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
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Florida Mortgage Loans | Condo-Hotel/Condotel Financing Explained

Condo Hotels or Condotels are a popular property type in Florida, especially in hot tourist areas like West Palm Beach, Fort Lauderdale, Orlando, Tampa and Miami. With access to beaches, golf and other tourist attractions, Condo Hotel properties are a great way to purchase a vacation home with the benefits of ownership and the conveniences and amenities of a hotel room.

Condo Hotels have recently become more accepted by lenders who are now offering loans with as little as 10% down. Residency in these units is typically taken as either a Second/Vacation Home or an Investment for loan purposes. Some Lenders allow limited Primary Residence loans on these properties.

Foreign Nationals are common investors into these units in Florida as they typically purchase in vacation/resort areas.

A favorite feature of Condo Hotels for their owners is the rental pool and built in management. While not in use, the hotel can rent the units out and maintain them with housekeeping services on a nightly, weekly or monthly rental. While the rents will not count towards mortgage qualifications, this is a perk of ownership that most people do not overlook.

Lenders often look for specific criteria to be met such as:

• Minimum of 600 square feet
• In proximity to vacation/resort area
• Separate Kitchen Space, Bathroom and Living Area/Bedroom
• Kitchen to be equipped for food preparation
• Voluntary rental pools

Some Examples of some great South Florida Condo Hotels are:

The Brazilian Court in Palm Beach Florida just off world renown Worth Avenue shopping. This is a quaint historic building complete with the five-star hotel amenities you would expect to find on Palm Beach Island including an amazing spa and a gourmet restaurant owned by five-star Chef Daniel Boulud.

Trump Las Olas Beach Resort - a 12 story Condo Hotel Project with 95 residences in a boutique setting set in the exciting Las Olas area of downtown Fort Lauderdale Florida. Located on a barrier island, on Sea Breeze Blvd between the Atlantic Ocean and the Intracoastal Waterways.

Trump International Sonesta Beach Resort - Part of the Trump Grande project in Sunny Isles Beach, Florida, this project is a three phase project includes the condo hotel project designed by renowned Sieger Suarez Architectural Partnership.

Ocean Sands Resort and Spa - In Pompano Beach Florida, just South of Boca Raton, Florida. A great location with over 852 feet of beach frontage.

The Ritz-Carlton Golf Club & Spa - Located in Jupiter Florida, in the North part of Palm Beach County Florida, this property offers a members-only spa and a Jack Nicklaus Signature Golf Course. The floorplans offered are 2 & 4 bedroom Mediterranean Styled Club Homes.

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More Florida Mortgage and Real Estate News You Can Use From
David A. Podgursky, MBA
The Mortgage Go To Guy
Your Source for Residential, Commercial, Investment and Relocation Mortgages in Florida