As the single family home market has heated up in West Hawaii, many would-be buyers and investors are now looking at the condo market for possible purchasing. In your research, you may have seen that some properties are “full service” condos or condotels.
You may be wondering, what IS a condotel? Let us start with the definition: A condominium project that is operated as a hotel with a registration desk, daily cleaning service, activities desk and more. The units are individually owned and the unit owners also have the option to place their unit in the condotel rental program where it is rented out like a hotel room.
Making the Decision
When deciding on purchasing a condotel or a traditional condominium, you will have to consider your needs and your lifestyle: Are you looking to purchase a primary residence or prefer not to have your vacation home used for rentals? Then a traditional condominium may be more in keeping with your needs. Are you purchasing a second home that allows you to use it whenever you like, but also gives you the freedom of worry-free maintenance and more readily produces rental income?
Then perhaps a condotel will better meet your needs.
Keep in mind though, this info is not black and white. Be sure you ask your agent what you are looking for, especially if you are considering the goal of putting your condo on a condo rental program.
It is always a good idea to explore your options with a local lender regarding their products for “condotels” or “condominiums” and to be pre-approved before making an offer or negotiating a contract. In general, the condotels in Kona are VERY difficult to get a mortgage on unless you have a substantial down payment or pay cash. This is why you may find condotel prices lower than other condo prices due to the difficulty of financing and because the maintence fees may be much higher than in a condo complex.
Some of the local condotels include:
Kona Bali Kai
Royal SeaCliff Resort
Aston Kona By the Sea Resort
Are these good investment properties?
All of these condotels are located either on the ocean or across the street from it, so be sure to look at the HOA fees and reserve requirements, as well. In general, you will find that ⅓ of the HOA fees are for insurance on these properties due to being ocean front.
Condo complexes like the Royal Sea Cliff are good for rental, but if you decide to allow the on-site management company to manage the rental listings, they may take 48% of the gross rent. If you work with an outside management company they charge 20-30% of the income, but your occupancy rate may be lower. You can sometimes add to the occupancy by marketing the property yourself through VRBO or AirBnB, but you will also be responsible for paying the transient tax fees and answering questions from potential guests.
Owning such a condo can give you great tax benefit, such as depreciation over 27.5 years (that’s $10,000/year tax write off on a $275,000 condo) plus all your expenses, plus the cost of your trip to Hawaii every year. The value of your condo will increase over the years, (condos HAVE appreciated $3000 a month since last fall at this point), but you may not be able to “live off of” this investment. Be sure to consult your tax person about the current tax laws in place after the recent tax reform bill to learn if the tax write offs for second homes and investment properties fits into your investment goals.
Please don’t hesitate to contact a LUVA Real Estate professional for additional information. We are here to assist you!