We continue our four-part Guide to Condo Hotels with a look at the cost of ownership. Analyst Calvin Chin breaks down the math and analyzes both income and appreciation potential. Click here to read Part 1 of the Guide (Condo Hotels Explained).

Condo Hotel Basic Financial Analysis

Analyzing the economics of a condo hotel unit is extremely difficult because of the challenge of getting accurate information about the potential income stream. Developers uniformly do not provide important data or estimates for room rates or occupancy levels for fear of coming under SEC regulations on investments, as opposed to real estate regulations.

However, using some basic assumptions, it is possible to get a rough idea for the economics of a condo hotel:

Step 1: Estimating income

The key assumptions in the estimation of income are:

• Rental rate: within a hotel, the rate may also vary due to unit size, floor, location in building (views)
• Occupancy: reservations are rotated among available units, however guest requests such as room size or view take priority
• Personal usage: sometimes limited by hotel policy or local laws

Step 2: Estimating costs

The key assumptions in the estimation of costs are:

• Franchise fees: typically 10-12% of gross rental income
• Management fees: varies depending on developer and even project
• Monthly maintenance fees: based on the size of the unit
• Capital expenditures: often the management company will hold 5% of revenue as a reserve used to replace or upgrade unit furnishings

Helium Report example

In our model, we have created a one-bedroom suite based on a composite of various developments and hotel suites currently available. While our assumptions are somewhat conservative, they provide an indication of the financial burden created by the franchise and management fees.

Using our unit for 15 days of the year, an occupancy rate of 65% for the times it is otherwise available, and market average fee structures produces a negative return on assets of slightly more than 3%. In other words, our model unit’s rental income does not fully cover our ownership costs and we would need to continue to invest in the property. However, given appreciation of the condo unit which is in-line with recent trends in desirable markets (15% year over year), results in a still significant financial benefit from ownership of over 11% in annual returns.

Understanding the numbers

Market, development and unit specifics will vary the actual income for a condo hotel unit, but with some exceptions, owners typically expect rental income to cover most but not all of their costs. Given the high costs including the franchise and management fees, there are nevertheless two reasons to own a condo hotel unit: first, the intangible benefits of having a beautiful vacation home in a luxury hotel, and two, the potential financial benefits of appreciation without the hassles of property management.

For additional coverage on condo hotels, also see

• Part 1: The Basics
• Part 3: Brands and Projects
• Part 4: Key Questions

Email us at tips@heliumreport.com to request the Excel model for your own use or request the PDF version of our Guide to Condo Hotels.

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