What is a Condo-tel Property?
Financing a condo-tel purchase can be challenging, but I have an excellent option that can to to 80% loan-to-value!
Many buyers in Vail buy their property intending to generate some cash flow by short terming the property out when they are not here. Some properties have front desks and operate as full-blown hotels, providing maid service and other hotel-like services. These properties are viewed by lenders as condo-tels, meaning condominiums that operate like a hotel.
In other cases, owners either make their own rental and management arrangements through a management company, or go it on their own via sites like VRBO.com (which stands for vacation rental by owner, and I understand was started by a guy over in Breckenridge).
Condo-tel Property Considerations
Fannie Mae and Freddie Mac, which fund the majority of the mortgages in the US, do not lend on Condo-tel properties because their Federal Charters do not allow it. They were formed to help finance owner-occupied and second homes, and using tax payer backed funds for a resort hotel-like property is not what Congress intended when the companies were chartered.
While properties such as the Charter in Beaver Creek or the Lodge at Vail are obvious condo-tel properties, if a lender plans to sell a loan to Fannie or Freddie he has to make very sure the property is not going to be deemed a condo-tel after the loan is closed. This means that lenders must make considerable inquiries to the HOA and research the property online to see if there is short-term rental activity in the building. Lenders do this many ways, they may google the address to see if a rental listing pops up, call a local management company to see if they can book a stay there, or search sites such as vrbo.com to try and find a unit for rent in the building.
This has resulted in many local condo complexes being deemed off-limits for Fannie mae or Freddie mac loans. When this happens, owners and buyers will have to get what is known as a portfolio loan (one that is not sold to Fannie or Freddie).
Who Offers Condo-tel Property Financing?
The first problem is there are very few lenders that want to hold a loan on their books for the next thirty years, and if they do they can’t realistically lock a rate in for 30-years because they don’t have access to raising money to lend via selling an investor a 30-yr fixed-rate bond. In many cases, they are lending depositors money out, or money they borrowed for shorter terms by leveraging their assets with the Federal Reserve Bank.
In addition, these loans do not have a backstop of a mortgage insurance company or the Federal Govt. If the bank takes a bath, they lose their own money. Not surprisingly, the above issues actually make banks more cautious about what they loan, for how much, how long, and to whom.
While most lenders require a minimum of 25% down, my company has an option to offer with as little as 20% down payment. That program is surprisingly affordable (rates change often, so please reach out for a quote on your specific situation) and is fixed for 5/years with a 30-year term. It adjusts annually after the initial fixed period. We do have longer fixed rate terms but the rate will be higher than the adjustable program. This is the only 20% down condo-tel program we have made available for many years.
How Can I Get a Quote for Condo-tel Property Financing?
Call me at 970-748-0342 to discuss your requirements, or click contact us!
I serve all the mountain resort communities including Vail, Avon, Beaver Creek, Eagle, Gypsum, Steamboat, Aspen, and the Summit County communities including Breckenridge.