Condohotel – is it worth investing in?

It takes approx. 4 minutes to read this article

Condohotels are an increasingly popular form of investment, which in Poland is realized in the form of more than 2.5 thousand apartments of this type under construction. Potential investors are tempted by high rate of return. Is it worth it or not? Where can danger lurk?

What is a condohotel?

This increasingly popular term refers to a type of developer and hotel investment, which involves the construction of a set of residential units (apartments, rooms or suites) and their subsequent management. The way a condohotel works is that the developer builds an object and then sells its separate parts as apartments or rooms to individual buyers. On the basis of a separate agreement, their management, including the search for tourists, is transferred to a specific company dealing with short-term rentals.

The beginnings of investing in condohotels

This form of earning money appeared in the United States as early as the 1950s in Miami Beach, Florida. In the 80s investments were created there, which from the very beginning were designed as condohotels; among others the famous Casablanca and Alexander. Such ideas came to Poland much later, in the first decade of the 21st century. Among the first institutions of this type in our country were Dom Zdrojowy in Jastarnia and Marine Hotel***** in Kolobrzeg

Opportunities related to the investment

Investors in the case of condohotels are tempted by the high rate of return. It also seems to be an extremely simple form of investment. In practice, however, one must also consider the threats to the profitability of such business. The business model functioning in Poland usually assumes two ways of dividing income from lease:

  • 50/50 – a 50/50 split of profits between the owner and the management company, when this is the former developer,
  • 70/30 – 70% of profits for the owner, 30% for the external company managing the facility

In a situation where the apartment would be worth 250 thousand PLN, assuming a 5% rate of return, we can count on 12.5 thousand PLN per year. It is worth noting, however, that the cost of insurance and property tax must be deducted from this sum

Threats

The basic investment difficulty in case of condohotels is related to the fact that in Poland it is a relatively young market. Therefore, it’s difficult to point out potential threats that may lurk for investors. As in case of every investment, also here, you can earn, but you have to be vigilant and well recognize the market. And this one is constantly growing.

The difficulty of planning an investment in the long term

When considering an investment in a condohotel, you also have to take into account its long-term effects. The profit is guaranteed only for the duration of the contract, which usually lasts five years. After that time it is not so sure. It may turn out that the apartment in the current condohotel will not be suitable after the expiry of the agreement, for example as an apartment for long-term rental. The investor also bears the risk that the business will turn out to be unprofitable and the management company will go bankrupt. Although these are definitely pessimistic scenarios, even they should be taken into account

How to minimize the risk?

The basic action to reduce the chance of losing money as a result of a failed investment is to bet on cooperation with an experienced developer and management company. These entities should already have a track record of successful and profitable investments of this kind. The location of the facility, distance from major routes, etc. should be analyzed. Most condohotel investments that are considered likely to succeed in the long term are being developed in major urban centers or popular holiday resorts. Among urban centers, Warsaw, Krakow, Wrocław, Poznań and the Tri-City agglomeration are leading.

Photo Engin Akyurt/Pixabay

Add comment

Your email address will not be published. Required fields are marked *

*

4 × three =