Residences sold at hotels are called condo hotels.
Condo hotels have been a popular investment choice since the 1970s and are a convenient way to own a vacation home.
In principle, condo hotels are simple: You buy a unit, use is for your short or long-term stays, and rent the unit when not in use. Despite its simplicity, there are important factors you must consider.
How It Works
A condominium hotel has had some or all of its rooms converted into units that are legally available for purchase. Owners can then decide to live in the unit as they please or they can add it to the hotel’s room inventory. When this happens, the unit becomes available for public rent, and the owner can generate income.
A major advantage is that the hotel’s operator will manage all aspects of the condo. Owners have no hassle with maintenance, and the hotel takes care of everything from the marketing, to the bookings to the housekeeping. Owners can access all the amenities you’d find in a luxury hotel like spas, fine dining, and concierge services.
Making Sure Yours is A Smart Investment
When choosing a condo hotel you need to make sure the operator provides you with a well-managed condo. The condo should look like a room that matches the theme or branding of the hotel. The hotel operator should offer a fully integrated service and must include professional booking technology as well as other amenities like daily housekeeping.
Choose a hotel operator who is on top of their business. They should have access to software that allows them to fluctuate pricing in line with their competitors. The operator should be a well-known and trusted brand or a developing brand who has a solid relationship with the best comparison sites and brokers like Booking.com and Expedia.
Choose a Smart Revenue Split
When buying a room in a condo hotel, the number one consideration should be the location. Choose a popular tourist or business destination and check the market stability in that area.
The second consideration should be your estimated usage and profit. If there is a chance you will not be able to use your vacation condo in the future, the investment will not be worth it. Condo hotels are considered a lifestyle investment, first and foremost giving you the opportunity to stay at a hotel for long periods of time.
Revenue splits in the condo hotel market are normally between 40% and 60%. The most important statistic to consider when negotiating a revenue split is the average daily rate (ADR) and average daily occupancy. These rates will tell you how successful your rental income can be.
Operators who usually offer higher revenue splits (around 70%) tend to be hotels that are lesser known or might be struggling to turn a profit. You might get 70% of every rental, but the hotel ends up only renting your room out a few days each month.
Choose a hotel company who can offer you a unit with a competitive daily rate and a high rate of occupancy, so your property is rented out frequently.
Other things to consider
Buying a unit in a condo hotel can be daunting. Once you’ve chosen a hotel with a solid brand reputation and high potential revenue return, you need to ensure you still get your money’s worth.
As with any condominium, condo hotel units are sold with a price per square foot value. Make sure your price per square foot is competitive within the condo hotel market and that it matches hotels with a similar luxury rating.
So where do I sign up?
Condo hotels make a lot of sense for many buyers. The benefits include hassle-free ownership, rental revenue and a vacation home that won’t sit empty when you aren’t using it. Some people refer to condo hotels as condotels.
We recommend you work with a well-trusted real estate broker. Choose a broker who can offer you a wide range of condo hotel properties that come from well-established hotel operators. Your broker can help you choose a property in a thriving resort area that gives you decades of wonderful use.
To find the cheapest condo hotels you can look internationally. You could consider properties in popular tourist hotspots like the Dominican Republic or the Cayman Islands, or even spread your net as far as Europe and Asia.