Condo Hotel (Condo-tel)

20 Replies

I’m newer to investing and came across a condo for sale in Florida which apparently is a “condo-hotel.” My understanding is that the building will rent this out for you and take a percentage. Does anyone know both the pros and cons of this type of investment? Thanks!

Originally posted by @Tom Carmody :

I’m newer to investing and came across a condo for sale in Florida which apparently is a “condo-hotel.” My understanding is that the building will rent this out for you and take a percentage. Does anyone know both the pros and cons of this type of investment? Thanks!

I have looked into this in the past.  They are difficult to finance and once the profit split with the hotel plus other fees are deducted from the gross they don't typically look like very good deals. 

 

@Jason Gines

Thanks Jason. That’s what it sounds like. The one pro I see is it’s pretty hand off and can still make a profit. I’m thinking it might be tough to sell down the road also however. Appreciate your insight. Thanks again

Originally posted by @Tom Carmody :

@Jason Gines

Thanks Jason. That’s what it sounds like. The one pro I see is it’s pretty hand off and can still make a profit. I’m thinking it might be tough to sell down the road also however. Appreciate your insight. Thanks again

 All the ones in Miami appear to be selling for much less than what the seller purchased the units for which is a red flag.  Most of the units are on the market for a very long time.   It is hard to get information on performance online.  I did see a breakdown of a few condotels in Hawaii online which was pretty enlightening.  But for the information I have found with the amounts for the profit split and additional fees it makes everything pretty rough unless it is an all cash purchase and even then it isnt a money maker.  If you can take a unit off someones hands for the right price then of course it could work.

@Jason Gines understood and very great info. I did get the rent rolls on a few of the month but not all. Looked good but it was peak season. I think it’s hard to sell them later also because oh need to find someone willing to do the same and NOT live there. So, people retiring to Florida would essentially be out. Again, I really appreciate your responses. Have a great day Jason

Pros: They take care of almost everything, you just get a check every month. The building is typically zoned and permitted for short term rental use, so there's very little chance you'd ever be banned from doing short term rentals if they crack down in that market (like they are cracking down in my market).

Cons: They typically charge 25% (in my market, at least). Banks typically require 30% down minimum on condo-tels, many banks won't even lend on them (again, not sure about your market). 

I would probably only want to buy a condo-tel personally if I were going to self-manage it. Some buildings may require you to join the in house rental program, I generally wouldn't want one of those. But if you can save the 25%, that's often enough to take it from a break even to a decent profit. You'll usually have to pay something for PM if you don't live in the area, but still way cheaper. 

I have a condo-tel under contract right now. It's listed on the BP marketplace if you want to check it out. 125k below it's as is value given via BPO: 

https://www.biggerpockets.com/…

Condotel is a condo that you own and can live in but also has a front desk and or more then a certain percentage is rented out as short term rentals. I own a condo in Panama City beach that is considered a condotel most of them are all considered that are on the beach In a tourist area. I could live there full time or rent it as a short term rental. Condotel would not typically be a warrantable mortgage and would be at a higher rates typically then a standard mortgage. Typically the terms will be 5/5 arm mortgages on them vs 30yr fixed on a warrantable mortgage.

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@Tom Carmody

We have several condo-tel type complexes here in the panhandle. Like everyone else mentioned....they are hard to finance but there are a few lenders here that do it. Rates are normally higher. I heard someone get 8% a week ago. Some don't require you to have a property management company because they operate like a hotel. HOA fees are usually higher but compared with a 25% management fee,at another complex....condo-tels can be profitable for sure.

I would be curious to find out what rates of return investors are getting on their Condo Hotels. 

I have a friend who has one in Florida where he doesn't have to do any repairs or maintenance to his unit. It's all covered in his fees.  He also gets to use it up to 28 days per year. These are what his numbers are: Value $369,000, Gross Rent $72,749, Total expenses $49,682 Net $23,067. His expenses include EVERYTHING. Expenses sound high, but 6 1/4% plus appreciation for doing nothing, sounds good to me.

Does anyone else in this group have a condo hotel?  What are your numbers like?

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@Tom Carmody

I would recommend getting in touch with owners in the particular hotel you’re wanting to buy in and ask them how they like it and how much they are really making & any issues with the hotel. They might can give you some valuable information.

@Laura Williams I did this and received a few months of rent rolls. Certainly profitable during the months they sent but the Congo-tel gets 60% of the revenue and owner gets 40%. Furthermore, I could never sell it to someone looking to live there down the road, as it must always stay a rental. So, I’m going to stay away from this particular one. Have learned a lot and would be interested later at others. Thanks for your reply!

@Greg Gaudet thanks for your reply. I agree with you and this one won’t let me self manage. There were simply too many things about this particular one I do not like so I’m staying away. Have learned a lot however and thanks again.

@Tom Carmody

Just curious how the condo hotels work in Florida. Does the 60% the condo-hotel takes include the HOA fees or utilities or replacement of furniture/repairs to the unit like plumbing or stuff like towels and sheets etc? Or do you still have to pay that on top of the 60% to the hotel?

@Laura Williams that is a great question and I failed to mention it. For this one in particular, I would've still owed HOA's. They also said that anything within the walls of my unit would be on me... such as broken sink handle, refrigerator, etc. However, they would actually handle things like plumbing pipes, towels for that pool, laundry, and some others. Hope that helps. I hear many of these are different however so I think doing homework on each is important. This was my first time looking at one and it sounds like many buildings have their own rules.

Originally posted by @Laura Williams :

@Tom Carmody

Just curious how the condo hotels work in Florida. Does the 60% the condo-hotel takes include the HOA fees or utilities or replacement of furniture/repairs to the unit like plumbing or stuff like towels and sheets etc? Or do you still have to pay that on top of the 60% to the hotel?

I had found a breakdown from 2013 for the Trump Miami Condotel.  No idea if it is accurate or if anything has changed since then, but it indicated the following:

PROGRAM 1 Owner use up to 2 weeks 50% of Adjusted Gross Standard FF&E
in high season & 2 weeks Revenues from the Unit and accessory
in low season package required.

PROGRAM 2 Owner use up to 3 weeks 40% of Adjusted Gross Standard FF&E
in high season & 3 weeks Revenues from the Unit and accessory
in low season package required.

PROGRAM 3 Owner use up to 6 weeks 30% of Adjusted Gross Standard FF&E
in high season & 6 weeks Revenues from the Unit and accessory
in low season package required.

HIGH SEASON: DECEMBER 21st - APRIL 15th LOW SEASON: APRIL 16th - DECEMBER 20th

Note: The following fees are deducted from the gross revenue before the split:
5% Management fee, 5% Travel Agent Commissions, 2% Credit Card Commissions, $4.00 per occupied
room night (TRUMP Fee) & Group meeting fee may apply.

Other Monthly Fees: 4% of the gross revenue is moved to the FF&E Reserve account and approximately
$20 for liability insurance.

Monthly Condominium Dues: $895.57 (These can be deducted from your monthly revenue)
Initial Rental Program enrollment fee $500 and $2500 initial FF&E Reserve account contribution.

Fees for OWNERS STAYS:
In Rental Program (Optional):
1. $35 plus tax per day cleaning and $22 plus tax per day resort fee
OR
2. $150 plus tax Clean up fee at check out and $22 plus tax per day resort fee

PRIVATE OWNERS: $100 per day resort fee up to 2 people, $50 each additional person. Children 12 years
old and under will not be charged.

 

I condo hotel that I'm looking into does all the maintenance, upkeep and improvements. Every room looks exactly the same. 

I don't care if the management company makes 50%, 70% or 90%.  What has the bottom line been the last three years? The one that I'm looking at is averaging 6.25%. It doesn't sound like a lot, but I do NOTHING except cash the check. I don't think condo hotel rates will drop over the next 20 years. Also, I can 1031 exchange some of my rentals that I have had for 25+ years and defer the taxes.  Also, my kids don't want to manage the rentals that I have now, but they could handle the Florida condo hotels.

Thanks for your replys.


@Don Rotanz Did you have to purchase your condo-tels with all cash?  I have found they are difficult to finance so that is why I ask. I do agree with you being able to simply collect and no do much. Another question I had however is, when/if you ever decide to sell, do you believe they are harder to sell due to it basically having to sell to another investor looking for this and not someone looking for full time living space? I feel as if it would be hard to sell and that cash would be locked up for some time. Thanks in advance. 

I would 2 or 3 rentals and pay all cash through a 1031 exchange. I know that you can finance them, but I don't know what the terms are. My guess is that LTV would be low and the rate would be higher.

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