Is it worth investing in a condohotel?
Investing in real estate, purchasing apartments for rent and tourist suites, is considered one of the safest and most reliable ways to allocate
Is it worth investing in a condohotel?
Every investor with significant capital to allocate eventually considers putting some of it into real estate. You don’t need to own over 200 townhouses like Thomas Shelby from Peaky Blinders to make money from apartments, houses, flats, or hotels. You don’t have to be a hotel owner to invest in rooms. That’s where condo hotels come in as an interesting and attractive option.
So is it worth investing in a condohotel? A condohotel is an interesting option for safely investing capital in real estate. These buildings, often located in popular tourist destinations and major cities, offer the opportunity to generate income from renting to tourists and business travelers. Investors can expect stable returns, while the facility operator takes care of maintaining the common areas. This relieves owners from daily management duties. However, compared to traditional rental apartments in larger cities, profits from condohotels tend to be more seasonal. They also depend on the quality of the operator’s service and the location of the investment.
What is a condohotel?
A condohotel is a unique type of property that combines the features of a traditional hotel and a residential building. They are mainly found in attractive tourist destinations, such as seaside resorts or mountain retreats, although they can also be found in large cities and business centers. In a condohotel, individual rooms have separate legal status—they have their own land and mortgage registers, which allows them to be bought, sold, and rented under rules similar to those for developer apartments.
In a condohotel, the buyer becomes the owner of a specific room, which can be used both for personal leisure and short-term rental. This model allows owners to benefit financially from renting out their property. Typically, agreements with the facility operator stipulate that the owner may use the property for several weeks a year, while for the remainder of the time it is rented out to guests, generating income for the owner.
Condohotels represent the premium real estate sector. These investments are distinguished by high-end finishes, luxurious furnishings, and a wide range of hotel services such as reception, room service, spa, restaurants, and swimming pools. This is undoubtedly a premium market.
Hybrid condo hotels and aparthotels are gaining popularity in most major cities and holiday resorts around the world. They represent a rapidly growing type of multifunctional real estate investment. In developed markets, condo hotels account for 10 to 20% of premium segment hotel properties, although there is significant variation. In Bangkok, they make up only 4%, while in the seaside city of Miami, as much as 40% of properties are condo hotels.
Why are condohotels so popular?
Condohotels attract investors and hotel operators thanks to the benefits they offer both parties. The hotel operator receives a finished and fully equipped hotel in a prime location, while the investor gains the opportunity to safely allocate capital with an attractive rate of return. Although building a luxury resort can cost over $500 million, demand for this type of property abroad remains steady. The vacation apartment market is booming, as seen in projects like the Waikiki hotel in Hawaii, where all 500 units were sold on the first day for a total of $700 million.
Luxury condohotels – an investment in prestige
Thanks to the hotel infrastructure, tailored services, as well as the brand and expertise of the operator, a condohotel is an exclusive investment. Such properties ensure a smooth generation of economic benefits for both the hotel manager and the individual apartment owners.
Around the world, condohotels are popular in luxury resorts and tourist destinations. Examples can be found in places like Miami, where this type of property first appeared as early as the 1950s, as well as in prestigious locations across Europe, Asia, and the Middle East. In many countries, condohotels are valued by investors for their portfolio diversification opportunities and the potential for higher returns compared to traditional real estate investments.
Real Estate Market 2024 – Potential and Risks
Investing in real estate remains an attractive option in 2024, despite challenges such as high interest rates, inflation, and a large housing supply. The real estate market offers a variety of investment opportunities that can deliver long-term benefits, both in the commercial and residential sectors. Condo hotels, which uniquely combine features of hotels and apartments, also present an interesting alternative for investors.
How to invest in real estate in 2024?
- Buying and renting real estate:
- Investing in rental properties, both commercial and residential, can provide a steady stream of passive income. Popular options include apartments, single-family homes, and commercial spaces.
- Fix and Flip:
- Buying, renovating, and selling properties (“fix and flip”) allows for quick profits, provided you skillfully manage renovation costs and carefully choose the right location.
- Condo hotels:
- Investing in luxury hotel rooms or apartments in condo hotels allows you to enjoy personal use of the property as well as generate income from short-term rentals. This model reduces owner responsibilities thanks to professional management of the facility.
- Investment funds and private equity:
- Investing through funds specializing in real estate or participating in private equity can offer greater diversification and require less hands-on management.
Advantages and disadvantages of investing in real estate in 2024
Advantages:
- Growth potential: Long-term property value appreciation can deliver significant capital gains.
- Passive income: Renting out property provides a steady stream of income, which can be especially appealing during periods of low interest rates.
- Diversification: Adding real estate to your investment portfolio allows you to diversify risk.
Risks:
- High interest rates: They can increase financing costs and reduce investment profitability.
- Income seasonality: Especially in the case of condohotels, income can be seasonal and dependent on the quality of property management.
- Fluctuations in property values: Economic instability and changes in interest rates can affect property valuations.
Despite certain challenges, real estate continues to offer solid investment opportunities in 2024. The key is to thoroughly research the market, assess risks, and adapt your investment strategy to current economic conditions.
Condo hotels – property with special rules
Condohotels are an intriguing investment option, combining elements of a hotel and an apartment. Although the first such property was established in the 1950s in Miami, condohotels only began appearing in Europe in the 1990s. Is it worth investing in a condohotel, or should you consider other real estate markets instead?
Investment rules for condohotels
The main difference between investing in a condohotel and purchasing a traditional apartment lies in the type of contract. For condohotels, it is usually a preliminary agreement rather than a developer agreement. This distinction is significant because a preliminary agreement offers less protection for the buyer’s interests and often lacks obligations for the developer to conduct a technical audit and fix defects before the transaction is finalized.
Facility management is a key aspect of the investment. The condohotel operator is responsible for maintaining common areas, the reception, marketing the property, and other duties related to the hotel’s daily operations. The investor has limited influence over management, which can be both an advantage and a drawback. It’s also important to consider profit sharing. The most common models are 50/50 or 70/30 in favor of the unit owner, but costs related to taxes and property insurance must also be taken into account.
Advantages and disadvantages of investing in a condohotel
One of the main advantages of investing in this type of property is the potential to achieve a high rate of return, which, with a well-executed investment, can reach up to 10%. The investor does not have to manage the property personally, which is a significant convenience compared to traditional rental apartments. Additionally, investing in real estate protects capital against inflation, and the owner has the option to use the property during selected periods.
Unfortunately, condohotels also have their drawbacks. Profits are limited by the duration of the contract with the operator, and VAT on hotel services is charged at the full rate. You also cannot purchase such a property with a mortgage, and the price per square meter is higher than in a developer state. The investment also depends on the quality of the operator’s service. So, this is a business for investors with sufficient financial resources who are prepared for a return spread over time. So is it worth investing in a condohotel? As one of several investment options, it can be an excellent choice. As the only one—not necessarily.
What should you pay attention to when buying a unit in a condohotel?
When purchasing a unit in a condohotel, it is crucial to thoroughly review the terms of the preliminary agreement and protect your interests. Pay attention to the experience of the developer and the property operator, as well as the management conditions. Deposits and down payments can be substantial, so you should be prepared for such expenses.
Is it worth investing in a condohotel? It’s definitely a good option for diversifying your portfolio and a way to secure a stable income. Plus, you’ll always have a guaranteed spot for your holidays.
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