A few months ago Mr. Cheap at Four Pillars discussed the concept of Condotels, back then it was a new concept to me and sounded interesting so I decided to do some digging. After some initial research I found that the general censuses was that condotels do not make a good investment and therefore stopped further research. Recently a friend of mine was approached regarding condotels by a real estate agent so he asked what my opinion was on this concept.
What Are Condotels?
A condotel is a mix of a condominium and a hotel. Unlike hotels, where a corporation owns the whole hotel, in condotels each unit is sold separately similar to a condo. Condotels have hotel-like amenities and services – unlike the conventional condominiums. The condotel units can be placed on a rental program with the management who can rent the units out for short or long-term rentals. The rent is split between management and the owner in the range of 40%-60% in favour of the owner, but can often be as high as 50%-50%.
Condotels are popular in high tourist areas such as Florida and Dubai, however they are increasingly becoming available in other areas as well.
- Hassle free “landlord”- you do not have to be worried about anything since management will take care of everything.
- Good vacation home – can be used for your personal vacation, saves you accommodation costs.
- Potential for capital appreciation- if the condotel is chosen carefully you can take advantage of appreciation of value.
- High maintenance fees – usually around $1-$2/sq feet and according to Forbes Magazine it can be as high as $10/year/sq feet.
- Price correlated with tourist activities and not so much with real estate market.
- Occupancy Rate not always good – There is no guarantee in terms of your occupancy.
- Tax issues- Condotels are taxed at commercial rates generally, which can be higher.
- Other Fees – Besides the maintenance fee and rent split there are other fees that one must take into account (maid service fee, insurance etc.)
Although an interesting concept I find condotels a bad investment generally, the costs are too high with minimal capital appreciation opportunities. This might be a good vacation purchase for personal use but if the primary purpose is to generate income through rental than the investors may be better served by other opportunities.
What are your thoughts on condotels? Have looked into one? Know anyone who owns/owned one?