What Are Condo Hotels or Condotels? - Part 2

BP:
What kind of investor would be interested in condotels?

GREENE:
Vacation home buyers, buyers that fear the stock market, buyers that want real estate but don’t have the time, desire or capability to be a landlord or to handle the headaches involved with rentals, advertising, collections, etc. Most of the buyers out there are baby boomers age 40-60+/-. This demographic is hitting their financial peaks in their respective careers, and their disposable income is getting further increased when their parents are leaving behind an inheritance.

BP:
How much do the units cost?

GREENE:
There are different quality condo hotels out there. Some require greater amounts of money than others, obviously.

There are cheap condo hotels out there for under $100,000. These are typically found inproperties that have converted their use from an existing hotel. They are hotel room sized, lack kitchen facilities, luxury franchises, and other first class amenities.

Then there are the 4- and 5- star properties we offer that may start in the $300,000 to $400,000 range, but can go all the way up to $800,000, and this is just for a studio unit. One and two bedroom units will cost substantially more than a studio. Of course, the studios do come fully furnished and finished, will be significantly larger in size than a typical hotel room, and may attract guests because of its name like St. Regis, Ritz or W.

And what are typical maintenance costs? On average about $1.00 to $1.50 per sq. ft., but the range can exceed $2.00 sq. ft. in the most luxurious properties.

BP:
Do you buy units after they have been built, or can you buy pre-construction units?

GREENE:
Unless you are in a hurry to get started vacationing or needing to complete a 1031 exchange, I advise my clients to buy in pre-construction as early as possible. You will likely wait 2 years or longer before closing on and taking possession of your unit, but this is when you will get the benefit of as much appreciation as possible.

BP:
Is there anything else you feel our investors would want to know about condotels?

GREENE:
There is more to buying a unit than the old phrase, “location, location, location” when it comes to condo hotels. Face it, you won’t find many 4- or 5- star condo hotels in Harlem or the Bronx. You’ll find them in highly desirable resort and business area locations. What is most important, in my opinion, is a good franchise with a strong reservation system.

Also, unless you are buying a larger unit because you have a large family and intend to use it a lot, your better investment decision is to buy studio units, not larger one, two or three bedroom units. Studios will rent out more frequently and will provide the owner/investor a higher occupancy rate. This rule goes out the window, however, for major family markets like Orlando and Dubai, where larger units may be more in vogue.

Do not be fooled by an aggressive rental split. One way or the other, the developer of the property will have to staff, maintain and operate the hotel and its services like the restaurants, bars, spas and pools from his share of the proceeds. If he’s giving you a very favorable share of the rental, he’s also likelier to be charging you a higher monthly maintenance. Of course, this goes both ways. If the maintenance split that is offered is closer to 50-50, then your maintenance should be more reasonable too.

Any real estate broker can sell you a condo hotel. And, a broker need not be a specialist in condo hotels to make a sale and earn a commission. Therefore, get your advice from someone who is a specialist who knows and understands the entire market, not just the facts pertaining to a property you think may be of interest to you. Since there is no cost to you to have a broker’s representation, you’d be foolish not to get it.

Here’s why. If you contact the on-site salespeople of XYZ condo hotel, they have one shot at getting you to buy, and they have quotas to meet if they want to avoid becoming unemployed. That’s not to say that they would give you deliberately false information, but they will NEVER tell you that the deal up the block at ABC condo hotel may have better terms or be more attractively priced. At Condo Hotel Center, we will. We listen to your wants and needs, and only then do we offer you your options and advise you as to which properties we’d recommend and why. Once you are educated, we’re only too happy to assist you.