Condotel Financing 101: Can you Get a Loan on a Condotel?

Yes, you can get financing on a condotel, but most lenders won't provide it. Fannie Mae won't buy loans on units in a project run as a hotel, so any lender that sells its loans to Fannie Mae declines the deal. Total Quality Lending funds condotels and non-warrantable condos, and runs the numbers at no cost before you commit.

What Is a Condotel?

A condotel is an individually owned condo unit inside a building that operates as a hotel. You hold title to the unit. In most projects, you place it in the hotel's rental program, the hotel books guests and handles housekeeping, and the rental income gets split between you and the operator.

That arrangement is the appeal. We do the homework, and the hotel does the operating. For an investor with a full career who wants a short-term rental without a second job, a condotel removes the parts of hosting that eat evenings and weekends.

It's also the reason financing gets hard.

Why Most Lenders Won't Finance a Condotel

The answer sits in one section of the Fannie Mae Selling Guide. Section B4-2.1-03, Ineligible Projects, lists the condo projects Fannie Mae won't buy loans against, and projects managed and operated as a hotel or motel are on it even when the units are individually owned. The same section also flags projects marketed as a hotel, resort or investment opportunity, and projects that carry a hotel or resort rating from booking sites or travel agencies.

Many lenders sell the loans they make. If Fannie Mae won't buy the loan, a lender built on selling to Fannie Mae has no reason to make it, so the answer is no before anyone looks at the property's income.

A condo in a project that falls outside these standards is called non-warrantable. Condotels are the most common example, but the same label applies to other projects that miss the guidelines for reasons that have nothing to do with the unit you want to buy.

Can You Get Condotel Financing at Total Quality Lending?

Yes. Condotels and non-warrantable condos, funded.

Total Quality Lending is a direct lender with its own underwriters, and we don't need a condotel to fit a box built for a standard condo. That changes the order of the conversation. Instead of finding out at underwriting that the project is ineligible, you start with the structure, and the property's numbers decide whether the deal makes sense.

We fund what others fear because those are the deals where an investor most needs a lender that looks at the actual property. A condotel in a strong market with a well-run rental program can be a solid asset. The fact that it's hard to finance tells you about the secondary mortgage market, not about the unit.

Total Quality Lending can also close the loan with title held in your limited liability company (LLC), where many lenders make you take title personally and transfer it later. Talk to your attorney and CPA about whether an entity fits your situation.

Condotel as a Second Home or an Investment Property?

How you plan to use the unit matters as much as the building does.

At Total Quality Lending, a second home has to stay under your exclusive control. If a rental pool or a management firm controls when the unit is occupied, it can't be financed as a second home. Most condotel rental programs work exactly that way, so if you're buying into one, plan to finance the unit as an investment property.

That's worth settling before you write an offer. A buyer who expects to finance a condotel as a vacation home and learns otherwise late in the process loses time, and sometimes the deal.

What to Read Before You Buy a Condotel

The rental program agreement drives your return more than the purchase price does. Read it before you commit, and look for these things.

The income split. What share of room revenue goes to you and what share the operator keeps. A unit that books well can still cash flow poorly if the split favors the hotel.

Fees and charges. Management fees, housekeeping charges, reservation fees and furnishing requirements all come out of your side of the split. Add them up.

Owner-use rules. How often you can stay in your own unit, how far ahead you have to book it, and whether owner nights cost you rental income.

Your exit. Whether you can leave the rental program, and what happens to your unit's value and income if you do.

Association costs. Condo association dues and any special assessments come on top of the operator's fees, and they're part of your monthly cost whether the unit books or not.

None of this shows up in a listing. All of it shows up in your cash flow.

Run the Numbers Before You Write an Offer

Total Quality Lending runs cash-flow and rental projections, plus DSCR and ROI modeling, at no cost as part of a free deal analysis. On a condotel, that means modeling your share of the income after the operator's split and fees, not the gross room revenue the sales sheet shows.

Some condotels don't work once the hotel takes its share. We'll tell you when that's the case, the same way we'd tell you when one does. Real numbers, honest options, and the deals we would decline.

Income pays for your life. Assets change your family's trajectory. If you're looking at a condotel, call Total Quality Lending at (800) 304-1925 and bring the rental program agreement with you.