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With the real estate market becoming a popular investment avenue for many individuals, investment in short term rentals has caught the interest of many investors. After the COVID-19 pandemic, accommodation preferences changed among travelers, as many opted to rent out vacation rentals as opposed to hotels due to the flexible booking options, privacy and safety reasons.
According to Macrotrends, Airbnb made a total revenue of $9.601B in 2023, an increase 19.57% increase year-over-year while Booking.com made $20.630B worth of revenue, which marked a 28.76% increase year-over-year.
With the changing travel preferences among travelers, the demand for condotels and similar properties is set to increase in the future.
The concept of condotels came about as a way of hotel developers trying to manage the risks that come with investing in large scale luxurious properties. For investors, condotels provide a means to purchase and own investment property that can be used for personal stays and also as rental units for passive income generation. For holiday goers, condotels allow them to pay a bit less for a premium vacation experience by booking to stay at the unit for an agreed time period.
For investors looking to invest in condotels, here are some basics of how condotels operate.
Investors can purchase individual units within a condotel complex, whereby each unit is privately owned, just like a traditional condominium.
Unlike traditional condos where owners manage their units independently, condotels are managed by a professional hotel management company. The company oversees the day to day operations of the entire property, including rental management, maintenance, housekeeping and guest services.
Owners have the option to place their units in a rental program managed by the hotel. When the unit is not being used by the owner, it can be rented out to guests through the hotel's reservation system. The rental income generated is typically split between the owner and the hotel management company.
Similar to hotels, condotel owners and their guests have access to amenities and services such as housekeeping, concierge, room service, fitness centers, pools, spas and dining options. The inclusion of these services make condo hotel units a popular choice among travelers looking for short term rentals.
Depending on the condotel's policies and rental program, owners may have restrictions on how often they can use their units for personal use. During peak seasons and high-demand periods, owners may have limited access to their units to maximize rental income for the property.
Owners are typically responsible for paying monthly maintenance fees, property taxes and any other associated costs related to owning a condotel unit. The fees paid for maintenance are used for the upkeep of the property's common areas and amenities.
Like traditional real estate investments, condotel units have the potential to appreciate in value over time. Factors such as location, market trends and the overall performance of the hospitality industry can influence the property's value.
Some pros of investing in condotels include:
Potential to earn rental income. By renting out their units, condotel owners can earn passive income when they are not using the property themselves. This additional income can help offset some initial ownership expenses.
Professional management. Most condotels are managed by professional hotel management which handle the day to day operations and general maintenance. This relieves owners of the burden of managing the property themselves and ensures efficient operation.
Access to amenities. Guests and condotel owners have access to a wide range of hotel-like amenities and services such as pools, fitness centers, spas, restaurants and concierge services. These amenities enhance the overall guest experience and may attract more guests, therefore increasing the property's rental potential.
Prime location. Many condotels are strategically located in popular tourist destinations with high demand for accommodation. Purchasing a unit in a prime location can result in higher occupancy rates, increased rental income and long-term appreciation of the property's value.
Flexible usage. While condotel owners can generate rental income by renting out their units to hotel guests, they also have the flexibility to use them for personal vacations. This allows owners to enjoy the benefits of ownership while still having the option for personal use.
Some cons of investing in condotels include:
Operational costs. Regardless of whether a unit is generating rental income or not, condotel owners are still required to cover monthly maintenance fees, property taxes and other operational costs. These costs can eat the owner's profits therefore reducing the return on investment.
Management risks. Being that the success of a condotel investment heavily relies on the competence of the management company overseeing the property, poor management decisions can lead to poor guest experiences which can in turn cause lower occupancy rates and low rental income for owners.
Limited personal use. Depending on the terms of the management agreement, some condotels can restrict the owner's ability to use the unit for personal vacations or extended stays, especially during peak seasons as the main priority is to maximize rental revenue.
As an investor looking to invest in a condotel or short-term rental property, here are important tips for you.
When looking for a location to buy a condotel, consider properties located in high-demand locations. It is also important that you consider the property's proximity to popular attractions, entertainment venues and other basic community amenities such as malls and hospitals; as this can lead to higher occupancy rates.
Consider the rental program and income potential. Before you buy a unit, first get to understand the terms of the rental agreement, including revenue-sharing arrangements, management fees and owner usage restrictions. Be sure to also look at the property's historical rental performance and projected rental income so as to properly assess its profitability as an investment.
Another thing to look out for as an investor is the cost of investing in a condotel property. As you calculate your total expenses, be sure to consider costs such as purchase price, maintenance fees, property taxes, insurance and reserves for capital expenditures.
In addition, ensure that the condotel property complies with all legal and regulatory requirements, including zoning laws, condominium regulations and licensing requirements. Different cities have different laws around short-term rentals, and it is therefore important that you're conversant with the laws in the area that you operate in.
Lastly, be sure to do your due diligence before deciding to make any kind of investment into a condotel. With the help of a qualified financial advisor and real estate professional, conduct property inspections, and review all relevant legal and financial documents. In case of any uncertainties, speak to your advisor before committing to the investment.
If you're an investor interested in hotel investing in Portugal and The Bahamas, we have a great investment opportunity for you through our Alt Path hotel fund. The fund's main objective is to build, develop and operate a portfolio of new boutique hotels in these high tourist destinations.
By investing in our fund, among the benefits that you get to enjoy include investing in approved hotel development projects with 45-55% cash incentives from the Portuguese government. Furthermore, we offer assistance with citizenship by investment, and provide guidance on eligible investment options to help you obtain a second passport.
This approach allows you to diversify your real estate investment portfolio and spread risk across different markets. To read more on the Portugal golden visa, find the latest insights here.
To schedule a meeting with our team to discuss the Alt Path hotel fund, schedule an appointment here.
Bay Street Capital Holdings is an independent investment advisory, wealth management and financial planning firm. Founded by Willian Huston who was recognized by Investopedia among the Top 100 Financial Advisors from 2021 to 2023, the firm operates with a focus on managing and growing client portfolios while managing overall risk.
In 2023, Bay Street was recognized at the Wealthmanagement.com 2023 Industry Awards in the Asset Managers: Diversity, Equity and Inclusion category, for its partnership with Resthaven Properties in the real estate sector.
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