What is a Condotel?

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What You Should Know

  • Condotel is a condominium complex that is structured as a hotel.
  • Condotels usually sell units to buyers just like regular condominiums, and they also provide hotel services to the owners.
  • Condolets are usually located in large cities, resorts and tourist destinations.
  • Owners of condotels may choose between living and renting out the unit.

What is a Condotel?

Condotel

Condotel, also known as a condo-hotel, is a condominium complex that is structured as a hotel. Condotels usually sell units to buyers just like regular condominiums, but they also provide hotel services to the owners who want to participate in the program. These condominiums usually have a registration desk, a concierge, cleaning services, and other services and amenities that hotels usually provide.

The owners of the units can choose to give their units under the management of the condotel. In that case, the units are rented out as hotel rooms and provide consistent income to the owners of the units. On the other hand, the owners also may choose to live in their units and pay for the services included through HOA fees. Even though some people may choose to live in their units, condotel units are considered secondary homes rather than primary residences.

Condotel Ownership
ProsCons
Provides Income When RentedIncome Depends on Tourism Popularity
Resort-Style Amenities AvailableStrict HOA Regulations For Units
Can Be Used as a Vacation PropertyHigher HOA Fees

How Condotels Work

Condotels have a similar structure to condominiums, which means that individuals can purchase a unit in a condotel. The difference between condominiums and condotels is that the owners can arrange short-term rentals of their units just like a hotel. The services that are provided by the property management company that operates the building create a hotel-like experience for the guests. The services usually include a check-in desk, a concierge, cleaning services, housekeeping, and others. Even though most of the services are billed evenly for each unit, there are some services that are billed depending on the unit. For example, a bill for cleaning service is usually calculated based on the square footage of the unit.

Development companies usually build condolets in large cities, resorts, and tourist destinations. They build them for the target market that focuses on tourists and not the unit owners in particular. Because of their target market choice, condotels usually have numerous amenities included in the building that are common in traditional hotels. These amenities may include a gym, a swimming pool, a spa complex, parking spaces with valet services, and an open buffet with a bar. Many owners choose to keep the units as vacation properties that create a consistent cash flow when not occupied by the owners.

Condotel services provide cleaning and maintenance services to the owners of the units. These services come at a cost, and sometimes they may be quite high. It is important to research the fees associated with the ownership of a specific condotel unit because the HOA fees may be higher than HOA fees for regular condominiums due to the number of amenities included in the complex. Generally, the rental income from the unit should be higher than all the fees that the owner has to pay, but if the vacancy rate in the area is high, then the owner may lose money over time.

Pros and Cons of Owning a Condotel

Ownership of a condotel comes with similar responsibilities as ownership of a condominium. The owner is responsible for adhering to the HOA rules and regulations, paying for repairs and maintenance of their unit, and paying associated fees such as HOA fees, insurance fees, and applicable taxes for the area. Utilities such as gas, water, and electricity are usually billed to the owner of the property regardless of who is staying in the unit.

Just as with any property ownership, ownership of a condotel comes with its pros and cons.

Pros:

  • Provides Income When Rented

    When the unit is rented out for short-term vacation stay, the owner usually can have a consistent income even with high fees that the owner has to pay. Even though the times when the unit is occupied may be profitable, it is important to consider vacancy rates in the area because if it is high, then the owner may lose money because no one wants to rent the unit. It may be helpful to estimate rental income before purchasing such a property.

  • Resort-Style Amenities Included

    Condotels usually have more amenities than regular condominiums. An owner of a condotel unit who uses it as a vacation property may enjoy the amenities that are included in the complex. It might be beneficial to an owner who likes to have a vacation often because the fees associated with condotels tend to be lower than short-term stays in hotels of the same type.

  • Can Be Used As a Vacation Property

    The owner has the power to interrupt the rental of their property. This means that the owner has the power to enjoy their property when they would like to. Condotels in this case are flexible and allow the owner to use them as a vacation property when needed.

Cons:

  • Income Depends on Tourism Popularity

    The income of the unit in a condotel heavily depends on the tourism popularity of the area and the condotel specifically. If the vacancy rates are high, it might be very difficult to find people who would like to stay in the unit. Regardless of whether the property is occupied or not, the owner has to pay high fees associated with the property. Over time, the owner may find themselves in a position where they are losing money on the property due to low occupancy rates.

  • Strict HOA Regulations

    Usually, condotels have stricter HOA regulations than condominiums because the complex has to be competitive among other condotels and hotels in the area. Since most of them are located in tourist destinations, there is a lot of competition. The owners must adhere to the regulations to be eligible for participating in a condotel rental program when needed.

  • Higher HOA Fees

    The owners of condotel units have to pay for all the perks that a condotel has to offer. Condotels usually have many amenities and services that regular condominiums do not have. These extra amenities have to be maintained and the workers have to be paid. All of these extra costs fall on the owners of the units.

Financing a Condotel

Condotel units are considered secondary vacation properties rather than primary residences. This means that conventional mortgage loans that are backed by the government, cannot be used for this type of property. It does not matter if the building itself is financially stable, in a good condition and the buyer chooses to live there. As long as the complex is considered a hotel rather than a condo, conventional mortgages are not applicable.

For this type of property, there are fewer banks that are willing to provide loans, and they usually require a 20% down payment for the mortgage. A prospective buyer might also need to satisfy other requirements to be able to secure a loan for a condotel unit. Many condotel buyers choose to purchase the property in cash because of all the restrictions that come with the loans on this type of property.

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