If you are interested in real estate entrepreneuring, you need to understand how entrepreneurs have created wealth by buying wholesale and selling retail.

The most obvious example is the condo-conversion phenomenon whereby a property is purchased wholesale (one apartment complex) and then sold off in parts at retail (individual condominium units). The condo conversion business has made some entrepreneurs very wealthy because the purchase at wholesale is based on one economic model (discounted cash flow of rental income) and sold on a completely different model (personal use by owners which is usually tied to a price per square foot).

Entrepreneurs are always looking for ways to replicate this model, the latest being the sale of individual hotel rooms or suites as condominiums, sometimes called condo-hotels or condotels. The economic logic is the same as with rental properties … a hotel owner purchases based on his analysis of future net income from the hotel operation and then sells on a different model (the value to a purchaser of owning his own hotel room/suite).

Not all condotels have sold well for a variety of reasons not the least of which is the cooling of the condominium buying mania which until recently had swept the United States. From the start I was unsure about this concept as I applied my personal analysis to the subject: would I want to own a hotel suite that could be used by strangers (with presumably a lot less care for the property than I would have)? For me the answer was ‘no’ although I have since learned that in most properties an owner does not have to put his or her condotel into the hotel rental pool.

My second level of concern was rowdy neighbors. What if the suite next to me was rented for a weekend to one or two guests who then invited their fraternity brothers to a weekend in Miami (where I own a condominium) and my quiet getaway was interrupted by a couple of dozen partiers next door? The condotel promoters/developers suggest that can be controlled by good hotel management in renting adjoining units – which I tend not to want to rely on.

On the other hand, two friends of mine just bought condotels in Miami. One likes the idea that he
and his wife have a place that is theirs when they want to use it, which also produces income when they put it into the hotel pool. The other is a wealthy guy who just wants a place to visit where he can keep all his personal stuff, (he is not putting his unit in the rental pool) and who likes having access to room service, maid service and the hotel spa. Both of these friends considered a traditional condominium and decided that the condotel was better suited to their lifestyle.

So, perhaps I am wrong about the health and longevity of the condotel. The fact is that some people are willing to trade off the potential negatives for added income or availability of services. As an entrepreneur, I have to be careful not to confuse my own personal preferences (eccentricities?) with those of the public at large or, at least a large enough segment of the population who can make the condotel phenomenon successful. return to front