Condotels in Hawaii

I was speaking with a friend last night and he was telling me his story about his $350,000 unit on Kauai that is now worth $100,000. We all know that the real estate market in the United States has come down over the last 12-24 months, so this should not be a shock to anyone, but Hawaii has not been hit as hard by the real estate fall out as many of the areas on the mainland. The value difference of his unit did surprise me quite a bit because we have NOT seen 70% drops in vale in many Hawaii areas.

It seems his value problem is more of a problem with the nature of Condo-tels than typical real estate adjustments. Here is the heart of the matter. A condotel is a building or resort that operates as a hotel, where the hotel or resort places individual owner's units into the Hotel Rental Pool, thus renting out someones condo as a hotel room.

This is a great idea if someone wants to own a unit in a place they love to visit and wants to have their own place to go to rather than staying in a hotel. It makes things easier when the owner does not have to look for tenants for their unit, and then having to boot them when they want to stay them themselves. Following me? Good...

The great news is that these units can be fairly inexpensive to purchase and when you are there you get to use all of the hotel amenities. You also get a cut of the hotel's income when they rent out your room as a hotel room, which is great to help with your mortgage on the place. 

Here's the bad news. What happens if the hotel operator goes out of business? In a building of 100 units, some or all of the units may be owned by individual owners. If only some of the units are owned by individuals and the hotel goes under, the Association of Apartment Owners for the building will have to pickup the tab for all of the building's expenses which in turn will increase each owner's monthly maintenance fees.

In the case of my friend, the monthly expense went from $1000 a month to $2754 per month. Add this to the owner's property tax and monthly mortgage payment! OUCH!!! I fell at this time, it is important for me to say that I DID NOT SELL MY FRIEND THIS UNIT, we met well after he had bought it.

So, to wrap this up, Condotels can be a good thing for buyers if the rules of the unit or building or hotel operator work well for how you want to use your unit; all buildings and resorts have different rules. BUT, they can become a money pit if the Hotel Operator goes out of business.  If you would like more specifices on some of the rules of condotels, please email me at Mike@GreatHawaiianHomes.com or Gayle at gfujita@hawaii.rr.com.

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Warm Regards-

Mike & Gayle