New STR Investor: Question About Condotels

[Alexandra Danner]

Hi Everyone! I'm new to this business and am trying to learn everything I can before I take my leap. I'm looking in the Ocean City, NJ area and was wondering what people's thoughts are on condotels. I'm not thrilled with these places looking like a motel/hotel, but there are some pros to these types of rentals. The HOA covers most of the housing fees (booking, house cleaning, water, sewer, internet and cable). Also most of these places are right next to the beach and attractions. Are these profitable purchases in the long run? Also, how is the resale value on them?

Thanks in advance for your help.

[Myrtle Mike Thompson]

@Alexandra Danner I have a lot of experience with condotels here in my local market in Myrtle Beach. You can do well with them, but not if you allow the building/resort to manage the rentals. I can't speak for the norm in Ocean City, but here you have two separate expenses: 1) Your HOA fee which covers utilities, building insurance, maintenance of the pools/elevators/etc; and 2) Your management fee. If you allow the condotel to take care of the management for you, they'll withhold a hefty percentage from your gross rental income. In my market the average is about 40%... ouch! An alternative is to hire a third-party property management company to oversee your bookings and house keeping (assuming the HOA for the building allows this). Local property managers charge around 20%. National options like Vacasa or Evolve are around 10-15%. You'll see positive cash flow here if you go that route. And of course to maximize returns you can self-manage (AirBNB/VRBO). You'll find plenty of resources on BiggerPockets devoted to that. Best of luck!