Condotel at 10% APR??

Question

So I was wondering what the reasoning was behind such a high interest rate on condos?  10% is super high.  Anyone have any insight?

Myrtle Mike Thompson · Answer

@Mike Dawson if you're looking to purchase in an area where condotels are prevalent, see if any of the smaller local lenders offer an in-house portfolio loan option.  Here in the Myrtle Beach market I've developed relationships with several community banks that are adept at handling our oceanfront properties, the majority of which are classified as condotels.  Their rates are below 10%, though still higher than conventional financing due to the added risk - as others have mentioned.

Jonathan Taylor · Answer

@Mike Dawson please include the details on your transaction. Condotel is shorthand for a condominium complex that is used mostly for short term rentals or rented out and not occupied by owners. Depends on HOA but usually more than 50% of the units are rented out. Also, high rise condos have a lesser LTV as they are deeming higher risk.

Next is warrantability. If the condo isn't warrantable, LTVs are limited to about 65. Next is what you are doing with the condotel, living in it, renting is Short term, long term, etc. Lastly is your qualifying info. Lower FICO, minimal experience, less than 20% down payment have higher rates so considering, 10% is on the market if some of the above factors are deemed riskier.

Luke Carl · Answer

Non warrantable.

Jay Hurst · Answer

@Mike Dawson  You mention Condotel if you title, but then call it a condo in the post. If it is a Condotel, they are NOT eligible for conventional financing (which means Fannie/Freddie do NOT allow) and most non-conventional programs do not allow for condotel's either. So, when a property type is risky enough that most available programs will  not lend on it, the rate is going to get high.

Tyler Solomon · Answer

Just going to echo what Jonathan has mentioned here

Ray J. · Answer

@Mike Dawson I would suggest you shop around for local lenders in the area as that seems quite high. I just closed on a condotel as an investment with my fiance and our rate was much much lower than that!

Keep in mind it will depend on a lot of factors such as credit score, income, DTI (debt to income), but it is worth trying a few lenders to grab the best option.

Not sure where you are looking to purchase, but DM and Id be happy to share who I used.

Jonathan Taylor · Answer

If you are using a conventional loan (tax returns, DTI, income verification) then that is high, but for investment loan, that isn't outside what I am seeing in the market. Its always good to shop so you know what other options you have.

Michael Baum · Answer

I think @Jay Hurst hit the nail on the head. You said Condotel which are notoriously hard to get financed unless they offer in house.

Of course @Luke Carl is correct as well.

Dave Skow · Answer

@Mike Dawson- there are LLPA ( loan level pricing  adj )  for   1) property being a rental  2) loan to  value  3) property being a condo  4) possibly for the  condo tel aspect  ..... all these  lead to  rate/ term  pricing being  higher ...many lenders  wont  lend on condo tels ......the lenders  able to  lend on  condotels  will  likely price their loans  high as  they have a  bit of a captive  market  ....I  would  recommend  trying to  find the lenders  that have  made loans in the  subject complex and  contract these  lenders for options

Condotel at 10% APR??

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