Florida Mortgage Loans | Condo-Hotel/Condotel Rental Income Rules
Condo Hotels or Condotels continue to grow in popularity in Florida, especially in hot tourist areas like West Palm Beach, Fort Lauderdale, Orlando, Tampa, Bonita Springs and Miami. Because of this, it is important to keep in mind what Lenders are requiring in their lending guidelines concerning this unique property type.
One major issue that comes up with Condo Hotels is the rental pool. Part of the allure of the property is the ability to allow the hotel to rent the room out to guests while it is not being used by the owner.
Unfortunately, Lenders require that the rental pool be voluntary. Involuntary rental pools are to be classified as Timeshares.
What this means is that when the owner of the Condotel unit wants to rent out their unit, they must make sure they put the unit into the rental pool... it isn't automatically rented without their say so.
Considering issues like seasonality, major local events, and discount room rates/sales, there is no valid way to forecast the actual income that will be shared by the hotel and the room owner.
An owner that does not want to rent their Condo Hotel room at all has that option under a voluntary rental pool. While this might bother some hotel operations that want the room to rent, this is the only way that financing can be obtained.
The voluntary rental pool also affects the potential net income. A buyer cannot be promised $10,000 a year return on a property if they are only going to make it available for 6 months out of the years or only on weekdays.
Realtors (listing agents) and Developers are therefore strictly prohibited from advertising rates of return, cap rates or even offering investment advice concerning Condotels. Any potential rate of return could only be hypothetically based on an assumed usage rate that may never be reached.
Because of this, any rental income will not be counted as part of the qualification income for the Condo Hotel Loan. To the borrower, this means that their debt to income ratios will not benefit from any potential cash flows from the property.
Given this information, it is prudent that Realtors and Mortgage Brokers advise their clients who are interested in purchasing Condo Hotel properties that they will need to be able to qualify for this purchase on its own with all their other current debt.
If they are unable to meet the Lenders' Debt to Income Ratios with their current debts and current primary residence, then they will likely not qualify for a Condo Hotel Loan.
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David A. Podgursky, MBA
The Mortgage Go To Guy!!
Your Source for Residential, Commercial, Investment and Relocation Mortgages in Florida
2 comments:
David,
There is really excellent information here. All in your market should subscribe to your feed and read it.
We got here via a link in Colleen's AR post... and we'll be back.
Very good information about financing Condotel. There is more to take in to account then it would seem at first.
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