Everything You Need to Know About Buying a Condotel in Honolulu
Savvy real estate investors capitalize on residential loan rates.
Island Colony, Waikīkī Grand Hotel, Waikīkī Banyan, Waikīkī Shore and even the Trump Tower Waikīkī: While we think of them largely as hotels, they actually have condo units that often come up for sale. The benefits of ownership include the ability to rent them out by the day to capitalize on our busy tourism industry, or, for Mainland and international residents who visit Hawai‘i regularly, to have a guaranteed place to stay that makes them income when they’re not present. The condotels also present an opportunity to run a business financed by a residential loan.
An owner can charge anywhere from $100 to $150 a night at Island Colony or Waikīkī Banyan, or up to $400 or more per night at the Trump Tower Waikīkī. Most of these condotels allow you to either self-manage or put the unit in the “hotel pool,” in which the hotel handles all bookings for a monthly fee and/or percentage of income. In the hotel pool, a good portion of income is lost, but so is a good portion of the work involved.
But it’s not simple, either. Financing a condotel can be a bit tricky. To get a loan, you need to have a full kitchen. We asked Joy Skorge, senior vice president at Hawai‘i Lending Alliance, exactly what defines a full kitchen for a lender. “You need three things: a refrigerator, a stove with an oven and a sink,” Skorge says. “The refrigerator can’t be half-size or hotel size, it has to be the tall full-size or a slightly smaller apartment-size version.” Without these things, lenders consider it a lodging unit, not a potential home, and won’t finance. And, due to the low owner-occupancy rates of these buildings, which is usually well below the lender-required 51 percent for a conventional loan for an investment property, you’ll also need a portfolio loan. These usually come directly from local banks—First Hawaiian Bank is known for handling them—at a slightly higher interest rate. Skorge tells us it’s currently about three-fourths of a percent higher than a conventional rate.
And don’t forget about tax. Contact a tax professional first, as a Realtor can’t advise on taxes. A search of the state tax website tells us that many of the condotels are zoned resort, including the Trump Tower Waikīkī, while some are zoned apartment, as is Island Colony. Residential taxes in Honolulu are $3.50 per $1,000 of tax assessed value, while resort taxes are $12.90 per $1,000 of tax assessed value. There are also general excise taxes and transient accommodation taxes to consider when calculating return on investment in a condotel.
Currently, you can buy a studio at Island Colony for as low as $245,000, and there are seven units on the market. At Trump Tower, there are 47 units available, ranging from $395,000 for a studio to $12,360,000 for a two-bedroom on a high floor.