While condo hotels aren’t new, they’ve been receiving a lot of buzz in recent years as buyers try to determine if they’re suitable investments or not. While we’re not in the business of offering investment advice, you’ve compiled some helpful information below about this type of investment and the pros and cons of buying in a condo hotel.
First and foremost, what is a condo hotel? Good question! While there are several different formats for a condo hotel, the bread and butter is that you can buy a unit in what is essentially a hotel. Your unit could be in the style of your standard hotel room, or it could be more like an apartment with one, two, or more bedrooms. Like hotels, these units exist within buildings with front desks, security, and often amenities like gyms and pools. Sometimes they are operated like regular hotels with just a few units for sale; other times, they are an even split, and some are entirely made up of independently owned condos.
The concept is that owners can rent out their condos as vacation rentals when they aren’t using them. Many different rental models vary between properties. Some owners rent their units out independently, some must use an on-site vacation rental management company, and others have a choice between the two.
All and all, it is a condo-style unit in what is basically a hotel, and an owner can rent it out to short-term visitors in keeping with the property’s rules. The idea is that the income from the rentals can offset costs or even earn additional revenue for the owner. So, are condo hotels a good investment? Here are some pros and cons. Let’s start with the pros!
Additional Income Stream
Of course, there is the possibility of an additional income stream. It sounds like a win-win if someone can turn a profit off of their condo while also getting the opportunity to stay in it from time to time. This is mainly why this model emerged and became popular in its infancy.
A Hands-Off Approach
Another attractive feature is that many condo hotels manage the rentals for their owners. For example, this may seem more appealing than running an Airbnb because you don’t have to worry about logistics, booking, or even cleaning the unit yourself.
Because they are modelled after hotels, you’ll often have access to a pool, hot tub, gym, and other amenities. This is attractive to the owner when staying at their condo and also drives up potential guest demand.
Staying in a condo hotel is like staying in a hotel or an upscale apartment building with door staff. If you’re worried about security while you’re out of town or staying in your condo, this might put your mind at ease.
Now, let’s talk about some of the cons.
Fees & Costs
If you’re cutting it close to breaking even, you may find the fees especially challenging. Not only will you likely be faced with the pricey condo fees that come with owning in an amenity-forward building with employed staff, but you’ll also be looking at management fees if your building manages the rentals for you. Sometimes condo hotels use a revenue share model with management, which could cut your earning potential even further.
If you were to purchase a property of this type, you are certainly limiting yourself when it comes to your selling options. Because this investment type is so specific, you will be looking at a limited pool of potential buyers when you decide to sell.
Similarly, some lenders might hesitate to offer a mortgage to this type of property as it can be unpredictable. If you need support in purchasing your condo, this might be an issue you’ll run into along the way.
While renting out the unit may be simpler than if you were to do it independently, many other facets of the owners become more complex. Taxes, for example, can be tricky as the ownership model is unique, and the laws and mandates may vary.