Residential Magazine

Take Advantage of the Best of Both Worlds

Condotels blend luxury and convenience for those who can overcome the financing challenges

By Max Slyusarchuk

Living in a hotel with a pool, gym, restaurant and room service while having an opportunity to effortlessly rent out your fully serviced accommodation is a coveted dream for many real estate investors. Developers and hospitality companies have been trying to make this dream a reality.

The result is a relatively new breed of real estate: condo hotels or condotels — an incredibly lucrative business opportunity for investors and developers alike. What is a condotel and how does it differ from the traditional condominium?

“Navigating the intricacies of condotel financing requires a strategic approach that includes consideration of different financing options, property locations, management companies and local laws.”

When it comes to real estate investments, two of the most popular options that come to mind today are condos and condotels. While each offer attractive investment opportunities and give owners the freedom to live in a unit or rent it out, there are important differences for mortgage originators to understand before delving into the world of condotel financing.

Unique characteristics

A condotel is essentially a condominium that operates as a hotel. It is typically a five-star complex with hotel-specific infrastructure such as restaurants, bars, spas, beauty salons, swimming pools and conference rooms. Like hotels, condotels are managed by an operator, but some if not all units are owned by individuals rather than the management company.

Investors do not buy blocks of shares but separate units — studios or apartments with several rooms and a kitchen, which can be used as temporary accommodations or rented out. Condotels are often operated by qualified managers under a single brand — including chains like Four Seasons, Hyatt and Hilton.

In addition to owning their units, condotel owners benefit from the provision of hotel services such as housekeeping, maintenance and rental management. In a condominium building, on the other hand, the unit owners collectively manage the property through a homeowners association.

Since condominiums are viewed as residential properties, they can be financed more easily with traditional mortgages. Financing a condotel, however, is more challenging because lenders often classify them as commercial properties. This requires an alternative option such as a commercial loan or special-purpose program.

Owners of condotel units are subject to restrictions on how long they can reside in the complex. The management contract specifies the amount of time the owner may stay at the property. This is usually about four weeks per year. The rest of the time, the units are rented out.

Preferred destinations

Combining the features of a hotel and a condominium, condotels have become a preferred option among people who seek a hotel-like experience along with the comfort and privacy of a home. The first condotels appeared in Miami in the 1980s.

Condotel owners can benefit from excellent rental yields as well as capital appreciation. Because condotels are often found in prime tourist destinations, such as beachfront or downtown areas, these desirable locations tend to experience high demand, which can drive up property values over time. Furthermore, condotels offer a hassle-free investment option for those wishing to enter the real estate market without taking on property management responsibilities.

For a private investor, buying a condotel unit is generally a low-risk investment. These types of properties tend to be high quality and in high demand. Often, all of the apartments are sold out before the construction of the building is complete. The hospitality chain that owns the condotel controls compliance with all standards during construction, and it ensures that all necessary documents are certified by legal and financial organizations.

Financing intricacies

Condotel loans function similarly to traditional mortgages, but there are a few key differences to consider. Lenders evaluate the property’s financial performance, occupancy rates and the management company’s track record before approving a loan.

Borrowers may need to meet specific requirements such as higher credit scores and downpayments (20% to 30% of the purchase price). This is due to perceived risks associated with condotel investments. Condotel borrowers may face higher interest rates or different terms and conditions (e.g., a condotel unit must be managed by an approved hotel management company).

When it comes to choosing the right type of loan for condotel financing, borrowers have several options, but nonqualified mortgages (non-QM) provide the most options and flexibility. Non-QM loans cannot be purchased by the government-sponsored enterprises or federal agencies.

One popular non-QM choice is the debt-service-coverage ratio (DSCR) loan. With these programs, lenders evaluate the property’s income potential to determine the borrower’s ability to repay the loan. This is particularly beneficial for condotel buyers who intend to generate rental income from their property.

Another option is the bank-statement loan program. This allows borrowers to qualify for a mortgage by using their bank statements as proof of income, making it ideal for self-employed individuals or those with unconventional sources of income. This flexibility can be especially helpful for condotel buyers who may have unique financial situations.

Profit-and-loss mortgages can also be advantageous for condotel financing, especially for individuals with diverse income streams. These loans are designed for borrowers who own a business or multiple investment properties. Lenders analyze the borrower’s profit-and-loss statements to determine their income stability and ability to repay the loan.

Industry network

While condotel loans offer a range of benefits, they also come with their fair share of challenges. One of the primary challenges is finding a lender that specializes in condotel financing.

Unlike conventional financing, condotel loans have limited availability in the mortgage market. Mortgage brokers with a strong industry network can help clients identify lenders that specialize in this niche market and effectively navigate the complex landscape.

Condotel loans often carry higher risks for lenders compared to conventional residential mortgages. As a result, lenders tend to impose stricter requirements and be more cautious when underwriting these loans. Determining the value of a condotel can also be challenging due to the property’s dual nature as a residential unit and a commercial establishment.

Accurate appraisals must consider rental-income potential, projected occupancy rates and revenue streams. Mortgage brokers should work with experienced appraisers who are authorized to evaluate condotel properties, enabling borrowers to obtain a fair and accurate appraisal that is essential for loan approval.

Condotel financing requires an understanding of the unique business model underlying these properties. This includes analysis of the revenue potential, vacancy rates, resort management fees and the overall success of the property’s rental program. Prior experience and knowledge in this area is instrumental in securing favorable financing terms.

Thorough research

Navigating the intricacies of condotel financing requires a strategic approach that includes consideration of different financing options, property locations, management companies and local laws. The various non-QM financing options available should be thoroughly researched and evaluated.

It should be noted that different lenders will have specific criteria for financing condotel properties. By considering various options, you can identify lenders that specialize in condotel financing and are willing to work with such buyers.

Condotels located in popular tourist destinations, business centers, transportation hubs or areas experiencing rapid construction activity are more likely to attract buyers and vacationers, thereby generating higher returns. Lenders consider the investment potential of the property when determining the financing terms and conditions. Locations with a stable and growing real estate market should also be considered. This reduces the risk of property depreciation and loan default.

Efficient property management is essential for maximizing returns on condotel investments. Strong property management ensures proper maintenance, marketing and guest services, leading to higher occupancy rates and increased rental income.

Condotels, with their unique characteristics, may be subject to specific legal considerations. These include zoning and land-use regulations, licenses and permits, tax and insurance implications, and condo association rules such as restrictions on rentals or operational limitations. They may also include requirements related to various aspects of the financing process, such as downpayments or interest rates. Since all of these regulations and requirements can vary from one jurisdiction to another, it’s important to know the local laws.


As the real estate landscape continues to evolve, the condotel phenomenon offers a unique blend of luxury, convenience and profitability. For those willing to embrace the challenges and complexities, condotels can open the door to a new and lucrative dimension of real estate investing.

With the right knowledge and a strategic approach, mortgage brokers can turn their clients’ dreams of owning a fully serviced accommodation with the potential for high rental yields into a reality. Equip your clients with the information and strategies outlined here to help them embark on a journey that could redefine their real estate portfolio and financial future. ●


  • Max Slyusarchuk

    Max Slyusarchuk is co-founder of Imperial Fund and a founder and CEO of A&D Mortgage. He is also a shareholder and vice chairman of the board of Home Federal Bank of Hollywood. Slyusarchuk is responsible for the day-to-day activities, strategic planning, business development and building relationships with key partners. He has experience in both private equity investments and portfolio management for institutional and private sector clients in Eastern Europe and the U.S. Reach Slyusarchuk at (305) 760-7000.

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