Vol 6 No. 23 - March 1, 2006

Condo hotels are the latest crossbreed
By Louise Bolger

What do you get when you cross a Labrador retriever and a poodle. A labradoodle, of course, one of the hottest new dog breeds. What do you get when you cross a hotel with a condo – a condo hotel, of course, one of the hottest new real estate breeds.

Condo hotels have quickly become one of the hottest areas of the real estate market over the last few years. The appeal to buyers is the concept of owning a property that generates revenue when not being used by their owners. This is substantially different that the traditional second home market, which has owners either leaving their property vacant for extended periods of time or finding renters for specific on season periods. Condo hotels can be placed in the hotel management program, which maintains the unit and shares the revenues with the owners.

As prices for second homes in coastal areas continue to increase, the appeal of condo hotels is increasing as well. For a fraction of what a waterfront home would cost, a buyer can purchase anything from a hotel room to a small apartment in comparable areas. Unlike time shares, which were and still are popular around the world, condo hotels give owners access to their property for more extensive periods and are fully owned and deeded properties.

The concept has been around for a decade, but the big hotel chains like Marriott and Westin are promoting them more than ever as a way to raise cash for expansion without going to investors or banks. Likewise, small hotel/motel proprietors have hitched their star to the same wagon and are converting their properties to condo hotels. The revenue generated from the sale of the units is a huge windfall for the owners, and in many cases they stay on as the property manager and continue sharing in the generated income.

Anna Maria Island is no stranger to this concept. The Island has seen several of these conversions during the past couple of years, and undoubtedly there are more to come. With the double-digit appreciation of single-family homes and condos on the Island during the past five years, the only way for some buyers to own property on the Island is to buy into one of the conversions.

There are several advantages aside from the lower purchase price. The units come fully furnished with amenities, maid service is provided, renters are found through the management company, the owner can use the property for extended periods of time and the rental cash flow can offset mortgages and other expenses. The owners generally receive between 30 and 60 percent of rental proceeds, plus second home tax write offs.

If it sounds too good to be true, it is. There can be problems and disadvantages to condo hotels. Primarily, owners have very little control of marketing, rentals, service and daily operations. Just like owning traditional condominiums, there can be additional fees for repairs and unanticipated costs as well as monthly maintenance fees. Cash flow is dependent on factors out of the owners’ control and sometimes out of everyone’s control — like bad weather and red tide. And since the holy grail of real estate is appreciation, condo hotels are still in the vague area.

I once met a labradoodle that looked like he had all the right stuff for a great pet, but turned out to be a little too snappish. Hot new breeds are not for everyone. Do your research and be careful before you dive into the exotic pool.

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