The Opportunity Brokers Are Missing
The vacation rental market is on track to reach nearly $25 billion by 2029, growing steadily at over 4% annually. With mortgage rates now below 6.5% for the first time in nearly a year, buyers are jumping back into the market for income-generating vacation properties. The short-term rental sector continues to expand, with demand outpacing supply growth across popular destinations.
But here’s where most deals stall: buyers discover their bank won’t finance these properties. Traditional lenders reject condotels because they blur residential and commercial lines. These buyers need specialized guidance, and most brokers aren’t equipped to provide it.
That’s your competitive advantage. Brokers who understand condotel loans can capture a growing market segment that conventional lenders abandon. This guide explains what condotel loans are, how they work, and why they belong in your service offerings.
Understanding Condotel Properties
A condotel (condominium hotel) is a residential unit within a hotel-operated building. Owners purchase individual units but the property functions like a hotel with front desk services, housekeeping, and professional management. When owners aren’t using their units, the hotel management rents them to guests.
These properties are concentrated in vacation destinations like Florida, California, Nevada, and New York. They appeal to buyers who want:
- A vacation home without full-time maintenance responsibilities
- Rental income from a professionally managed property
- Access to hotel amenities (pools, fitness centers, concierge services)
- A consistent place to stay in their preferred vacation location
The challenge is financing. Because the entire building operates commercially with transient guests, condotels are classified as non-warrantable condos. Fannie Mae and Freddie Mac won’t back these loans, which means traditional mortgage products don’t apply.
How Condotel Loans Differ From Conventional Mortgages
Condotel financing requires specialized loan products with different underwriting standards:
Occupancy Classification: Condotels qualify only as second homes or investment properties. Primary residence financing isn’t available because hotel operations restrict full-time occupancy.
Down Payment Requirements: Expect 25% down minimum for second homes and 40% for investment properties. This is substantially higher than conventional vacation home loans.
Credit Score Standards: Most lenders require minimum FICO scores between 660-680, with some programs accepting lower scores depending on compensating factors.
Loan-to-Value Ratios: LTV caps typically range from 60-75% depending on occupancy type and property use.
Interest Rates: Condotel loans carry higher rates than conventional mortgages because they’re portfolio loans held by private lenders rather than sold to government-sponsored enterprises.
Loan Structure: Many condotel loans use adjustable-rate mortgages (3/1, 5/1, or 7/1 ARMs) rather than traditional 30-year fixed rates.
Income Documentation: Lenders may consider rental income projections, though underwriting standards vary. Some programs accept bank statements for self-employed borrowers.
Reserve Requirements: Borrowers typically need 12 months of reserves covering all mortgage payments on properties they own.
Key Underwriting Considerations
Beyond borrower qualifications, the condotel building itself must meet lender criteria:
Hotel Management: The property must have professional management handling rentals, maintenance, and guest services.
HOA Financial Health: Lenders review association budgets, reserves, and pending litigation. Buildings with more than 10% of units in foreclosure may not qualify.
Rental Restrictions: Many condotel agreements limit personal use to specific days per year. Your clients need to understand these restrictions before purchasing.
Location: Some lenders restrict financing to specific states or regions based on their portfolio preferences.
Working with lenders who specialize in condotel financing simplifies this process. They understand building approval requirements and can quickly assess whether a property qualifies. LendSure, for example, offers expertise in condotel and non-warrantable condo loans with knowledgeable account executives who can help find solutions for your borrowers.
Benefits Your Clients Gain
Condotel ownership offers advantages that appeal to specific buyer profiles:
Rental Income Potential: Professional hotel management generates rental income when owners aren’t using their units. This income can offset ownership costs including mortgage payments, HOA fees, and property taxes.
Hands-Off Investment: Unlike traditional vacation rentals, owners don’t handle bookings, cleaning, maintenance, or guest communications. The hotel manages everything.
Amenities Access: Owners enjoy resort-style amenities without paying for exclusive ownership. Pools, fitness centers, restaurants, and concierge services are typically included.
Prime Locations: Condotels are built in high-demand vacation markets where standalone vacation homes may be prohibitively expensive.
Flexible Usage: Owners can use their units for personal vacations and generate income during unused periods.
Risks You Need to Communicate
Transparency about challenges builds trust and prevents buyer disappointment:
Higher Costs: Interest rates and down payment requirements exceed conventional mortgages. Monthly payments will be higher than comparable traditional properties.
Income Variability: Rental income fluctuates based on seasonality, occupancy rates, and market conditions. Buyers shouldn’t rely on projected income for qualification purposes.
Limited Personal Use: Hotel agreements typically restrict personal use to 30-60 days annually. Buyers wanting frequent access may be disappointed.
Elevated HOA Fees: Association fees cover extensive hotel services and amenities. These fees are often significantly higher than traditional condo associations.
Resale Considerations: Condotels have a smaller buyer pool than traditional vacation homes. This can extend time on market and potentially impact resale values.
Management Dependency: Investment success depends heavily on hotel management quality. Owners have limited control over operations, marketing, or guest experience.
Ideal Client Scenarios
Condotel financing works best for:
- Frequent Travelers: Buyers who vacation in the same destination regularly and want a consistent, familiar place to stay.
- Income-Focused Investors: Clients seeking rental income in vacation markets without landlord responsibilities.
- Secondary Market Buyers: People priced out of traditional vacation homes who still want property ownership in desirable locations.
- Turned-Down Applicants: Buyers who’ve been declined by traditional lenders due to building classification or rental structure.
Growing Your Business With Condotel Loans
Adding condotel financing to your offerings creates several business advantages:
- Market Differentiation: Most brokers avoid these deals. Specialization makes you the go-to expert in your market.
- Referral Relationships: Real estate agents working in vacation markets need brokers who understand non-warrantable financing. These relationships generate consistent referrals.
- Repeat Business Opportunities: Condotel buyers often refinance when rates improve or purchase additional investment properties.
- Geographic Expansion: If you’re near vacation destinations, condotel expertise lets you serve an underserved market segment.
LendSure’s Condotel Loan Program
LendSure offers specialized condotel financing designed for broker success:
- Purchase loans up to 75% LTV
- Investment property and second home options
- Bank statement income calculation for self-employed borrowers
- Refinance options including rate-and-term and cash-out
- Quick pre-qualification turnaround
- Dedicated account executives experienced in non-warrantable financing
Making Condotel Loans Part of Your Practice
Condotel loans represent a specific financing niche, but the opportunity is substantial. As vacation rental demand grows and more buyers seek income-generating properties, brokers who understand specialized financing options will capture deals others can’t close.
The key is education. Learn the products, understand the underwriting differences, and partner with lenders who specialize in this space. When you can confidently guide clients through condotel financing, you provide value that sets you apart from competitors who only offer conventional products.
The LendSure Way
It’s simple. We make loans that make sense. We’re not in-the-box lenders. Of course, there are numbers, ratios, and data to consider, but we know that behind every file, there’s an individual with a unique circumstance seeking a loan. We work hard to offer our common-sense take on lending to borrowers seeking funding for the home of their dreams, another addition to their investment property portfolio, or refinancing of a currently owned property.
Are you ready to benefit from a common-sense approach to lending? Contact us today to learn more about our Condotels Loan and how partnering with LendSure Mortgage Corp. can help grow your bottom line.
