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Q&A: Should I invest in a condotel? | MyProperty.ph
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Q&A: Should I invest in a condotel?

by MyProperty.phPublished: March 22, 2017Updated: March 24, 2017

One way to make your money work for you is investing it in a condotel unit, but how lucrative is it as an income generator?

Philippine real estate condotel investment condominium hotel MyProperty Philippines

 

Q: Should I invest in a condotel?

A: One of the possibilities that people look into when exploring business opportunities is real estate. After all, the Philippine property sector is booming and potential real estate investors are seeing this as the right time to enter the business to make money. While some have delved into the world of buy and sell or condo long-term leasing, a certain investment trend has been growing for a while now, especially with the rise of hospitality service websites like Airbnb: condotels.

 

What is a condotel?

The term “condotel” is a portmanteau of the terms “condo” and “hotel.” In the most basic definition, a condotel is a condo that is managed and much like a hotel. A condotel has units that are owned individually and are placed in its property management program, in which it will be rented out like a hotel room. Condotels have features that give one the feeling of staying at a hotel, such as a registration desk, swimming pools, fitness areas and cleaning services. 

 

What are the benefits of investing in a condotel unit?

The main advantage of owning a condotel unit is its ability to generate passive income. Depending on its location and season of the year, it can potentially earn a lot of money.

With visitor arrivals surpassing the 600,000 mark in January 2017 compared to just over 540,000 during the same period in 2016, tourism could be a very good income driver for condotels. This is especially true during summer and the Christmas season, when there is a spike in tourism due to either foreign travelers visiting the country’s best holiday destinations at the peak of summer or Filipinos coming home for the holidays. For instance, condos close to the airport will likely be rented by local and foreign travelers who want to make their flights on time. Business might do even better for owners whose condotel units are located close to the Philippines’ most popular tourist hotspots.

Foreign investors who have business dealings in the country would benefit from staying in condotels close to the country’s top business districts: Makati, BGC and Ortigas. In most cases, these business districts are also thriving with malls, restaurants and nightlife establishments, making transient accommodations in these areas popular among foreign visitors, who are in the country for business and leisure.

In condotels, unit owners are also earning from a source other than the rental of their unit: gross sales. Since a condotel operates as a joint venture between the unit owner and the condotel operator, part of the gross sales after taxes will be divided among unit owners, which guarantees that you will get a certain amount regularly (some property management groups pay out monthly or quarterly) even when your unit is currently unoccupied. And the larger the condotel unit, the bigger the amount the owner will receive.

For overseas Filipino workers (OFWs), having a condotel means getting to stay for free in a stylish unit that is ideally close to everything whenever they are in the country. It also gives their family here at home the chance to “check in” whenever they are in the mood for a staycation without having to pay for a hotel. During the rest of the year, it can be rented out, which earns you money even when you are not around.

And as far as property investments go, a condotel is very low-maintenance. Once you sign for property management, you do not have to worry about marketing the unit and maintaining its good condition even when you are out of the country, as the management group will be taking charge of these.

 

Are there any downsides?

As in any other business, condotels also have their disadvantages, the biggest of which being stagnancy of income during idle seasons. A condotel located near a beach or any summer destination may stay unoccupied for months at a time during the monsoon season, when tourism tends to taper off. Also, condotels have lock-in contracts for transients, unlike leasing condos for a minimum stay of 6 months to a year.

Condotels also tend to be more expensive than condos, which could be an issue, especially if you plan on buying a unit in a prime real estate area where property prices are already high. There is also no guarantee of how quickly you will be able to sell your unit later on should you decide to do so.

Moreover, since you will not be managing the unit yourself, a certain part of your income will go to property management fees, which can be as low as 30 percent or as high as 60 percent.

 

Is a condotel a worthy investment?

All business transactions have a certain amount of risk, and condotels are no exception. If you have the finances and are willing to take the risk, feel free to take the plunge. But to be safe, it is absolutely necessary to consult a professional, who can give you advice through the process of buying and owning a condotel unit. Also, when selecting a condotel, go for a reputable developer that is transparent when it comes to reporting sales earnings and will be able to maintain the property’s good condition when you are not around.

 

Main photo via Shutterstock

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