Are condo-hotels good investments?

Question

Hello everyone - I am considering investing in a so called "condo-hotel" in the Orlando/ Kissimmee area. What's appealing to me is that the hotel itself can manage the rentals as well as the possibility of visiting Orlando a few times a year (I live in Houston). Does anyone have experience with "condo-hotels" who can advice me on this? What sort of information should I focus on as I approach the different offerings? I'm a newbie by the way. Thanks so much.

Jon Martin · Answer

If they manage for you, they usually take a pretty hefty bite of your nightly. $60K/year sounds like a lot until you subtract 45% and pay the mortgage, taxes and HOA with what's left. Also, some that do allow self management do not allow your guests access to all of the amenities.

Basically, run your numbers and read the fine print carefully.

Natalie Schanne · Answer

@Bruno Ligutti - it is unlikely to pencil in your favor. I rented a gorgeous Airbnb 3/2.5 townhouse in Orlando / Davensport for $100/night in off season (walking distance to restaurants, grocery, etc. and maybe 15 minutes to the parks). I saw the owner had paid about $200k for it a few years ago and the current zestimate was maybe $250k. I’m positive the owner managed it himself with just hiring a cleaning crew to come check it. I think you may be happier with something like this than a condo-tel.

I always ask myself - ok- why is the owner selling?

Also, often condos have higher property taxes (sometimes double) than if you bought an equivalent fraction of an apartment building jointly with other investors.

Nick Belsky · Answer

@Bruno Ligutti

If you are planning on financing, @Michael Weigum has hit the nail on the head.  Condotels are not a popular item to lend on for most lenders.  Most lenders will want 30% or more down on them.  There are very few I know of who will do 25% down.  Whereas, non-warrantable condos are much better received by lenders.  Be prepared for a condo review requirement from the lender as well.  I know of only one who does not require a review at all. Be aware of the ins and outs of the lending side with these property types.  You may want to speak with a mortgage broker who can advise you on the financing side you don't run into any unexpected surprises later on down the road.

Cheers!

Shawn McCormick · Answer

@Bruno Ligutti I will echo the sentiments of those who posted before me. I have helped a few clients analyze some of these and the numbers never work. Unless you plan to get a lot of use out of it and really just want it to pay for itself, it will likely not be an investment, but a write off. Most in Orlando that I know of, allow guests access to amenities if you self manage and you will have to charge them a 'daily resort fee', and to me, that is nickel and diming your guests...no matter how many times you tell them that its' extra, you'll get a bad review saying "we couldn't use the pool unless we paid $XX and that will look bad on you.

There are several other resort communities with 'regular' condos and have great amenties that I would suggest before going down this road.

Best of luck to you!

Mike Chen · Answer

Hi

I'm a Realtor in the Orlando area and vacation homes is my speciality.  I personally own about 8 STRs near Disney World and own my own management company.

Kevin Pillow · Answer

I can speak for our area down here in Destin Florida and The Palms of Destin is one of those condotels that are great. They allow for self management and have so many amenities. It’s a great STR property that I recommend to many of the first time investors because of how simple it is to manage.

Michael Weigum · Answer

Hi @Bruno Ligutti

Definitely don't us the onsite management. As others have stated, they will take 40-50% of your Gross revenue. That is not an investment.

In Myrtle Beach we help people get units in Condotel's all the time. If you self manage or get a good PM it can be a good investment. Just know that the financing requirements for Condotel's is different than regular homes. Most big banks will not lend on Condotel's. I recommend finding a good agent who knows the in's and out's of the area and specializes in Condotel's for investment purposes.

Good luck!

Jason Regan · Answer

Condotells scare me.  I am actually currently fighting in Orange Beach AL because they want to call the condo there a condotell.  Here is my problems with a Condotel

1)  The condo is non warrentable.  That means I have to sell to another investor, cash, or some other portfolio loan.  I will not be able to sell to any gov't backed loan, which severly limits  my buyer pool

2)  Its typically 30% down for a condotel and thet really destroys my COC return

3)  If they run it for you that 25% off the top is going to destroy you profits.  Its already hard in this market with a DSCR loan at 7% to make a good return

Nathan Gesner · Answer

Call it whatever you want. It's a condo that is rented for different lengths of time. There will be management fees, they will not be cheap, and they will increase over time. You should do the math and go in with eyes wide open. I don't think it's a good idea for a new investor because you don't know enough to ask the right questions and protect yourself.

Are condo-hotels good investments?

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