Investing in CondoHotels

A recent development in real estate investing is the hotel condominium concept, also known as CondoHotels, Condotels, or other similar sounding names. For this article, the term CondoHotel will be used to denote this type of investment.

The basic concept is that an investor owns a particular condominium unit in a large building or development, which can be used by the owner, or rented to unrelated parties on a short term basis, as part of a hotel. The person renting the room may have no idea that the unit is owned by an individual.

The rents that is collected is placed in a pool and shared among all owners in the development. The owners usually are part of an association which distributes the rental income. Expenses are deducted from the income or collected as an assessment.

It is important to distinguish between CondoHotels and timeshares. A CondoHotel owner has a deed to the rooms or physical space, and an undivided share of the property. A timeshare purchaser owns the right to use a property for a specified number of weeks, not the physical property itself.

This article is a basic guide to CondoHotels; always consult an attorney for advice on complicated real estate transactions.

Investment Positives

1. Most units are located in resort or tourist areas. If the goal of the purchaser is to enjoy the personal use of the unit, the cost is similar to owning a condominium in these areas. The added benefit is that when the unit is not used by the owner, it can be placed in the rental pool.
2. Compared to a timeshare, the resale value is likely to be higher, since there is actual property ownership.
3. Most often, there will be professional management of the CondoHotel.
4. Financing is often available at similar terms to condominium investment.
5. There can be tax advantages as in other real estate investments.

Investment Negatives

1. This investment has all the negatives of real estate investing. The investment is illiquid, that is, there is not always a market for the property, and may be difficult to sell.
2. It has the negatives of the hotel business, as rents, occupancy and wage rates are subject to market conditions.
3. The owner has one vote in the association per unit, and is effected to the opinions and voting rights of the other members.
4. Property improvements are not done on the owners timetable, but on the schedule of the association. Assessments can be mandated by a majority of other owners.
5. Associaiton by-laws and/or municipaliites can restrict the amount of days that the owner can occupy the unit for personal use.

CondoHotels can be a suitable real estate investment for individuals as part of a balanced portfolio. Potential purchasers should be aware of the restrictions and operational background of the investment, as well as the financial history.

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