How to Buy a Hotel Room Permanently

Permanent hotel room ownership is a distinctive real estate segment. While hotels are commonly perceived as temporary accommodations, certain structures allow individuals to acquire deeded ownership of units within hotels. This blends traditional real estate investment with a hospitality business framework.

What Permanent Hotel Room Ownership Entails

Permanent hotel room ownership typically refers to a condo-hotel. This structure allows an individual to gain deeded ownership of a unit within a hotel, similar to a traditional condominium. Unlike timeshares or fractional ownership, which grant usage rights for a limited period or shared equity, condo-hotel ownership provides a fee simple interest in the unit. This means the owner possesses a tangible asset that can be bought, sold, or transferred.

Condo-hotel units are part of a hotel operation. They share common areas and services with other hotel guests, including amenities such as lobbies, pools, fitness centers, and restaurants. Owners benefit from professional management, marketing, and operational services provided by the hotel brand and operator. This offers owners a convenient experience, as day-to-day management is handled by the hotel.

While the unit is privately owned, its operation falls under the hotel’s framework. This implies restrictions and benefits for the owner. A condo-hotel’s primary function is to provide transient visitor accommodations, with units available to the public daily. This model influences owner personal use and rental income potential.

The legal structure of a condo-hotel involves a condominium declaration governing units and common elements, and a hotel management agreement outlining operational aspects. Unit owners become members of a homeowners association (HOA), which manages shared responsibilities and property costs. This dual structure distinguishes condo-hotels from standard residential condominiums, reflecting their hybrid nature as privately owned residences and commercially operated hotel rooms.

Steps to Purchase a Hotel Unit

Acquiring a condo-hotel unit involves preparatory and procedural steps unique to this property. Before making an offer, due diligence is essential to understand the investment. Begin by researching suitable properties, often in popular tourist destinations or urban centers. Evaluate the developer’s reputation and the hotel brand’s management agreement, as these influence the unit’s future operation and potential returns.

Review condominium documents, including the Declaration of Condominium and By-Laws. These detail owner rights, obligations, use restrictions, and HOA governance. Examine HOA or hotel association financial statements to assess fiscal health and ensure adequate reserves for maintenance and capital improvements. Scrutinize rental program agreements, outlining terms for placing the unit into the hotel’s rental pool.

A physical inspection of the unit and common areas is part of due diligence. This involves checking for structural issues, maintenance needs, or problems impacting the unit’s value or future expenses. Understanding the property’s condition helps anticipate future costs and ensures the unit meets buyer expectations. Consulting experienced real estate professionals and legal advisors specializing in condo-hotels provides valuable insights and guidance.

After due diligence, the purchase process begins. This includes making an offer and negotiating terms, formalized in a purchase agreement. Securing financing for a condo-hotel unit can be challenging, as these properties are often considered non-warrantable by traditional lenders like Fannie Mae or Freddie Mac. Buyers typically face higher down payment requirements (20% to 40% of the purchase price) and may need specialized lenders. Lenders generally assess a borrower’s income without factoring in potential rental income, focusing instead on personal financial stability.

After a purchase agreement is signed and financing secured, a title search ensures clear ownership and identifies any liens or encumbrances. Closing involves signing legal and financial documents, transferring the deed, and settling closing costs. Buyers generally have a short period (often five days) to cancel the purchase agreement after receiving disclosures, providing a final opportunity to review terms.

Financial Aspects of Owning a Hotel Unit

Owning a hotel unit involves financial considerations, starting with initial costs beyond the purchase price. Buyers can expect closing costs similar to a traditional real estate transaction, which may include title insurance, transfer taxes, attorney fees, and loan origination fees. Depending on the condo-hotel, additional assessments or deposits may be required by the hotel operator or HOA at purchase.

Beyond the initial investment, owners face ongoing costs for the property’s operation and upkeep. Property taxes are a recurring expense, calculated based on the unit’s assessed value. Monthly HOA fees are a significant ongoing cost, often higher for condo-hotels than traditional condominiums due to extensive services and amenities. These fees typically cover common area maintenance, utilities, shared space insurance, and contributions to reserve funds for major repairs or replacements. HOA fees for condo-hotels can range from $0.50 to $2.00 per square foot, or between $100 and $1,000 per month, with some luxury properties exceeding this.

If the unit is placed into the hotel’s rental program, owners will incur management fees, often a percentage of rental revenue. These fees, commonly 20% to 40% of gross rental income, cover the hotel’s marketing, booking, and guest servicing. Owners may also be responsible for a furniture, fixture, and equipment (FF&E) reserve, a portion of rental revenue set aside for periodic replacement and refurbishment to maintain hotel standards. Additionally, owners are responsible for their own contents and liability insurance (typically an HO-6 policy), which complements the HOA’s master policy.

Rental income is a key financial aspect. When a unit is part of the hotel’s rental program, the hotel operator manages bookings and guest services, and revenue is split between the owner and management company. Revenue sharing models vary, but common arrangements include a 50-50 split after deductions, or the owner receiving around 60% of gross rental revenue with the management company retaining 40%. Profitability is influenced by factors such as occupancy rates, average daily rate (ADR), and seasonal demand. While rental income can help offset ownership expenses, developers are prohibited from providing specific revenue projections due to securities regulations.

Operating Your Hotel Unit Post-Purchase

After purchasing a condo-hotel unit, owners balance personal enjoyment with operational considerations managed by the hotel. Personal usage is typically permitted, but with specific rules and restrictions outlined in condominium documents or rental program agreements. These often include limits on annual occupancy days, blackout periods during peak seasons, and specific booking procedures to ensure unit availability for hotel guests. Owners usually do not pay for their own usage, though some agreements may include a daily maid fee.

Participation in the hotel’s rental program is central to operating a condo-hotel unit. While not always mandatory, most owners join to generate income and benefit from the hotel’s professional management. Hotel management assumes responsibility for marketing, reservations, guest check-ins and check-outs, and providing guest services like housekeeping and concierge assistance. This offers a hands-off investment, as day-to-day operational burdens are managed by experienced hotel staff.

Maintenance, repairs, and renovations for units and common areas are primarily handled by the hotel operator or HOA. Regular maintenance and upkeep are usually covered by monthly HOA fees. However, owners are financially responsible for significant renovations or furniture replacement programs within their unit, often mandated periodically to maintain hotel brand standards and ensure the unit remains appealing. Some agreements establish a furniture, fixture, and equipment (FF&E) reserve, where a portion of rental income is set aside for future refurbishments.

Unit owners typically interact with hotel management or the HOA through owner associations or regular financial statements detailing rental performance and expenses. Owners should review these statements to monitor profitability and understand cost and revenue allocation. From a tax perspective, income and expenses from a condo-hotel unit are generally treated as rental activity. However, if the average period of customer use is seven days or less, the activity may not be classified as a rental activity for tax purposes, potentially allowing for different treatment of losses if the owner materially participates.