Thinking of buying an apartment hotel? Here are 20 things you need to know!
1. What is an apartment hotel or condotel?
Think of an apartment hotel (sometimes called a condotel or hotel suite) as buying a condominium, albeit part of a four-star hotel. Therefore, as an owner, when you are on vacation, you will benefit from more four-star services and amenities than you would get in a typical condominium.
2. What types of services and amenities are there in the apartment hotels?
If you can imagine the amenities you would find in a luxury hotel, you can imagine an apartment hotel. Features often include resort-style pools, full-service spas, state-of-the-art fitness centers, fine dining, concierge services, and room service.
In some places, like Las Vegas, you’ll find apartment hotels with their own casinos, shopping areas, and entertainment venues. In places like Orlando, you’ll find apartment hotels with their own water parks and convention facilities.
3. What is the difference between an apartment hotel and a traditional condominium?
The big difference between a hotel and an apartment hotel is that a hotel usually has one owner, either an individual or a corporate, but an apartment hotel is sold unit by unit. Therefore, an apartment hotel with 300 rooms can have up to 300 owners.
4. Is it visible to hotel guests whether they are staying in an apartment hotel or a traditional hotel?
A hotel guest will likely never know that the hotel has multiple owners, as the property is run just like a traditional hotel and often under the management of a well-known hotel company such as Hilton, Hyatt, Starwood, Trump or W. In addition, each of the individual apartments hotel units will appear identical in design and decor to all others, just as they would in a traditional hotel.
5. Who usually buys apartment hotels?
They are primarily marketed to people who want a vacation home but don’t want to deal with the hassles typically associated with second home ownership, such as maintaining the property or finding tenants in the off-season.
6. What are the demographics of the typical condo hotel buyer?
The range of apartment hotel buyers is quite wide. There are families who want a second home in a vacation destination. There are baby boomers who are at or near retirement and want somewhere they can ‘winter’. There are also many investors who buy a residential hotel with little intention of ever using it; they are in it for the potential real estate appreciation.
7. Can you live in an apartment hotel?
Condo hotels are not usually offered as primary residences. In fact, many limit the owner’s use of the condo hotel (typically 30-60 days per year) because the unit is expected and needed in the hotel’s nightly rental program where it can be offered to guests and generate revenue. .
8. Who gets the money when your apartment hotel is rented out?
The hotel management company splits the rental income with the individual apartment hotel owner. Although exact percentages vary from property to property, a typical rent split is in the 50%-50% range.
9. Who finds the hotel guests and then cleans and maintains the apartment hotel units?
The hotel management company markets the property and books hotel guests. It also maintains the facility and ensures the smooth functioning of all hotel services and amenities.
10. What are the advantages/disadvantages of buying a condotel over buying typical rental properties?
· Hassle-free possession; no problems with the landlord
· Rental income to offset some or perhaps all of the costs of ownership
· A fantastic holiday home that you can use whenever you want
· Investing in real estate at a time when other investments may seem less attractive
· High probability of price appreciation
· Pride of Possession — “I own a piece of Trump”
· Annual cash flow may be equal to or less than the annual cost of ownership
· Pets are generally not welcome.
· The owner’s apartment can be rented whenever the owner wishes, so advance bookings are required to ensure availability.
· The condo hotel unit is subject to the same market downturns that affect all hotels in the competitive market set: hurricanes, terrorist threats, warm northern winters, gas prices, etc., all of which can affect the rate of employment of the unit and the amount of revenue it generates.
11. Is it difficult to finance apartment hotels?
Not at all, but they usually take a 20% discount, while apartments can be bought for less cash. It’s also important to make sure you’re using a mortgage broker who has had success with condo and hotel financing deals. Many banks still don’t, but more and more are getting on board as apartment hotels become more widely available.
12. How long have apartment hotels existed and where are they located?
Condo hotels have been around for several decades, but the boom in four-star and five-star condo hotels making their way across the country began around 2000 in the Miami area. The Miami-Fort Lauderdale area still has the most condo hotels, but areas like Orlando and Las Vegas are developing condo hotels at an even faster rate and will likely soon overtake South Florida. Other promising areas are places like the Bahamas, Panama, Dominican Republic, Mexico, Canada and Dubai.
13. How much do apartment hotel units cost?
It’s like asking how much a car costs. There are various quality apartment hotels. Some require more money than others, obviously.
There are cheap apartment hotels for as little as $100,000. They are usually located in properties that have been converted from an existing hotel. They are the size of a hotel room, lack kitchen facilities, luxury franchises and other premium amenities.
Then there are properties with four stars or more, which can start in the $300,000 to $400,000 range, but can go up to $800,000 for just a studio. One and two bedroom apartments cost significantly more than a studio. Of course, studios come fully furnished and finished and will be significantly larger than a typical hotel room and can attract guests because of their name as St. Regis, Ritz or W.
14. What are typical maintenance costs?
Average around $1.00 to $1.50 per sq. ft., but the range can exceed $2.00 per sq. ft. in the most luxurious properties.
15. Do you buy apartment hotels after they have been built or can you buy apartment hotels under construction?
Unless you’re in a rush to start a vacation or need to complete a 1031 exchange, it’s best to buy condos under construction as early as possible. That’s when prices are the lowest and the selection of units is the largest. You will likely wait two years or more before closing and taking possession of your condo hotel, but you will have locked in the price and benefited from the maximum appraisal.
16. Is there anything else investors should know about condos?
Buying this type of real estate is about more than the old phrase “location, location, location”. Although most apartment hotels are located in desirable resorts and business areas, what is most important is a good franchise with a strong reservation system.
Also, don’t be fooled by aggressive rent splitting. One way or another, the property developer will have to staff, maintain and operate the hotel and its services such as restaurants, bars, spas and pools from its share of the revenue. If he’s giving you a very favorable share of the rent, he’s also more likely to charge you a higher monthly maintenance fee. Of course, it goes both ways. If the suggested support split is closer to 50-50, then your support should also be more reasonable.
17. Any suggestions for investors when choosing an apartment hotel to buy?
Get good advice. This means you don’t want to rely solely on the representation provided by an on-site salesperson at an apartment hotel. You want to speak with a broker who specializes in condo hotels and who knows and understands the entire condo hotel market, not just the facts surrounding an individual property. He or she will listen to your wants and needs and then offer recommendations on which properties best meet your requirements. You’ll be able to comparison shop and look at the pros and cons of each available property.
A good broker can be the difference between buying an apartment hotel that will be problematic and not meet your expectations, or one that will provide you with years of great vacations, good annual income and a substantial profit when you sell.
18. Is it more expensive to use a real estate agent to buy a condo hotel than to buy a unit on your own?
No. With new apartment hotels, prices are always set by the developer and are exactly the same whether you buy directly from an on-site seller or use a broker.
The broker’s commission is always paid by the developer and is already included in the price, regardless of whether an outside broker is involved in the sale or not. Since a realtor’s representation is free to buyers, it makes sense to enlist their help and take advantage of their advice before making a purchase.
19. How can potential buyers find a good apartment hotel broker?
Ask friends for broker recommendations or search online for “apartment and hotel broker.” Visit the websites of apartment hotel brokers and see if the information they provide appears to be comprehensive and unbiased. If their website seems to focus on selling homes or office space, and the condo hotel information seems like an afterthought, steer clear. It is best to work with an apartment hotel broker who is a specialist.
20. How can buyers find out about new condo hotel properties coming to market?
Condo hotel brokers can be good sources of information as they often learn about properties before they are released to the general public. Another option is for them to subscribe to a condo hotel newsletter like the one we publish called Condo Hotel Property Alert. We offer it for free on our website http://www.CondoHotelCenter.com and features a different apartment hotel coming to market each edition.
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