DEFINITION of Condotel
A condotel is a condominium project that is operated as a hotel with a registration desk, cleaning service and more. The units are individually owned. Unit owners also have the option to place their unit in the hotel's rental program where it is rented out like any other hotel room.
BREAKING DOWN Condotel
There are pros and cons to condotel ownership. When the unit is rented out to travelers and visitors the rental income can offset ownership expenses. The management for the property will take care of the rental process and will claim a percentage of the rental payments. The rental income may be split evenly between the owner and the management company or the balance may favor the owner.
The unit can be used by the owner as a vacation home for personal enjoyment. Many condotels are located in large cities and tourist destinations. Hotel and resort companies develop most condotels and position them to be attractive to travelers. The property will likely include amenities and features that are common at traditional hotels. This could include access to athletic resources such as tennis courts and swimming pools.
When the owner of a condotel unit does not rent out the space, he or she may reserve it for personal use.
How Condotels Function as Rental and Owned Property
The condotel arrangement provides access to a cleaning service to care for the home. There is also potential price appreciation for the condotel unit should the owner choose to sell.
There can be drawbacks to owning a condotel unit. The costs for maintenance and cleaning services may be high. Charges may be based on the square footage of each unit. The owner of the unit may need to take out special insurance for the property. The pricing for a condotel unit might be based on tourist and vacation activity and not the real estate market. The owner of the unit will typically pay commercial tax rates on the income generated from rent.
Other variables such as occupancy rates could see sharp declines when travelers are not interested in visiting that destination. The owner of the unit might be limited to a maximum number of days they may use the space for themselves. Terms of the condotel agreement might require the unit to be available for rental purposes for the majority of the year. Obtaining financing could be a challenge for potential buyers of condotel units. Many banks might decline to offer loans for such purchases.
Condotels are typically sold as secondary homes rather than as primary residences.