What is a Condotel?
In response to a questions people who are considering buying condos in Daytona Beach ask me a lot, let’s talk about condotels or condo hotels. So, exactly what is a condotel?
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. Daytona Beach condotel conversions took place along the beach. In Daytona Beach and Ormond Beach, there are over 150 for sale right now.
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 Vary in Quality and Amenities
Most of the time, condotel units are simply converted hotel rooms. Sometimes they are upgraded, but quality and style vary greatly. If the converted hotel was a luxury property, the rooms are probably of higher quality and larger. If an old low-end hotel was converted, the rooms will be smaller and of lower quality and less stylish. Many of the units are without kitchens – they are just like living out of a hotel room.
Every building is different and is sold and managed in a different way. This can be frustrating for buyers trying to compare different units in different buildings. The rules, restrictions and fees can vary greatly. Restrictions on a maximum number of days you can stay, the share you receive of rental income, and whether the management company collects fees whether you rent the unit privately or they rent through their efforts.
Financing a Condotel
Financing a condotel can be more difficult than a conventional condo. Few lenders, probably less than 3%, have programs for condotels. These loans will require higher down payments than other loans and will likely be at higher interest rates.
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.
Can Rent Cover Condotel Costs?
Being realistic though means understanding that it is unlikely that a condo hotel units will provide you enough rental income to make mortgage payments and cover taxes, fees and insurance. You may get a good portion of expenses offset, but positive cash flow is not likely.
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. My team does work with people on Condotels. Prices have fallen in recent years to the point that a few of these units are selling under $30,000 in Daytona Beach. There are over 100 condotels in the Daytona area for under $100,000. 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.