Are Condo Hotels a Smart Investment?

Are Condo Hotels a Smart Investment

Imagine owning a vacation home with all the amenities of a luxurious resort – room service, a pool, restaurant, and convenient access to a bustling area full of things to do.  Now imagine that, when the real-world beckons you to your primary residence, you could rent out your vacation home for a profit without assuming any landlord duties. 

Now that sounds like a good investment!  But, as with all investments, there are risks alongside the rewards.  To find out for yourself if a buying a condo hotel in Las Vegas (or anywhere) is a good investment, you need to have a clear understanding of both.

Are Condo Hotels a Good Investment?

Potential Returns

Some of the rewards of a condo hotel are self-evident.  As part of a hotel, the property should be a well-maintained, quality space for residents, tourists, and visitors.  Management will want to make sure renters are happy to boost reputation in a hot market, and will put a premium on amenities, presentation, and service. 

Location, Location, Location 

A major difference between a condo hotel and most normal vacation homes is location.  Developers choose where to build based on accessibility, either to a hot resort area or to a busy downtown full of diversions.  One of the great promises of a condo hotel is that it will be easy to find renters when you are unable to be there, and places like Las Vegas, Miami Beach, Times Square, and Palm Springs rarely go without visitors. That’s what makes a condo/hotel like MGM Signature in Las Vegas attractive to many.   

Passive Income

Taking on a second mortgage is a big decision even under the best circumstances.  One of the most attractive elements of a condo hotel as an investment is that the rent may defray some or all of the cost.  If you are looking for a steady income stream, the right conditions could make a condo hotel a lucrative investment.

Potential Risks

Hotels can be a risky investment.  For reasons including, but not limited to, weather, natural disaster, political turmoil, and changing vacation habits, it is impossible to predict rental prices.  In fact, the SEC prohibits developers even from offering price projections.  Whether the rental prices break in a way that is favorable to you is often more of a gamble than anything.

HOAs

Buying into a condo hotel carries many of the same risks as buying into any other HOA community.  If there is any mismanagement of funds on the part of the HOA, the maintenance and upkeep of many units on the property could suffer, so at the very least you need to do plenty of research if there is an HOA in the place you’re looking to buy.

Poor Management

When it comes down to it, not all hotel managers are competent.  In a condo hotel, you have no control over how the property is maintained, nor is there any recourse (other than selling) if you feel the management is mistreating you.  A common complaint is that managers sometimes misallocate funds for maintenance and upkeep away from the condo hotel units towards regular hotel and retail space.

Right For You?  Deciding on a Condo Hotel

Condo hotels can be an investment with both potential and downside.  If you buy one in a set of favorable circumstances and your good luck holds, you may end up with a very valuable piece of property and even an additional income stream.  

On the other hand, if something changes in the popularity of the location due to mismanagement or external circumstances, you could be left with an expensive vacation home that nobody wants to rent or buy. 

However, if you don’t mind taking risk on an investment and feel certain the property will flourish in the long term, you may consider buying a condo hotel unit.

Helpful Resources

*Disclaimer: This material is provided for information purposes only and is not to be construed as investment or tax advice. Readers are strongly advised to consult with their professional advisors regarding the information herein.

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