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What is a Condo Hotel?
Condo hotel are sometimes referred to as "condotel" or "condhotel". However, they are NOT timeshares.
A condo-hotel offers anyone the opportunity to own an elegant and exquisitely furnished hotel room in some of the most desirable locations in the world. Since this is a purchase, the buyer not only gets a deed to a property, which allows him to sell or transfer the room/suite whenever he chooses, but also profit from tax benefits and real estate appreciation. When the room/suite owner is using his room/suite, he has access to all of the amenities of the hotel including its restaurants and spas.
When not in use, the owner can make his room/suite available to rent through the hotels rental program.
The condo hotel concept allows you to purchase and obtain full ownership of a condominium in a luxury hotel/resort.
As an owner, you have the option to use your condo hotel suite when you choose.
When you are not occupying your suite, you have the option of placing your unit in the hotel's rental management program and you will receive a percentage of the revenue. The management company is responsible for the housekeeping, maintenance, and rental services. A condo hotel suite is a hassle-free upscale vacation home.
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How do fractionals differ from condo hotels?
Both offer luxurious accommodations and services for the person seeking a vacation home. The condo hotel, however tends to be an individual room or suite located within a major hotel. Fractionals can be condos, townhouses, or single-family homes located in an exclusive community.
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How do hotel residences differ from condo hotels?
Condo hotels offer a rental option. The owners can use their unit whenever they want. When they're not using it, they can place it in the rental program and receive a percentage of the rental revenue it generates. A hotel residence, on the other hand, is never offered for rent by guests. Therefore, owners can use their condo whenever they want without advance notice, and they can decorate it any way they like.
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How does owning a condo hotel differ from owning a traditional vacation apartment or condo?
As a condo hotel unit owner, you are privy to the opportunity of using the hotel and resort amenities. At a normal condo project or vacation apartment site, you have to find things to do with your time and plan a vacation within your vacation. In addition, there is no worry or hassle involved in condo hotel investments. Housekeeping, maintenance and inspections are handled by the management team.
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Who is buying condo hotel investments?
Individuals interested in worry-free investing. People examining the condo hotel concept are also interested in an entity that could appreciate in value and potentially pay for itself in their portion of rental revenue. It is a vacation destination and one of the best real estate investments.
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What is the typical arrangement between the condo hotel buyer and the hotel management company?
Some of the items described in the agreement include:
• The amount of revenue the condo hotel owner will receive.
• The amount of revenue the hotel management company will receive.
• Typical deductions before each of the parties receives their share. This would include money for a furniture fixture and equipment reserve.
• Who will pay for real estate taxes, insurance, capital improvements and debt service. It will usually be the individual condo hotel owner.
• Who will pay for operating expenses such as housekeeping, front office, administrative and general, and marketing. These are usually paid by the operator. Frequently, travel agents and credit card commissions are also split between the condo hotel owner and the operator.
• There may be a usage agreement which will outline the frequency and notice requirements when owners want to use their condo hotel units.
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Is an owner required to participate in the rental program?
The rental program is always entirely voluntary, with no mandatory participation.
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What are the major benefits to an owner of a condo hotel?
The most important benefit is hassle-free ownership. When the owner, his family or friends want to use the room/suite, they simply call the hotel and schedule their visit. While at the hotel, they can enjoy all of the amenities and services. When the room/suite is not being used, the owner can rent the room/suite through the hotel's rental program and does not have to worry about maintenance and general upkeep. This is voluntary, not mandatory.
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What are the tax benefits?
In most cases, just like a conventional condominium, you will receive benefits for your interest on the mortgage and real estate taxes. In certain cases, an owner can receive tax benefits from interest and principal and real estate maintenance. In order to determine eligiblity, a tax advisor or accountant should be consulted.
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What are the expenses of a condo hotel?
Usually, aside from real estate taxes, insurance and a mortgage payment (if the room/suite owner has one), monthly assessments are issued to cover maintenance of the rooms/suites and common areas, furniture replacement, utilities and a reserve fund.
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Who has the responsibility for the maintenance and repair of common space?
The responsibility is allocated among condo hotel unit owners based on their pro rata share. Charges to the owner typically cover reserves, common area maintenance, property insurance and utility expenses. The hotel operator pays for its costs of operations; that is, salaries and other direct hotel expenses.
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Can a condo hotel be financed?
Yes it can, just like any other condominium. We have at CondHotel a list of Mortgage Brokers. They will help you to finance very easily your condo hotel. Please contact us for that.
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Can a condo hotel be purchased under a corporation?
Yes it can, just like any other condominium.
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Are developers willing to guarantee the rental and the rates of the condo hotel units when not used by the owners?
No. Developers are aware that there are potential security law issues that may arise out of the sale of condo-hotel units. In order to avoid coming under the scrutiny of any federal or state securities agencies, owners usually take several simple preventative measures. These include:
• Refraining from setting rental revenue expectations for prospective buyers. Instead, the developer's emphasis is on the Real Estate itself as per the marketing material and presentations. The developers avoid raising purchaser's investment expectations. Providing anticipated financial information may give the project the appearance of a security.
• Therefore, it is best to consider your purchase to be similar to the purchase of a second home or vacation home. If you buy right and choose a desirable building in a good location, there is likely to be appreciation of your investment over the years. Then, as icing on the cake, if you choose not to use your unit, you can receive income from its rental to help defray your ownership costs.
• Instituting a third-party agent to oversee the sales of condo-hotel units and distribute rental program information.
• A voluntary rental program participation which permits condo-hotel owners to either rent their units to third parties or not rent their units at all.
• Allowing owners to appoint a rental management company of their own to manage the rental of their unit, although selecting a manager other than the condo hotel's management company would likely be impractical in attempting to effectively maximize rental income.
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When can owners use their condo hotel?
Each condo hotel property is different but it generally depends on the home owners desire to occupy their residence or place their condo hotel into the hotel's rental program.
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What are the benefits to own a condo hotel?
These types of developments can offer enhanced financial returns when owners choose to place their units in a rental program. The revenue from being in an organized rental program may help defray the owner's expenses. During periods in which owners are not utilizing their units, the hotel operator manages the condo hotel.
• Unit owners are more likely to receive a higher level of rental income by being in a rental program with a recognized professional operator because of the hotel's national affiliation, its reservation system, brand recognition, and management expertise.
• The original developer intends to sell the units; thus, features are generally added to enhance the appeal of units to potential buyers. This could include hotel features like five-stars restaurants, spas, health and fitness centers, business centers and other amenities.
• Many potential owners shun purchasing a condominium because they may not have as much use of it as they would like. As a result, the absentee unit owners shutter their units for extended periods. Although some unit owners seek to rent their apartments through local realtors, many do not, either because of the effort involved or the fear that the unit will not be available when they want to use it. The condo hotel is suggested as the solution to this dilemma, giving unit owners a convenient way of managing the rental, yet insuring that the unit can be available when needed by the owner.
• As an added incentive, many developments offer an expanded array of hotel services that are available to owners when they are in residence. This could include valet, spa, room service, concierge and maid service.
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Can an owner of a condo hotel personalize his/her unit?
Typically, the condo-hotel owner can do whatever he likes to personalize his unit as he wish. However, and this is a big however, if the owner wants his unit to be rented out in the hotel's rental program, he will not be able to do it. The hotel's management company usually want all units in the program to conform to identical standards. The units are professionally decorated, so while they may not be personalized, they usually are beautifully and luxury appointed.
By the way, some properties do have an owner's closet where you can leave your personal effects for you to pull out and use to decorate your unit while you are there. But not all of them. Other condo-hotel may then offer you a storage place to store your personal effects. But remember that it is a temporary home, not a permanent one.
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What are the living restrictions in a condo-hotel?
Most of the time, due to city or county zoning ordinances, an owner cannot live full time in his condo hotel. But, most of the time, the restriction will force the owner to "move-out" for one night, and then he is eligible again for another stay. It sounds more like a legal restriction, than a really enforceable one.
Another more important point is that you cannot claim a Homestead exemption in your condo-hotel.
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Can I make a 1031 exchange with a condo-hotel?
Yes, actually the condo hotel has become a favored exchange property to effect tax free exchanges under Internal Revenue Code Section 1031 and to facilitate the enormously popular tenancy in common (or TIC) market.
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MORE QUESTIONS ?
We will be happy to answer all your questions. Our team of experts already knows everything about condo-hotels, and we will be happy to contact our partners, and do the researches to help you solve any of your problems. Just contact us, and you will get your answer.
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