Condo Hotels … A Good Idea?

Condo Hotels … Are they a Good Buy?

Condo hotels are different from conventional condominium developments. The owners/renters of units in a condo hotel do not live in them full-time; rather the development is operated as a hotel, offering short term rentals, and are often operated by a name-brand hotel group.

Nowadays many people purchase second/vacation homes. These people may be looking to escape the cold and travel to a second home in a warm climate.  Or maybe they are avid skiers looking to enjoy the slopes in some exotic skiing destination. To these people, a condo hotel can be an attractive product because you get the benefits of home ownership,  enjoy hotel quality amenities and can potentially defray the costs of ownership by putting your unit in a rental pool program (operated by a hotel operator or management company) and your unit rented when you are not there. For these reasons, a condo hotel can be an attractive product for a buyer looking to purchase a second/vacation home.

The problem is that many condo hotel projects are now marketed as investment products with developers promising significant economic benefits, and affiliated rental management companies offering guaranteed rental returns. There are two major problems with this. First, these arrangements run afoul of U.S. securities laws. Second, while a good product for second/vacation home consumers, condo hotels often underperform, despite the developer’s assurances to the contrary.

To make matters worse, unlike other short-term rental products which you can lease yourself or select a management company of your choice, buying a hotel condo often requires you to give up control to the hotel operator who chooses the furniture, fittings and the tenants.

In sum, when considering a hotel condo project, ask yourself is this where I want to vacation or live as a second home.  If the answer is yes, then a hotel condo may be for you. If the answer is no, then you may want to pass.