Condo-Hotel Concept: Is It Worth Checking Out?
Posted on June 26, 2007
Living in a high tourism area like Orlando, Florida the condo-hotel concept has been marketed heavily here. A few years ago the newspaper would have an article on a new condo-hotel being planned at least once a month it seemed. New development has tapered off but there are still a significant amount of condo-hotels completed or almost complete.
A condo-hotel is essentially a residential building that contains both condos and hotel rooms. An individual purchases a room receiving all the tax advantages of owning property. When the individual is not staying in the condo, the hotel management will rent it out as a hotel room and the individual receives a share of that revenue. The condo-hotel concept is relatively new and should not be entered into lightly. Looking at the purchase as an investment can be subjective, and the U.S. Securities & Exchange Commission currently does not allow condo-hotel developers to market the properties as “real estate investments” or forecast potential returns due to the uncertainty of the true value. The secondary market for reselling has not been evaluated due to the short time-frame condo-hotels have been in existence. If it’s as hard to resell a condo-hotel property as it is to resell a timeshare then that is a major drawback. Here is a list of major pros and cons of condo-hotels:
Pros:
- Receive real estate investing tax breaks
- Get access to hotel amenities
- The hotel maintains the room for the owner
- Opportunity to own at world class resort or hotel
Cons:
- Uncertainty of future market for resell of condo-hotel
- Lack of data on returns received from renting out as a hotel room
- Lack of control of property to ensure it is being rented out to potential
- Some properties, especially in Northeast, not open all year around and even owner cannot access it in off season
- Returns tied heavily to tourism market
- High fees can be levied at anytime including fees for replacing furniture
As you can see there are many glaring cons associated with owning a condo-hotel. However, if there is a reason it may work for you then you will want to research properties and choose to buy for the same reason you would a traditional real estate investment. Location is always the priority. Getting in a property on the Vegas strip, in Manhattan, or near your favorite tourist destination is much safer than a property that is distant from the hot spots. Be sure to understand all the involved fees (maintenance, furniture, etc) up front.
In conclusion, keep in mind one of the main reasons condo-hotels have evolved is to allow the developer to move much of the development cost to the condo owner. Orlando has had an explosive number of condo-hotels in the last few years. Below you will see a list for condo-hotels in Orlando:
- Club Venetian
- The Lexington
- The Blue Rose
- Villa del Lago
- Pallazo del Lago
- Imagine at The Westin
- WorldQuest Resort
- Floridays Resort
- The Mona Lisa
- Vista Club
- The Point
- San Marco Resort
- Lake Buena Vista Resort and Spa
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Good information. The Condo-hotel/Condotel is a very interesting scenario for many people. It is a great option for executives/salespeople that spend a lot of time working at remote offices but not enough to establish a household. They are also nice for foreign nationals who want the returns but none of the maintenance or furnishing costs.
I think one of the things to consider is that when financing one of these units, the rental pool must be voluntary… meaning the unit cannot remain in the rental and then reserved by the owner…and if the owner wants to keep it out of the rental pool entirely or live their full time, that is ok. Also, rental income cannot be used for qualifications at this time. So someone with tight debt ratios will find these harder to purchase as investment properties.
Also … many won’t lend outside of vacation destinations… so a remote lodge in a lesser known ski area may not be able to be qualified.