Many people dream of owning a vacation home. But often concerns about maintaining it, renting it out in the off-season, or even justifying the expense when it's only to be used for a couple weeks of the year keep them from making the dream a reality. Now condo hotels, an innovative type of vacation home ownership, provide a welcome solution to all these problems.
Also known as condotels or aparthotels, condo hotels have been growing in popularity as an approach to owning a luxurious second home.
Condo hotel buyers purchase an actual condominium unit in an upscale hotel or resort. The property functions as a full-service hotel, and owners have access to all facilities, amenities and services just like hotel guests.
They receive a deed to their unit and can use their vacation home when they want. When not in residence, they can place their unit into the hotel's rental program and share in the revenue it generates. Like most real estate investments, the owner can also sell his condo hotel unit at any time and may make a profit on its appreciated value.
Young professionals, baby boomers and seniors alike are just beginning to discover the benefits of owning a condo hotel unit. They appreciate the hassle-free nature of condo hotels as a second home in which a professional management company handles everything from property maintenance to finding hotel guests to rent the units. They also consider condo hotels a means to diversify their investments.
Condo Hotels Are Not Your Parents? Timeshare
As hybrid properties, condo hotels differ from timeshares in a number of ways. With timeshares, buyers pay only for the right to use the property for a set amount of time each year, usually a single week. They don't own the title to the property, and they do not receive any rent revenue for the weeks they're not in residence.
Condo hotel owners can use their condos when they want throughout the year, within the guidelines of the individual development. They receive a percentage of any revenue their unit generates when they're not there and the unit is rented out to hotel guests.
Timeshares traditionally diminish in value over time, rather than appreciate. While the history of condo hotel resales is rather limited, they are seen as an appreciating asset.
Condo Hotels Offer Facilities
How do condo hotels differ from owning a traditional single family house or condominium? Consumers who purchase a traditional condominium pay property taxes, insurance and maintenance fees, but typically don't have access to hotel-type amenities.
Condo hotels, on the other hand, are not your standard second home. They are suites in a hotel designed condominium.
The properties often feature four- or five-star amenities, ranging from full-service spas and fitness centers to fully-equipped business centers and fine-dining restaurants. They also come with exceptional hotel services like concierge, valet and room service.
With condo hotels, owners reap the rewards of condo ownership while enjoying the privileges of a full-service hotel.
Condo hotel units range from studios and full-size apartments to luxurious penthouses and villas. Prices for these homes range from $250,000 to over one million for top properties.
Condo Hotels Generate Revenue to Cover Their Costs
What makes the condo hotel concept so appealing? When owners are not using their condo hotel unit, they have the option of placing it into the hotel's rental program. They receive 60% of the revenue their unit generates with the balance going to the hotel operator. The revenue generated helps offset the costs of owning a holiday home.
While many hotel operators don't guarantee the rental of the condo, by capitalizing on the hotel's brand name, strong sales and marketing capabilities, centralized reservation system and management expertise, owners typically receive a higher level of rental income than they would from a traditional vacation home.
More importantly, ownership is 100 percent hassle-free, as the hotel operator takes care of finding hotel guests and maintaining the unit as well as managing the property's many facilities.
Condo Hotel Expenses Are Shared
How are the ownership expenses split? As part of the rental agreement, the hotel pays for most operating expenses such as housekeeping, administration, sales and marketing. The condo hotel owner typically pays for real estate taxes, insurance and capital improvements. The rental revenue that owners receive helps defray these expenses and, in some cases, provides additional income.
Condo Hotels as Investment Tools
While developers primarily sell their condo hotel units as a lifestyle and vacation home alternative, many buyers see merit in the condo hotel concept as an investment tool. They say it gives them the best of both worlds. They can enjoy all of the benefits of vacationing in a first-class hotel while they own a property that has potential to appreciate.
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Happy Tenants Mean More Consistent Income
1. Find out why tenants leave. Sometimes it is just because of a job transfer or the need for a bigger apartment. But if it is because the neighborhood is becoming dangerous, or because the other tenants are too loud, these are things you need to know and to do something about. More turnover means less rental income, because it takes time to get those empty apartments rented. But to correct problems that lead to vacancies, you need to know what they are - so ask!
2. Talk to your tenants, and resolve any meaningful complaints as quickly as possible. The longer they stay, the less time you spend with empty apartments. If they want cheaper rent, let them know what others charge, and that you are competitive. But if they want a new carport and are willing to pay a little more per month for it, run the numbers. You might increase your income and have happier renters.
Rent Quickly
3. Rent that vacant apartment out quicker and you'll have more income for the year. One way to do this is to have a system in place and ready. Have the cleaning crew ready to go in the day the tenant moves out, and have advertisements ready to place in the paper the day before he moves out. Use a property manager if they are faster than you at turning an apartment around.
4. Another way to get those units rented out quickly is to have a ready supply of renters. For this, there are two things you can do. Keep files of recent (and qualified) applicants and call them when a unit becomes vacant. They might still be looking for a place. Keep in touch with other landlords and "trade" tenants. When they are full, they can refer renters to you, and you can do the same for them.
Other Ways To Protect And Boost Rental Income
5. The obvious way to increase that income is to raise the monthly rent you charge. You can't do this arbitrarily without losing tenants, but it may be worth checking the rents of comparable properties if you haven't done so in a while. If you raise rent to market level, or even a bit higher, tenants may not like it, but there won't be enough incentive for them to move. If you are raising to market or below, include examples of area rents in the letter notifying the tenants.
6. Noticed that four of the ways above are really about reducing vacancies in your rentals, or to look at it from the other perspective, they are about improving the occupancy rate. The more time those units are full the better (assuming the renters are paying). One way to accomplish this is to rent to people who stay longer. How do you know who will stay longer? Start by asking, and then rule out any who say, "This will do for now." But more important is their history. Those who have moved every eight months for years will likely continue that pattern, while the family that spent eight years at their last apartment will likely stay with you for a long time. That really helps keep that rental income consistent.
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