A few years ago, when just about anyone could get a loan for any type of real estate, condotel conversions became big business and took off like wildfire.
A condo hotel, or condotel, is a hotel or motel converted into a condominium property. Pretty simple explanation, but it gets a bit more complicated. The complication comes from each condo hotel being different in the contracts and rules to be followed by owners and in the condition of sales for the property.
Condotels are often no more than a former hotel room. Many of the rooms will not have kitchens. The quality and style of the room will depend a lot on the state of the original hotel before the conversions. Don’t get me wrong. There are some very nice buildings and units. Likewise, there are some that are barely more than cheap hotel rooms.
No two condo hotels are sold and managed in the same way. This is part of the frustration when looking to buy units in different buildings. They just are not the same and hard to compare. Buying in a building might require you to sign a contract full of restrictions and rules. The rules could include restrictions on the number of days you can use your unit, your share of rental income, requirements that units must be rented through the management company and so on.
Obtaining condo hotel financing can be difficult. Probably less than 3% of all banks and mortgage lenders are willing to loan money for a condo hotel. Interest rates will probably be higher than other property loans and you will need a higher down payment.
A condo hotel can still make sense for a lot of people if they go in with realistic expectations. Many of these conversions were very well done and the quality of the rooms and amenities is high. Some are in popular resort towns. The idea that you can rent the unit when not using it is attractive.
Understanding the reality of income potential is important. It is doubtful that an owner will obtain positive cash flow from these units. Covering mortgage payments, taxes, fees and insurance is unlikely. However, rental income can offset expenses to some degree. Each property will be different.
If you are interested in a condotel, find a real estate agent who deals in condotel units. This may be difficult because many agents are reluctant to work in this market. Prices have fallen in recent years to the point that these units are selling under $30,000 in some locations. In addition, condotel transactions are more complicated and difficult than most “regular” real estate transactions.
When buying a condo hotel, you must take great care to understand what you are buying and the contract you are signing. It makes sense to have a lawyer review the documents and help you understand the restrictions, fees and other owner requirements for the building. You need to protect yourself when buying a condo hotel.
For over 13 years, Lynn Byrne has been selling homes in Ormond Beach, Florida. She specialized in Ormond Beach Homes for Sale. Go to Lynn’s Daytona Beach Real Estate Blog for lots more information.