Learn more about how condotels work, the benefits and drawbacks, and if it’s something worth considering.
Definition and Examples of Condotel
A condotel is a hybrid between a condominium and a hotel that lets owners enjoy the unit (and the property’s on-site amenities) themselves as well as generate income by offering it as a short-term rental property.
Alternate name: Condo-hotel units
Condotel owners purchase the property just as they would with other types of real estate, and they pay maintenance fees to the hotel management company for the upkeep of shared areas. Owners also agree to let the hotel rent out the unit, and the hotel and owner split the revenue at a set percentage.
How Condotels Work
The concept of condotels began as a way for hotel builders to offset some of the risks of investing in large, luxury properties. On the buyer’s side, they offer an opportunity to purchase a luxury hotel vacation experience while agreeing to rent out the unit for an agreed-upon amount of time per year. Many of the major luxury hotel chains manage condotels, mostly in prime vacation locations like Florida, New York, Las Vegas, Hawaii, and other major metro areas or tourist hotspots.
Condotel vs. Condominium
Despite their similar names, condotels should not be confused with condominiums. Here are some of their key differences.
Pros Explained
Live the luxury hotel life: Get the experience of living in a hotel and enjoying all of its amenities, from housekeeping and concierge services to a pool and fitness center. If you’re looking for a vacation home without any upkeep, this could be a great option. Earn additional income without the hassle: Are you thinking of venturing into the short-term rental market? It can be a lot of work to market your home, find renters, and then have to deal with all the transactional details. Condotels take those burdens off your hands in exchange for a percentage of the revenue. Your unit will become part of the hotel’s public rental offers, and they will handle the marketing, bookings, transaction, and maintenance of the property.
Cons Explained
Many complex details to work out: There is usually a lot of fine print involved with a condotel purchase. Each condotel has its own rules and regulations, and rental agreements can vary widely. For example, some buildings might stipulate that owners must rent the unit during peak rental season so they can get the highest possible rates. Be sure you do a lot of research, and work with someone knowledgeable who can guide you on what to look for regarding maintenance fees, how rental revenue is split, who manages the property, rental restrictions, etc. Financing the purchase can be a challenge: You won’t be able to get a traditional mortgage for a condotel purchase. That’s because a condotel is “primarily transient in nature,” meaning its predominant use is as a short-term rental of fewer than 30 days, as opposed to a regular condominium that is used as a primary residence. Income is inconsistent: Condotels let you earn passive income that can help offset your costs, but don’t expect to get rich. If you’re relying on rental income to cover bills, it can be a risky endeavor. Hotel rates can fluctuate widely based on seasonality or travel trends.
Is a Condotel Worth It?
If you’re someone who wants a vacation home that offers luxury hotel amenities plus the opportunity for some rental income, then a condotel could be a good purchase for you. Just remember there may be restrictions on exactly when you can be there. Income potential is highly dependent on tourism trends, economic conditions, and a slew of outside factors out of your control—everything from hurricanes to pandemics. Furthermore, if you’re purchasing a condotel, don’t expect to have access to traditional home loan programs.
