Condo Hotel Buyer Tips - Condo Hotels May Be the Best Vacation Home Deal For Small Investors

Be sure to consider all options before buying a vacation home.

This article makes it easier to understand the positives and negatives of condo hotel ownership as a possible, really-makes-sense substitute for owning either an outright vacation home or a limited use timeshare.

Vacationers generally require a clean, comfortable place to sleep and a central meeting place for friends and family. The real action and fun, however, generally takes place outside the home during vacation activities. So larger living spaces do not always equate to greater vacation ownership benefits.

Condo hotels (often referred to as a "condotel") are usually smaller sized suites located in popular resort area such as seaside, mountain side, and desert playground communities such as Las Vegas. Some condotels are also situated in downtown and University settings. Although a condotel appears to visitors to be a typical hotel, individuals have the opportunity to purchase single suites, or even a room, within the hotel. There are both new, purpose-built Condotels and conversions.

For example, in Orlando a new Condotel could be purchased at The Blue Rose or The Palms Hotel and Villas. Both are near major theme parks and both offer comfort and convenience. The differences are price, size, hotel star rating, feel of luxury, amenities, and ongoing operating expenses. The price today will range from about $339,000 to millions in The Blue Rose, to about $139,000 to $189,000 at The Palms Hotel and Villas. The Blue Rose is under development, will be larger and more luxurious, have a five-star rating, and have much higher operating costs related to ownership. The Palms Hotel and Villas condotel is a conversion from a Hilton brand hotel, smaller in size, three-star rated, comfortable but not luxurious, and has lower operating expenses related to ownership.

In a fixed-weeks or points based timeshare, buyers purchase very limited use of a resort. Buyers of a condotel or outright vacation home own their residence outright. In both cases an owner can usually stay in it, rent it, or sell it. In some cases, however, the owners unit use may also be somewhat limited.

In condotels, in-house hotel management companies rent out the individually owned units on behalf of their owners. For this service they receive a portion of the rental income for that specific unit. Condotel owners and their renters have use of the resort's amenities while staying there. Whether an owner can use the amenities while a renting guest is staying in their unit depends on particular condotel association rules and the condo filing documents in that state.

Owning a condotel differs from buying and managing a traditional condo or vacation home in several other respects.

Whereas typical condos are built by housing developers, condo hotels are often developed by hotel and resort companies such as The Ritz Carlton Hotel Company, Starwood Hotels & Resorts or Four Seasons Hotels. Condotel prices are usually substantially higher per square foot than a traditional resort condo.

The extra cost of purchase, howevr, yields some benefits. The owner has access to the in-house management company services. Management will market and rent your unit by the night or for long or short periods of time. The management company charges owners a portion of rental income (typically 40% to 60%), and handles the maintenance, room get-ready after a guest departure, grounds keeping and accounting. Management also oversees hotel amenities such as pools, sport courts, golf courses, exercise rooms, and so forth.

When buying a traditional vacation condo or single family home, an owner must hire an outside management company to market and lease the property. There may be far less flexibility in placing the vacation property in and out of a rental program. Finally, the management company may not be able to effectively market the property nationally. Hotel management companies almost always have access to Global Distribution Systems (GDS) with many important internet in-bound reservations programs from Pegasus, Sabre, and the newer Secure-Res.

Many condo hotel buyers have had past success with condotels in Florida. Florida destinations often offer high-demand tourist activities and many past buyers bought at a time when real-estate prices were appreciating. Today, appreciation appears likely in the long-term but not as rapid as the early 2000s.

A prospective condotel buyer should ask: "Does the resort area in which the hotel is located really attract tourists and result in hotel guests?". In checking with the Orange County Visitors and Convention Bureau, the answer to this question in the Orlando area market is a big "yes". Annual occupancy at all Orlando hotels averages over 60% and many resort properties near major attractions have even higher occupancy.

Ask the management company about the condotel's REVpar, an acronym for REVenue Per Available Room. This dollar figure is the most widely used hospitality industry benchmark for judging a hotel's gross revenue potential.

The bottom line is always about "the numbers". Whether your budget enables the purchase of a five-star luxury condotel or a more modest three star property, check all the numbers and cross-verify information whenever possible

Condo hotels today account for less than 10% of all vacation homes in the U.S., according to the National Association of Realtors. But you may find that this form of vacation ownership between a single family vacation home and a resort timeshare is the overall best deal.

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