The surge in the housing market has driven up home prices, leading many to consider condos as a viable alternative to single-family homes. Concurrently, with the resurgence of travel post-COVID and a thriving economy, Americans are investing significantly in beach retreats, ski trips, and visits to theme parks. According to a 2023 survey conducted by the Federal Reserve Bank of New York, nearly one-third, or 32.8%, of all U.S. households embarked on a vacation between May and August.
These trends have led to the rise of condotels, an increasingly popular property structure in vacation destinations. Condotels are a hybrid property type that combines the features of condominiums and hotels, occupying a sweet spot in the U.S. economy. A condotel is legally structured as a traditional condominium; individual unit owners own the apartments. Operationally, the properties function as a hotel with nightly occupancy rates.
Investor interest in these properties has outpaced lenders’ willingness to finance them, so only mortgage professionals who understand this market can build a lucrative niche.
How Do Condotels Work?
A condotel, or condo-hotel, is typically located in a tourist market or area. The owner might occupy the unit for a few weeks or months each year. The rest of the time, the apartment generates income by operating as a hotel room.
Investors are attracted to condotel units in part because they promise potential appreciation. What’s more, the units generate income. Because condotels are designed to include hotel-style amenities and a staff working the front desk and cleaning the rooms, acting as a landlord is typically easier. In general, the unit owner doesn’t need to market the property on a vacation rental site. The hotel operator handles all those details, making the unit a passive investment for the owner.
For a condotel owner, the arrangement gives the best of both worlds – a prime spot to vacation a couple of weeks each year, plus rental income that covers the costs of ownership.
Challenges Of Getting Condotel Loans
Mainstream lenders have long been skeptical of condotels, and the catastrophic collapse of an oceanfront condo near Miami in 2021 led the agencies to further clamp down on condo lending.
For buyers of condotel units, the underwriting guidelines make it all but impossible to get an agency loan. At LendSure, we saw an opportunity in the condotel market, and applied the common-sense approach that’s our hallmark. While the agencies refuse to make loans on these properties, we see a risk we can manage. Condotel buildings are generally new and well-maintained, and unit owners have strong financials and generate solid rental income.
How Can Loan Officers Take Advantage Of Condotel Loans?
You’ve probably noticed that Americans are moving around the country again. That trend is appealing to condo buyers – they like the idea of having a getaway – and they also want to tap into the revenue streams being generated by travelers. However, the enthusiasm from potential investors faces a hurdle: the tightening regulations imposed by traditional mortgage lenders on condo mortgages.
To navigate this challenge, loan officers can adopt several strategies to leverage the condotel loan demand effectively:
1. Risk Mitigation: Develop robust risk mitigation strategies, including thorough property evaluations and stringent eligibility criteria.
2. Educational Outreach: Proactively educate buyers about condotel financing intricacies, dispelling misconceptions to alleviate lender concerns. Take a look at our non-QM blog page to get more insights on condotel lending.
3. Collaboration with Real Estate Professionals: Forge strong partnerships with condotel-specialized real estate professionals for market insights and tailored financial solutions.
4. Market Awareness: Stay informed about condotel market trends, conducting regular analyses to identify and leverage emerging opportunities.
5. Tailored Financing Solutions: Craft customized financing solutions tailored to address the unique challenges associated with condotels. By collaborating with LendSure, you gain access to practical Non-QM loan solutions that ensure your condotel buyers secure the necessary funding and successfully navigate these challenges.
Our knowledgeable Account Executives are experts in condotel and non-warrantable condo loans and can help you find solutions for your borrowers so you can close more deals each month.
The LendSure Way
It’s simple. We make loans that make sense. We’re not in-the-box lenders. Of course, there are numbers ratios, and data to consider, but we know that behind every file, there’s an individual with a unique circumstance seeking a loan. We work hard to offer our common-sense take on lending to borrowers seeking funding for the home of their dreams, another addition to their investment property portfolio, or refinancing of a currently-owned property.
Are you ready to benefit from a commonsense approach to lending? Contact us today to learn more about non-QM loans and how partnering with LendSure Mortgage Corp. can help grow your bottom line.
