Over the last few decades, the condo-hotel (condotel) concept has been making its mark in the real-estate world. This second residence, co-ownership, investment and rental hybrid is lauded by some and warned against by others. But is it a worthwhile investment?
Although it can be hard to provide a definitive answer to this question, given that every project varies according to a number of factors (location, additional fees, competition, terms of use, property management, etc.), it is paramount for an investor to fully understand all aspects of this business model before taking the plunge.
Advantages
Purchasing a cottage-type second residence will require you to invest time and money in keeping up the property, even if it goes unused for long periods of time. This is not the case with condo hotels, as the property manager is responsible for maintaining the property and carrying out necessary repairs. As such, the investor can reap the profits without having to deal with the hassles that normally come with owning a property. However, as we’ll soon see, this comes at a considerable cost.
The contract that binds the investor to the property developer states the number of days the investor can stay over during the year. In most cases, you’re looking at 10% of the time, which amounts to a little over a month each year. For someone who’s only looking to enjoy a second residence sporadically, this could be an ideal arrangement.
For a new project, this formula allows the buyer to avoid paying sales tax as they would on the purchase of a regular co-ownership.
If the property is running smoothly and maintains a good occupancy rate, the income can help considerably reduce, or even completely cover condo fees and operational costs, as well as school and municipal taxes. However, not all properties offer such results.
Disadvantages
Income from rentals is what allows the buyer to profit from their investment in a condo hotel. However, this income is highest during the busy season. If you choose a property near a skier’s resort, you’re better off renting it out over the Christmas holidays to benefit from the high rental fees.
Which brings up the inconvenience: what good is having a second residence if you can’t enjoy it when it’s most convenient for you? The same goes for the summer holidays.
Although not a disadvantage as such, you can’t forget to account for condo fees and other expenses when calculating your expected return. For example, an older building is always more likely to require major renovations, which could have a serious impact on your profits. The contract between the buyer and the property manager should clearly indicate the fixed overhead and potential costs you might incur. But as with any other real estate investment, it’s hard to accurately predict the latter.
The arrival of the Airbnb model on the short-term rental market has hurt the condo hotel model. Some secondary residence owners have even opted to favour this model, although it is not without its own inconveniences. Read our article to find out more about what Airbnb rentals entail.
If you’re looking to sell, you’ll have to be patient as the market for these types of property is limited.
The “master of your own domain” aspect must also be accounted for. If you treasure the element of belonging that comes with a property, a condo hotel can, as its name implies, leave you feeling like you’re in a hotel, with vacation-goers coming and going at all times.
At the end of the day, it’s up to you to find a condo hotel with a formula that suits you. Although it is possible to find a good business opportunity, this type of investment rarely pays off short-term, and requires a great deal of vigilance and planning for additional costs in order to come out ahead.
If, after reading all this, you’re leaning more towards purchasing a cottage, read our article, “Buying a cottage: what you need to know.”
No matter what you decide, a Multi-Prêts broker can help you get a better perspective.
Key takeaways
- The contract that binds the investor to the property developer states the number of days the investor can stay over during the year. In most cases, you’re looking at 10% of the time, which amounts to a little over a month each year.
- Income from rentals is what allows the buyer to profit from their investment in a condo hotel. However, this income is highest during the busy season.
- The arrival of the Airbnb model on the short-term rental market has hurt the condo hotel model.