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First post on the forum, been lurking around for a little while, seems like a good forum.
Anyways, been living on oahu my whole life. I own a residential condo that I live in, and a rental condo that I rent out. Looking to potentially buy a cheaper condotel once the economy turns, rental purposes only. I understand when the economy is crap, the lenders sour on making loans for these types of properties becuase of the higher risk. Therefore, I'm trying to build savings to come up with high % cash.
Anyways, if any of you guys own condotel units, I would appreciate the insight in how renting them is going, potential profit margins, pitfalls, etc etc. TIA
One possible pitfall to keep in mind when considering how the number stock up is the cost of electricity. Long-term tenants acclimate to the claimant and often don't use as much electricity, or you can simply have them pay the electric bill.
Vacation renters don't have time to acclimate to the climate and will tend to run the air conditioner 24-hours per day. And you must pay the bill if electricity is not included in the HOA dues. That can become a higher than expected monthly expense that you should keep in mind when comparing long-term vs vacation rental numbers.
^Thanks for the advice regarding the utilities. That makes sense that the visitors would treat it as a regular hotel room,, and the owner picks up the utility charge since the vacationer simply pays their room rate.
For these types of rentals, it seems like the higher room rates are nice, but the TAT and low occupancy rates during recession can be an issue. Would you happen to know of any "good" projects to keep an eye out for?
^Thanks for the advice regarding the utilities. That makes sense that the visitors would treat it as a regular hotel room,, and the owner picks up the utility charge since the vacationer simply pays their room rate.
For these types of rentals, it seems like the higher room rates are nice, but the TAT and low occupancy rates during recession can be an issue. Would you happen to know of any "good" projects to keep an eye out for?
TAT should be a charge to the guest paid on top of the nightly rent. Same with GET, so that should not be an issue.
Occupancy is always an issue. So is the management company handling your rental. Unless you try to do it yourself. Condos in my building have the choice of several active rental management companies or the hotel operation. They all charge different fees and generate different occupancies.
Units in better vacation rental building will have stronger occupancy, but the units will cost more. I bought a unit in The Ilikai and I think it is a great building and has great occupancy. But, the units are pretty high right now. I also like Waikiki Banyan. Both buildings have good amenities and are popular with vacation renters.
I have a friend who owns 5 units in the Ala Moana Hotel building. They are very small (like a hotel room only) and he's happy with them. But I know his HOA is very high.
I've been told the Waikiki Grand units do ok with the budget travelers and the units are not too expensive. But I don't know much about that building.
"Condotel" - When did that word come into existence? Was it before or after the word "McMansion" ?
I'm 61 years old and never heard of that word until I read the words in the title of this thread.
They have been around for a long time. I think the concept first started in the 1950's and grew and morphed from there. You've probably stayed in one and not even known it. The Ritz Carlton is the newest one in Waikiki.
A condo building is built. The units are sold to individual owners. A brand name hotel management company is hired to operate a front desk just like a normal hotel. And they rent the units to travelers and revenue share with the unit owners.
They are typically found in larger cities and resort destinations. To the average tourist, it looks acts and feels exactly like any hotel you've been in, except the person who owns the unit is actually an individual behind the scenes, not a corporation.
Typically a person buys a unit as a vacation home in a resort area and then let's the unit be rented out under the hotels name when the owner is not using the unit in order to generate income while not using the unit.
thanks for the feedback waikikiboy, really appreciate it! yeah, I've been keeping an eye on alamoana hotel, ilikai, and 1 or 2 other projects in waikiki. But like I said, I'll wait until the economy turns, these properties seem illiquid, and subject to huge pricing swings. Might as well try to buy in at a market low.
the main drawback of the ala moana hotel is the high 60% management fee on gross revenue, high maintenance fee, and lack of dedicated parking.
ivory, these types of investment properties got really popular across the nation mainly in vacation destinations around the mid 2000s. A lot of the ones on oahu popped up around that time. Many were sold during the boom years at pretty hefty prices, then came crashing down once the economy turned, maintenance fees increased, and vacancy rates crashed. Hawaii's market was hurt, but was still more resilient to price drops than the mainland markets (similar to the overall real estate market.
Condotel properties aren't "investment" properties. Even in boom times (now) those properties don't appreciate like other single family or condos. A step above timeshare is a better description.
They make great investments if you buy when tourism has been in the gutter for a good year or so. Obviously it's a terrible time to buy right now.
I bought a whole slew of them back in the day when they were traded around like POG. Bamboo, Palms, Luana. With at least these three projects (in the early/mid 2000's) you could stand in line, choose a unit, sign a contract with $5K cash and then immediately turn around and sell them for $10-$15K to the next guy. You didn't even need to go through escrow - you were only assigning contracts. Eventually they closed that loophole but it was fun times for a little while. For those that closed in escrow and held on for a year or so, making $100K or more was pretty common.
Back then, land and building owners would renovate (and often rebrand) under-performing hotels, CPR the units and sell them as fee simple condos - some with kitchens (dwelling units) and others with no kitchens (lodging units).
I would never touch a lodging unit. Those are super risky. When times go sour (i.e. tourism tanks) you can at least legally rent a dwelling condo unit unrestricted as long term - forever if you wish. Many lodging units require that they be rented for less than 6 months. Some AOAO's have even shorter term stay requirements. Many banks won't touch lodging units (FHB, BOH, et al). Some will touch them but the interest rates are obscene... and expect to put at least 40% cash down.
I have several friends that own(ed) in the Ala Moana. Some bailed because the maintenance fees went through the roof (imagine $3.25/SQUARE FOOT ). Others bailed because the hotel was raping them on absurd hotel mgmt fees. Some held on and wish they sold at a loss. Ala Moana came in late in the "condotel" game; a lot of people got hosed on that project.
But I also have other friends that own in the Luana and Royal Garden. Those perform well (solid/competent management, reasonable fees) as long as you have a full kitchen.
I heard through several sources the Ritz Carlton is returning a 0% CAP rate. Yes, zero percent (that means they generate zero cash flow even if purchased ALL CASH). People buy in those ridiculously opulent projects only to park money and hope the properties appreciate over time.
I gutted and renovated two units in the Waikiki Grand in the late 90's/early 2000 (units facing the zoo/DH with twist-da-neck ocean views). Back then it was an absolute dump - the entire building was downright scary. Renovated units today (facing DH) sell for well over $1,000/SF which is crazy because the units have no parking, the building is very old (built early 60's) and AOAO dues are nearly $2/SF. I believe parking stalls are available for individual purchase but cost $70K-$80K each.
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). Others bailed because the hotel was raping them on absurd hotel mgmt fees. Some held on and wish they sold at a loss. Ala Moana came in late in the "condotel" game; a lot of people got hosed on that project. 
