7 Things You Need To Consider When Financing A Condo-Hotel Property

condohotel pic A condo hotel is a great way to own a luxurious vacation condo with the added benefit of rental income when you’re not using it. It has become a very popular option in resort destinations such as Las Vegas, Vail and the islands of Hawaii. For those who want to get involved in luxury real estate but would rather not incur the typical inconveniences of condo ownership, a condo hotel may be a perfect match. In essence, a buyer is purchasing a condo inside of a hotel with the ability to have the hotel operator rent out their room while not being used by the owner. The concept it not new; in fact in Hawaii, they have been building and converting properties for condotel use since Chinn Ho’s 1964 Ilikai development. We recommend that investors interested in the concept, pencil out the expected income and expenses to conclude whether or not a potential unit fits into their investing requirements. For buyers that simply want a luxurious vacation home, a condotel with the added benefit of rental income can be a win-win. Buyers in either circumstance should have a grasp of the challenges and pitfalls of condo hotel mortgage financing.

What follows is a list of the most important things to keep in mind during your condo-hotel purchase:

Condo hotel loans are not conforming loans. This simply means that Fannie Mae and Freddie Mac don’t buy these types of loans in the secondary market. Bottom line, condotel loans carry slightly higher rates and stricter qualification terms.
Condo hotel association dues generally cover the building itself and additionally include reserves for the replacement of furnishings and room repairs. These reserves are important because they impact the future expenses. As such, the association dues for a condotel are greater than with standard residential condos.
There are tax benefits for condo hotels above those of a traditional condo. Furniture, fixtures and equipment are included in the sales price and can be depreciated. Consult with your CPA.
Depending on your location, income can fluctuate depending on the season and condo hotel owners should budget accordingly. Certain types of condo-hotel loans can help you control your debt servicing cash flow. To learn these secret cash flow advantages and which loan products maximize your returns contact Jason Fox to become a client.
Condo hotels are mixed use properties, they are commercial and residential in nature. They can also be a second home or an investment property depending on your intended use. For most lenders, an individual can not have a second home in the same city where their primary residence is. Depending on your circumstances, savvy lenders such as Luxury Mortgage Group can consider your condotel a second home even if it’s located in the same city as your primary. Bottom line, don’t be bullied into an investor loan if your intended use is truly as a second home.
When you buy in a new condo-hotel project it may be difficult to judge your expected rental income. Thats because SEC rules restrict developers from discussing the potential income a condo hotel may or may not produce. To offset this void of data, you should do your own due diligence by analyzing the rent rolls of condotels already operating. In many resort cities, condotel owners clubs are sprouting up and are more than willing to share their data with you.
Condo hotel units produce rental income when you are not using them. Buyers generally consider this income as an offset to the expense of owning a second home but many lenders do not factor in this income! Utilizing a lender that does not properly structure and underwrite a condotel mortgage may impact your bottom line borrowing ability.

If you are ready to become a client or have questions, please contact:

Call Jason Fox / President
at (702) 444-0400 x1
Continue on to our 2 minute mortgage pre-approval form.
Or complete our full online mortgage application.

You can also view information on Condotel Mortgage Loans in Colorado.