A condotel is a popular real estate investment, but not many people understand what exactly defines a condotel. The definition matters because the financing of a condotel is different from that of a simple condo. A condo complex will be deemed a condotel if ANY of the following statements are true about the property
- The predominant use of the units is short-term rentals.
- It is professionally managed by a hotel or resort management company.
- It has a legal or common name that contains the word hotel, motel, or resort; unless the use of the term is historical in nature.
- It has online ratings through hotel ratings providers including, but not limited to, travel agencies, hotel booking websites (ie. TripAdvisor.com or Experian), and internet search engines.
- It is subject to rental-pooling, revenue, profit or commission sharing agreements with an HOA or management company, or similar agreements that restrict the unit owner’s ability to occupy the unit, such as blackout dates and occupancy limits to assure an inventory of units for rent on a frequent basis.
Unfortunately, many realtors and sellers are not aware of these definitions and may think a complex is a non-warrantable condo. This is important to note because some lenders may make a loan on non-warrantable condo but will NOT lend on condotels. The issue is that often lenders who do not make condotel loans will get weeks down the road before understanding that they cannot make a loan on the property. This of course is very inconvenient but can also jeopardize the transaction from closing at all. It is very important to work with a lender who works with and understands condotel financing.
At Hurst Lending, we have the resources to loan on regular (warrantable) condos, non-warrantable condos, AND condotels. We also pre-screen condos to the best of our ability to establish our best estimate as to what type of condo it is, and pair you up with the most appropriate loan program for your situation.
Hurst Lending’s pre-screening process is vitally important. Big box lenders that you see on TV will often not fund the purchase of a condotel. Oftentimes their representatives hear the word “condo” and their immediate response is to tell the customer that they can lend on that property. Then, about three weeks into the contract period, they receive information from the condo’s HOA that moves the loan into the condotel bucket. That change in designation then prompts a call to the buyer saying that they are truly sorry, but they cannot lend on the condo, even though they are already weeks into the process. This is when Hurst Lending usually receives a call from customers who are scrambling to find a solution. In this scenario, Hurst often suggests having a conversation with the buyer’s real estate agent to discuss extending the closing date to account for switching lenders and the need to start over on many of the processes that come along with switching. This entire process wastes weeks of the buyers time and can be easily avoided if the buyer/borrow came to Hurst for condotel financing to start.
Hurst Lending Can Help!
Hurst Lending e has the solutions you need when financing the purchase of your new condo. The condo lending market is very dynamic. As the economy and lending markets change, so does the availability of condo lending options, this is especially true for non-warrantable and condotel options. At Hurst Lending, we keep up with these changing market conditions and maintain relationships with many wholesale lenders to ensure that we always have a full suite of options for you, our valued clients.
For example, there have been several wholesale lenders that stopped lending on condotels when recent economic conditions caused interest rates to rise rapidly over just a few months. Even as lenders were dropping out of condotel lending, Hurst continued to add to our list of lenders to make sure we have you covered.
These are turbulent times. At Hurst Lending, our goal is to smooth the waters as you navigate through your condo purchase. Visit www.condotel-loan.com to learn more.