Investing in Condotels: What to Know

Most people dream about having a stylish unit in a hotel-style building that can be rented out when they are staying somewhere else and also be available to them when they need to stay in it. This is a perfect idea for those who like to own a spot in their favorite vacation location and those who are near their retirement. Due to this, many investors consider it a good investment as they can earn valuable profits in the future. 

Condotels are very popular in the real estate market today hence why many investors are putting their money on it as it also helps diversify their portfolios. Want to know more about investing in Condotels but don’t know what it is and how it works? Then, don’t fret. We’ll discuss the whats and the hows of condotels

Condotels

Before we start, let’s first discuss what a condotel is. The word condotel is a portmanteau that combines the word condo and hotel. It is essentially a condominium that is operated as a hotel that is complete with a registration desk, cleaning services, and other hotel services. It offers short-term rentals, a check-in desk, and many more. 

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Before the ever-popular use of Air BnB, condotels were a trend and the most popular option for people that are looking to rent vacation lodgings that are more cozy, affordable for extended stay compared to hotels. Today, it still fits in the post-world of Airbnb/VRBO. 

Condotels offer the best of both worlds as it offers both the services and facilities of a hotel and space of a condominium. Due to these, many people dream of owning or having a unit in it.

The Difference Between Condotels and Condo

In terms of rental, the main difference between a condotel and a condo is that condos don’t allow short-term stays. Meanwhile, for amenities, condotels offer a lot more services such as housekeeping, pools, a concierge, and many more. Condos only offer a limited amount of services such as concierge and security services.

Purchasing a Condotel

If you’re looking to purchase a condotel, there is a difference in the process of loaning and purchasing that you need to understand to prevent any unpleasant surprise. 

Acquiring a Loan

Fannie Mae and Freddie Mac, Federal National Mortgage Association, categorized condotels as non-warrantable condos hence why government-backed conventional mortgage loans can’t be made or unavailable to it. 

When it comes to acquiring loans, once a building seems like more of a hotel than a condo, then it will not qualify as a primary home but rather as a second home and sometimes an investment property. 

So, it won’t matter how financially well your building is or how many units are occupied in it. Only a few banks offer such kinds of loans wherein most will require you to pay at least a 20% downpayment. 

The problem with condotels is that you’ll need to go through a lot of obstacles to be able to get a loan. For those who have a healthy financial status and a connection to a good lender, then, your expenses to this won’t cost you more than half a percentage of high interest compared to a conventional loan.

Still, the lender will consider it as secondary homes which means it will have a higher amount of risk, especially during a downturn. The lender will also need to set the terms and underwrite it accordingly.

Fees and Taxes

Make sure to prepare for extras fees once you buy a condotel. The fees can be compared to spending it on a luxury condo or golf course home. HOA fees are also added when you purchase it as a property is more susceptible to wear and tear than a typical condo unit. 

The taxes from the property are usually determined at commercial rates. Meanwhile, The cost of purchasing a hotel is much higher and expensive when compared to  long-term or no-rental condominium complexes.

An income property

Once you’ve placed your condotel inside the rental pool, the one who handles all your vacation books will include your unit to the available units, then market it using normal methods while also managing the guest stay process. Though it is convenient, the management company will be the one to set up various rates such as cleaning terms and fees.