.
5- Strong likelihood of appreciation.
6- Pride of ownership–“I own a piece of a Trump.”
Disadvantages are few unless the buyer has unrealistic expectations of cash flow. The reality is there may or may not be any.
1- Your pets are not always welcome.
2- Your unit may not be available on short notice, so reservations of your own unit may require as much as 60 days notice.
3- Your 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. can affect your unit’s occupancy rate. For this reason, most lenders will not consider the potential revenue when considering making the loan to you.
Are these properties 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.
How long have they been around?
Several decades, but the huge surge of 4- and 5- star condo hotels that have been making their way across the country, started about 7 years ago in the Miami area.
. . . to be continued . . . What Are Condo Hotels or Condotels? An Interview with Joel Greene – Part 2