New trend in vacation homes: Condo hotels

According to the National Association of REALTORS®, vacation home sales in 2005 were a whopping 16.9 percent higher than they were in 2004 -- an all-time high of 1.02 million units. And some of that increase was due to sales of a hot new type of property -- units in condominium hotels.

These condo units provide a seemingly unbeatable combination -- a hassle-free, first-class vacation spot, and a long-term appreciating asset. Plus, they can be rented out to help cover their costs when you’re not in residence.

How they work
The purchase of a condominium hotel unit is just like any other real estate investment: you make an offer that includes a deposit or down payment, and pay the balance of the agreed-upon price when you close the deal. Once you take possession, you actually own your unit, and can enjoy the comfort of staying in a resort hotel during the weeks or months you vacation there each year.

Many major hotels and resorts have developed condo units, and they typically come tastefully furnished complete with up-to-date kitchens. Plus, they offer the additional amenities of fine restaurants, fitness facilities, swimming pools and concierge service.

You can also use the services of the condo management company to rent out your unit (in exchange for a portion of the revenue) when you’re not in residence. And, like all real estate, condo units can appreciate in value -- an amount you can potentially pocket should you decide to sell.

Do your research
Because condo hotels are a relatively new type of real estate investment, it’s important to do some research before you buy. Be sure to check out:

  • The management. You are buying into the hotel business. So look for a unit in a building owned by a top-flight, internationally known hospitality company, and run by a management company experienced in worldwide marketing. These factors help ensure that the condo is located on prime real estate, meets the high standards associated with the franchise or brand name, and can attract guests to rent your unit when you’re not there.
  • The location. A unit in a prime tourist or business location will likely rent out easily. Keep in mind, though, that resort properties often have a limited season. For example, you may have a hard time renting out a ski condo during the summer months.
  • Your vacation needs. Some developments allow you to live in them full time and take care of your own maintenance. Others may limit your occupancy to no more than 90 days a year and require you to rent out your unit the rest of the time so they can share in the revenue it generates. Be sure to check these things out in the owner’s agreement, which will also list the frequency, notice requirements and other considerations you’ll have to respect when you want to use your condo hotel unit.
  • The costs. Read the fine print of the agreement. It will state what you have to pay for in addition to the usual monthly condominium maintenance fees, property taxes and mortgage payments. Other costs you may have to cover include operating expenses (daily housekeeping, redecorating, front office and capital improvement fees) as well as liability, claims and damage or loss insurance. It will also specify what your share of the revenue will be. Typically, you’ll split rental income 50-50 with the management company. Keep in mind that you can’t count on rental income to cover all your expenses because the unit may not be rented all the time.
  • Your financing. As with any vacation home, prices can vary widely based on location, size and amenities. Because it’s a second home, you may be required to make a larger down payment (up to 30 percent) and pay one or two percentage points more for a mortgage than you do for your primary residence. So it’s well worth shopping around. You may also be able to obtain a better rate by taking out a home equity loan against your primary residence to fund all or part of your purchase costs.

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