By Amy Bradley-Hole Travel columnist
updated 6/20/2007 4:54:29 PM ET 2007-06-20T20:54:29

Have you ever dreamed of living in a hotel? Just imagine: You'd have housekeepers, valet drivers, room service and more — all there to cater to your needs. If you lived in a hotel, chances are you'd also have a swimming pool, fitness center, restaurants and maybe even a spa right in your building. What a life!

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Or, have you ever dreamed of getting some help with your bills? Just imagine: Every time you left your house for a night or more, someone else would stay there, clean up after themselves and then pay for the use of your property. You'd never have to do anything, you'd never know someone had been there, and you'd make some extra cash. What a deal!

Well, some developers and hotel companies are trying to make these dreams a reality for those looking to purchase real estate. The result is a new breed of property called a "condotel," a cross between a condo and a hotel. But how exactly do condotels work, and what benefits do they offer owners?

What are condotels?
First let me explain what condotels are not. They are not timeshares. With many timeshares, buyers purchase the ability to stay at a resort for a certain amount of time at certain times of the year. Buyers are, in essence, paying for their vacation stays in advance. With a condotel property, buyers are actually purchasing a piece of real estate. Depending on the property, they might be buying a hotel room, or a studio-style room, or a three-bedroom condo or a "villa" — there are many different floor plans available and they go by a variety of names. (Villas and other free-standing residences are often called "fractionals," but to keep things simple, I'll use the term "condotel.") The bottom line is that condotel buyers own a real piece of property — one they can live in or rent out, as they please.

How did the condotel concept begin?
Building a residential condominium building or a new hotel is an expensive undertaking these days, especially in markets where land is at a premium. So developers thought, "How can we get someone to share the costs of this expensive project during the construction stage?" The answer, they realized, was to pre-sell the units as condominiums. Then, to sweeten the deal for investors, developers would bring in a property management company to run the building like a hotel, so that owners could rent out their units when they weren't using them and possibly receive some sort of return on their investment.

Perhaps not surprisingly, several big hotel names have gotten into the act. Brand loyalty has always been important in the hospitality industry, and the condotel trend gives savvy hoteliers the opportunity to turn loyal guests into loyal residents. Hotel brands like Starwood, Hilton, Marriott and Ritz-Carlton have all entered the condotel market. One hotel company with die-hard fans (myself included) is Morgans Hotel Group. Marc Gordon, chief investment officer for Morgans, explains that his company entered the condotel market in part so that "guests will be able to own a piece of the Morgans Hotel Group lifestyle." Their Mondrian South Beach residence gives their hotel fans a chance to live in accommodations similar to the hotel rooms they love.

Residential ownership with a particular hotel group can confer privileges at other brand properties — a great arrangement for frequent travelers. For example, according to Gordon, Mondrian South Beach owners will be granted "VIP treatment at all Morgans Hotel Group hotels, restaurants and nightlife experiences worldwide." Even Canyon Ranch, known for its fabulous spas, now offers a chance to live the Canyon Ranch lifestyle in places like Miami and Chicago. So in many ways, the growth of the condotel market can be linked to the desire among some consumers to leave behind some of the burdens of homeownership and buy into a more service-centered way of life.

So how does it work?
Buyers who purchase a property at a condotel can, of course, use this property as their main residence, although certain local laws may restrict owners from staying there 365 nights a year. When in residence, owners have full use of all amenities offered at the hotel. They simply pay extra maintenance fees (similar to homeowners' association fees) for the upkeep of the common areas.

Owners may also choose to place their unit in the hotel's rental program. This option allows the unit to be rented at market rates to transient guests, thus bringing the owners some income from their property. Owners pay the management company a certain percentage of rental revenue in exchange for booking the room, providing housekeeping services, etc.; management fees generally range from around 20 percent to 40 percent of the nightly rate.

What should buyers look out for?
One should never go into any real estate transaction unprepared and uninformed. While I can't list everything you should think about when considering buying a condotel unit, here are some highlights.

  • This is not easy money. At least, not necessarily. Can the money you get from renting out your unit pay for your total investment and maybe even net you some extra profits? Sure it could. But it could just as easily never pay for itself. Real estate markets can crash, and hotel rental and occupancy rates can fluctuate wildly. If making rental income is very important to you, research the local tourism market carefully. And if any sales agent suggests any type of return on your investment, or guarantees that your condotel will be a moneymaker, run the other way. For them to do so is illegal, so they are either poorly trained or dishonest. Either way, you should look elsewhere.
  • Choose a management company you trust. If you are going to rent your unit or be away from it for a while, someone will have to manage it for you. Most likely, the management company you choose will be the same company that owns and manages the building itself. But in most cases you can hire an outside company to manage your condotel property if you like. The important thing is that you trust and enjoy doing business with the company you choose. Again, I'll use Morgans as an example. I have been a guest at many Morgan properties, I enjoy their service, and I trust the quality of their products. Therefore, I would feel very comfortable having them manage my property when I wasn't there. Make sure you feel the same level of comfort with your property manager.
  • Read all the fine print and understand all the details. I can't stress enough how complicated purchasing a condotel can be. This is not like buying a single-family home on a suburban street. There's a lot to find out: how much will maintenance fees be, can you take a homestead exemption on your property, can you decorate your unit to your liking or do rental restrictions prevent personalization, what percentage of rental revenue does the property management company take, etc. Anyone interested in entering this market must do lots of research before even beginning to look, and must ask lots of questions every step of the way. A Web site like CondHotel.com is a great place to start your research.

Condotel ownership can be a great way for people to enjoy the benefits of living in a vacation setting. It is an interesting concept for smart buyers, and I can't wait to see how the trend grows over the next few years.

Amy Bradley-Hole has worked in the hotel industry for many years in many different positions and at all types of properties — from small luxury boutique hotels to large resorts, both in the United States and abroad. E-mail her or read more of her articleson Tripso.com!

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