Are you looking for an investment property at a vacation destination but would like to be able to use the property for a period of time each year? Would you prefer that a management company handle the rentals and upkeep of the property? If so, a condo hotel may be the right investment for you. A condo hotel is a building that is legally a condominium but is operated like a hotel. Owners, be they individuals or a company, own the units but can use the property for a specified period of time and a management company handles the rental bookings. Typically found in resort communities, these units allow owners to realize a revenue stream year round, but there are a few considerations that you need to be aware of before investing.
While the ownership of the condo hotel unit is fee simple, the Declaration of Condominium will spell out the details of the management and use of the condo and these vary by building. In reviewing this document you will want to determine a few things to see if this unit meets your needs:
- How often and when can an owner use the property? This varies and keep in mind that the more often you stay in the unit the less rental income you will realize over the year. You may consider using the property for yourself during the off season when bookings are typically lower so you can capitalize on a higher rate of return on your investment. In some cases, your unit may be rented when you desire to stay at the property and you could be offered another similar unit.
- What is the revenue split? What types of fees are associated with the management of the unit? This, again, will help you determine if this investment meets your goals and how much of the rental income you get to keep.
- How is the property marketed and what is the occupancy rate? The overall financial goal is to realize positive annual cash flow so you will need to consider just how often the unit is rented and marketing of the property plays into that.
- Do you plan to finance this purchase? While not impossible to get a mortgage on a property of this type, not all lenders offer loans on condo hotels and down payments are typically 25% or more for a second home. Sales of condo hotels are often cash transactions.
This is by no means an exhaustive list of the considerations you’ll need to weigh. And, of course, you will want to consult your financial and tax professionals prior to buying a condo hotel unit, but if you want to consider this type of real estate, Klace & Company Real Estate can guide you through the entire process of purchase- from identifying a property to making an offer to getting to the closing table. Feel free to reach out with any questions.