Did you know that 90% or more of the oceanfront condos in the Myrtle
Beach area are not hotel rooms, they are privately owned condos? It’s
true. Doesn’t matter if they are newly built within the last several
years or resorts dating from the 1970s most of them aren’t hotel
rooms in the sense that a hotel owns them.
To the average person renting one for a vacation this doesn’t really
matter very much. As far as they’re concerned a room is a room. It
does matter to people who want to purchase one for their use or as an
investment. Why? Because banks who lend the money to buy them
have a special term for these places: Condo-tels.
A condo-tel is a condominium building (usually oceanfront in the
building has certain characteristics not found in other condominium
buildings. Some golf course condo communities also fit this
description. These characteristics include:
• A front desk for rental guests to check in.
• Housekeeping service for the rooms.
• Restaurants and bars.
Hotels offer the same things. If these features are on-premise the
building will almost always be labeled by banks and mortgage lenders
as a condo-tel. Why does this matter to buyers?
Because mortgage lenders don’t like to lend on these properties these
days. Back during the big real estate boom the lenders were more
than happy to lend huge amounts for these units. The incentive for
the buyer was to buy the unit, take out multiple mortgages on the
property (often up to 120% of the value of the unit) and then flip it to
someone else. The new buyer paid up to cover the mortgages, pay
the seller a tidy profit and then hoped to do the same thing
themselves. And so it went for several years.
This speculation in real estate is one the main reasons for the big run-up in prices here. When
the good times came to an end and the owners left holding the bag (or
mortgages. Immediately the lending market for condo-tels collapsed.
So now very few lenders will take a mortgage on oceanfront condo-
tels. If you’re in the market to buy an oceanfront unit (whether you
intend to rent it or not) you will be hard-pressed to find a lender to act
on it.
Lenders that will lend on condo-tels will usually require the following:
• A minimum of 20% cash down payment from the buyer. This is
a minimum; don’t be surprised if you’re asked to put up to 50%
down. Banks want to make sure you aren’t going to walk away
from the mortgage commitment in the future.
• Excellent credit. No getting around it.
• Provable income. The days of ‘stated income’ loans are over for
most people. Some lenders will still do this but usually only for a
borrower with substantial assets that can be seen and is an
existing client of the bank.
Each lender has specific requirements but these are a good rule of
thumb. Also, don’t be surprised if the loan is denied even if you meet
all of the guidelines at the beginning. Quite often banks kill deals in
underwriting because they have a general uneasy feeling, even if you
and the property meet all of their guidelines. They’ll delay until your
purchase contract expires, ask for review appraisals, demand more
money down, etc. I’ve seen more than one deal fall apart just before
closing because the bank didn’t want to make the loan and found a
way out.
Your best bet for buying a condo-tel is to pay cash. If you’re paying
cash and can close quickly you’ll get a better deal from the seller. If
you can’t pay cash have everything the bank wants up front and get a
letter of pre-approval before making any offer on the property. Don’t
accept a letter of pre-qualification. Only accept a letter of pre-
approval that demonstrates your loan request has been fully
underwritten and is subject only to the specific property.
And, most important, use an experienced Realtor. A Realtor who is
representing you will have your best interest in mind and can help
keep the deal together and get you the property of your dreams.
