What is a Condo Hotel, and Is It a Good Investment?

A condo hotel, or condotel, is a property that combines features of a condominium and a hotel. It allows individuals to own a condominium unit within a hotel or resort and enjoy the amenities of a full-service hotel. Owners have the flexibility to stay in their unit, and when they are not using it, the hotel management rents it out to guests, generating income for the owner.

If you're considering investing in a condo hotel, it's important to understand how it compares to a traditional condo purchase in terms of operations, personal usage, taxes, and rental pools.

Key Differences Between a Condo Hotel and a Traditional Condo

1. Operations

In a traditional condo purchase, you are responsible for managing the property and any associated maintenance or rental activities. You can choose to live in the condo full-time, rent it out, or even hire a property management company to assist with rentals. However, all decisions and expenses are up to you.

In a condo hotel, operations are typically handled by the hotel management. This includes guest check-ins, housekeeping, and maintenance. The property is run like a hotel, providing a hassle-free experience for owners. However, hotel management takes a percentage of the rental income to cover these services, which can reduce the overall profit compared to self-managed rentals.

2. Personal Usage

With a traditional condo, you have full control over how often and when you use the property. Whether it’s a vacation home or a permanent residence, you can access the unit at your convenience.

In a condo hotel, owners usually face restrictions on how many days they can stay in their units each year. The hotel prioritizes maintaining availability for paying guests, and owners must adhere to blackout periods or specific usage limitations. This is a key consideration for buyers looking to use the property extensively.

3. Taxes

Taxation for condo hotels can differ from that of traditional condos due to their commercial nature. A traditional condo is taxed as a residential property, with property taxes and any potential income from renting out the condo being reported as personal rental income.

Condo hotels, however, are typically classified as a business, meaning income generated from rentals could be taxed differently, and additional taxes may apply (such as hotel occupancy taxes). Owners should work with a tax professional to understand the implications, especially if they plan to rely on rental income. Condo hotel investors may also qualify for certain tax deductions related to property depreciation, interest, and expenses.

4. Rental Pools

Traditional condo owners who choose to rent out their property typically handle everything themselves or work with a rental management company. Income is fully yours (minus any fees you pay to the management company), and you have control over setting rental rates, choosing tenants, and determining how often you rent out the property.

In a condo hotel, rental pools are common. Owners' units are placed in a rotation with other units, and rental income is often split evenly among participating owners. This provides a consistent income stream, but it also means you might not see the maximum potential return if your unit is more desirable or in better condition than others in the pool. On the flip side, you benefit from professional management and higher occupancy rates thanks to the hotel's marketing efforts.

Is a Condo Hotel a Good Investment?

A condo hotel can be a solid investment for the right buyer, particularly those seeking passive income without the responsibility of managing a rental. The amenities, services, and brand recognition of a hotel can make the property attractive to renters and result in higher occupancy rates compared to standalone condos.

However, this type of investment might not be ideal for everyone. If you want unlimited access to your property, prefer to manage your own rentals, or are looking to avoid certain tax complexities, a traditional condo might be a better fit. Additionally, the shared income model and potential restrictions on personal usage could limit the return on your investment compared to a more traditional approach.

Before making a decision, it’s essential to assess your financial goals, understand the specifics of the condo hotel you’re considering, and consult with a real estate professional to explore the pros and cons in your desired location.

In summary, condo hotels offer a unique blend of ownership and convenience, but they come with distinct operational, tax, and rental structures that differ from traditional condos. If managed well and aligned with your investment goals, a condo hotel can be a lucrative and hassle-free real estate opportunity.

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Read our other blog about Pros and Cons of a Condo Hotel

Gaspar Michel

Gaspar Michel is a real estate agent in Tulum. I have lived in the Riviera Maya for 3 years and I can help you navigate the pros and cons of each city. I can help you if you are looking to buy a new home for yourself/family, a vacation rental, and/or both. I can help you find your dream home even if you are not a Mexican citizen.