Understanding Condotels: Features, Differences from Condos, and Financing

Last updated on October 1st, 2024 at 09:21 am

A condotel, short for condominium hotel, is a mixture of a condo and hotel, giving you aspects from both worlds. It’s like a vacation house where you can visit and relax occasionally, and when you are not staying, you are allowed to rent this property and earn a little side income. 

These Hybrid real estate models are becoming increasingly popular nowadays, But what exactly is a condotel, and why are so many people interested in it? In this article, we’ll walk you through the concept of condotels, how they differ from standard condos, and what things to consider when financing a condotel purchase. 

What is a Condotel?

A condotel, or condominium hotel, is a hybrid real estate property that combines the benefits of a condominium and a hotel and gives a place that people use for personal stay as well as rent. 

In these properties, individual units are owned by private individuals. But what sets them apart is that these properties act as a hotel, with amenities such as a registration desk, room service, and housekeeping. Owners can put their units on the hotel’s rental plan, allowing them to be available to guests, just as the standard hotel room is.

Key Features:

• Ownership: You own the property, which means you have every right to do anything you see fit for your property. 
• Management: Your property buildings are handled by a professional management company that handles things like who to rent, maintain the property, and provide guests with hotel-like services. 
• Amenities: Condotels often come with amenities you’d expect from a hotel—think pools, gyms, spas, restaurants, and even concierge services.

READ MORE 5 Must-Know Pros and Cons of Condotel Investments

Condotel vs. Condo

1. Ownership and Usage

Owning a condotel means owning the unit to yourself; you can live, rent, or do whatever you want. If you decide to rent, the building will take care of the process and even provide amenities to the guests, and in the end, the owner and the hotel management will split the fee. However, you may be restricted according to the terms of the condominium agreement that could require your property to be available for rent for a set quantity of days in a year. A condotel is a perfect secondary residence or vacation house. 

Owning a condo means owning the property and having complete control over what you do with it. You can live, rent, or sell, and you won’t have to share anything with anyone. However, it also means you have to be the one to maintain your property and manage rentals. A condo is more suitable for people looking for a primary residential property where they want to live. 

2. Management and Services

A condotel offers a hotel-like service provided by the management company that manages the building’s operation. They also provide all the necessary services, such as guest bookings, housekeeping, maintenance, and even marketing your unit. These services make it a perfect place to rent and earn extra income from your properties. 

If you decide to rent a condo, you are the one responsible for maintaining your property and overseeing all the rental aspects. Even though many condos that provide real estate projects have homeowners’ associations (HOAs) that help to manage common areas, they do not interfere with individual units. 

3. Income Potential

Condotels provide the owner with a great option where they can let their units be used as hotel rooms. This can help the owners generate a steady income stream. The management company handles the rental process, and the income is split between the company and the unit owner. Management takes a part of the income from their services and management. 

For a condo, the owner can rent their unit and have a steady income stream without any other partner with whom to share the income. But it also means the owner must manage everything, from finding tenants to bookings and handling maintenance. 

4. Amenities

As a company manages condotels, they are provided with hotel-like amenities. These include pools, spas, restaurants, gyms, and room service. The management company charges the owner for these amenities, just like a HOA, but it also makes the property more attractive and has a higher potential for earning good income. 

The amenities provided for a condo depend on the real estate development. Some developments may offer similar amenities to a condotel, but many have a more basic set of services. 

5. Financing

Condotels may be a great investment option for people, but financing firms consider them a high-risk investment. Because of the reliance of these properties on the tourism market and the shared nature of the property’s management, financial firms have a higher interest rate and larger down payment to mitigate their risks. 

Condos have a financing process similar to that of a home loan. Condos are used as primary residential places, making it less risky for firms to provide loans. Loan terms are often more favorable, with lower interest rates and down payment requirements.

READ MORE 5 Key Differences Between Condotels and Airbnb Rentals: Which is Better Investment?

Condotel Financing

A condotel is a complicated property owned by one and managed by a company; make sure you understand these points. 

Limited Lender Options

Condotel is not exactly your primary home. It’s more of an investment that you use to earn money—additionally, the involvement of the management company that will oversee your property. Financial firms are more likely to consider a condotel as a commercial property with higher risk and shared ownership when considering these factors. Many firms back out due to the risky nature of investment. 

Stricter Loan Terms

Due to the risky nature of the investment, the firms that agree to finance your purchase will impose higher interest rates and down payment to mitigate their risk. A strong credit score may also be required to get approved for this product. 

Down Payment Requirements

Condotels have a down payment requirement of 25% or more because of their risky nature. The firms do this to ensure they can reduce their risk from the start. 

Alternative Financing Options

If traditional bank loans are not an option, consider going for portfolio loans from smaller banks or private lenders. These options are more suitable and flexible to work with such a risky investment. 

READ MORE Condotels and Passive Income: The Ultimate 6-Step Guide to Maximize Your Earning

FAQs

Final Statement

A condotel is a great investment opportunity that allows you to invest in a real estate project that earns income and provides a holiday home. But you have to weigh the pros and cons before making any decisions. High-end amenities and professional management services are a significant advantage for such investment, but they come with hefty charges, financing problems, and market risks. 

Make sure you consider your financial situation before making any decisions. If you believe the condotel has potential, it is a great investment option.