A condotel (condominium-hotel or condo-hotel) is a condominium unit within a hotel project that allows owners to place their unit in the hotel's rental pool when not using it personally. These properties are popular vacation and investment purchases but are ineligible for agency and government financing due to characteristics that conflict with standard residential underwriting guidelines.
Why Condotels Are Ineligible for Agency Loans
Fannie Mae, Freddie Mac, FHA, and VA all require that subject properties meet minimum habitability and marketability standards, including independence from hotel-style services and management. Condotel projects fail this test because they typically include mandatory rental pool participation, front-desk services, daily linen and cleaning, and revenue-sharing arrangements that make them more like fractional ownership in a hotel than a traditional residential condo unit.
Identifying a Condotel Project
- ✦The condominium documents include a hotel or rental pool management agreement
- ✦The HOA documents require owners to use the project's management company for rentals
- ✦The unit has hotel amenities (lobby check-in, daily housekeeping, room service) associated with it
- ✦The project name or marketing materials reference a hotel brand or hotel services
- ✦Units cannot be occupied independently without hotel management involvement
Portfolio and Non-QM Alternatives
Condotel financing is primarily available through portfolio lenders and non-QM investors who accept the hotel-style characteristics. These lenders typically require a minimum FICO of 680 to 720, LTV no higher than 70 to 75%, and may require 12 months of reserves. The qualifying income may be based on personal income (bank statement or full doc) rather than rental pool projections, since rental income from hotel pools is highly variable.
DSCR for Condotels
Some DSCR investors will lend on condotels but the income calculation differs: since actual nightly rental income cannot be reliably appraised using a standard 1007 form, DSCR lenders often use the most recent 12 months of actual rental pool statements to verify income. Projected income based on market assumptions is typically not accepted for condotel DSCR underwriting.
Aria can identify portfolio and non-QM lenders that offer condotel financing and explain the specific documentation and LTV requirements for this property type. Ask at vicariointel.com.
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