Investing in condotels—hybrid properties that combine condominium ownership with hotel-style amenities—has become an increasingly attractive option for real estate investors seeking short-term rental income in popular vacation destinations. However, financing condotels can be notoriously difficult through conventional lending channels due to their unique ownership structure and perceived risk. That’s where DSCR loans come into play.
A Debt Service Coverage Ratio (DSCR) loan offers a flexible, income-based financing solution ideal for condotel properties. In this guide, we’ll explore how DSCR loans work for condotel investments, the benefits they offer, key lender requirements, and how investors can qualify.
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A condotel (condo-hotel) is a residential condominium unit located within a hotel or resort property. Owners can use the unit personally or rent it out as a short-term rental, often through the building’s in-house management company or a platform like Airbnb or Vrbo.
Because of these characteristics, many condotels are considered non-warrantable, meaning they don’t qualify for financing through Fannie Mae or Freddie Mac. Traditional lenders often avoid them entirely, leaving investors to seek alternative options—like DSCR loans.
A DSCR loan is a type of non-QM (non-qualified mortgage) used primarily for investment properties. Instead of evaluating the borrower’s personal income, lenders use the property’s cash flow to determine eligibility.
DSCR = Net Operating Income (NOI) / Annual Debt Service
If a condotel generates $45,000 annually in net operating income and the mortgage payments total $36,000 per year:
DSCR = $45,000 ÷ $36,000 = 1.25
Most DSCR lenders require a minimum DSCR of 1.20 to 1.25 for approval.
Condotel financing is often limited or unavailable from conventional banks because these properties are viewed as:
This makes DSCR loans one of the few viable options for financing condotel purchases or refinancing existing loans.
| Loan Feature | Typical Range |
|---|---|
| Minimum DSCR | 1.20 – 1.30 |
| Maximum LTV | 65% – 75% (lower for newer or high-risk properties) |
| Credit Score Requirement | 660+ (700+ preferred) |
| Loan Amount | $100,000 – $2,000,000+ |
| Loan Term Options | 30-year fixed, 5/6 ARM, interest-only available |
| Ownership Type | LLC, Corporation, LP, Individual |
| Prepayment Penalty | Yes (3–5 year step-down or flat penalty) |
| Reserve Requirements | 6–12 months of PITIA |
Note: Some lenders may impose stricter terms for condotel properties due to perceived risk. Shopping multiple DSCR lenders is recommended.
While DSCR loans don’t require personal income documentation, they do require strong property performance. Lenders focus on the cash flow potential of the unit, which can be determined using:
Some lenders may require a minimum rental history (e.g., 6–12 months) or allow pro forma projections based on market data if the unit is newly purchased or rehabbed.
Condotels are often found in high-tourism areas where short-term rentals thrive:
Before purchasing, ensure the HOA allows short-term rentals and there are no legal restrictions on nightly occupancy.
Use a DSCR loan to purchase a condotel unit in a high-demand tourist market with stable STR performance.
If you acquired a condotel property with a short-term or high-interest loan, a DSCR refinance can offer better terms and long-term stability.
Tap into the value of a well-performing condotel by refinancing and using equity to invest in additional properties or renovate your unit.
Condotels represent a unique but profitable investment opportunity for real estate investors targeting the short-term rental market. While traditional lenders often shy away from these assets, DSCR loans offer a practical and flexible solution, enabling you to finance condotels based on the property’s cash flow—not your personal income.
Whether you’re buying your first condotel in a beachfront resort or refinancing a high-performing unit in a tourist hotspot, DSCR loans can help you turn short-term rental demand into long-term real estate wealth.
Sponsored Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
