When is a condo not condo? When it's a condo-tel!!

Did you know that 90% or more of the oceanfront rooms in the Myrtle Beach area are not hotel rooms? In fact they're privately owned condominiums. From the older buildings dating from 70s to newly constructed high-rises.

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 Myrtle Beach area) in which the condos are individually owned and the building has certain characteristics not found in other oceanfront resort 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 room/condos.

• Restaurants and bars.

Hotels offer these as well. If these features are on-premise the building will almost always be labeled by banks and mortgage lenders as a condo-tel. Why should 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 of 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 mortgage) couldn't flip them they began to walk away from their 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 actually use it yourself as a vacation home) you will be hard-pressed to find a lender to act on it.

A few lenders are still doing business on condo-tels though. Lenders that 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 don't 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 still offer these loans 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. Banks will 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 lender 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 a review by the bank of the specific property you want to buy.

Finally, and most important, work with an experienced Realtor. A Realtor representing you will have your best interests in mind and can help keep the deal together and get you the property of your dreams. If you would like to know more about condo-tels or owning property in the Myrtle Beach area feel free to contact me. Now, where is the sunblock and that Pina Colada?

Real estate property taxes in Myrtle Beach

Curious about how property taxes are determined in Myrtle Beach? It's a pretty simple formula now, but many people find it unfair. I'll show you the formula below.

In 2006 the South Carolina legislature changed the procedure for property tax calculation. Why? Because the run-up in the real estate market caused many people's property tax bills to increase dramatically. Of course, these folks were very happy that the value of their property had risen so much. But, as people are wont to do, they complained about paying more taxes on the increases. Everyone wants to go to heaven, but no one wants to die.

So, the legislature, doing what politicians do best, heeded the call and changed the property tax formula to accommodate the property owners. The property tax system was changed to 'point-of-sale' assessment in lieu of periodic reassessements. Now instead of paying the same tax as the previous owner until the next reassessment property buyers pay a totally different property tax than their neighbors who own similar or even identical property. Another aspect of the tax revision is that more weight has been given to getting money for the state to operate from sales taxes.

South Carolina has such a strong tourist industry, why not let visitors pay for the state's expenses? The Legislature decided to tax the folks who have no representation here in addition to the residents who buy the bread. By the way, here's a little pearl of political favoritism most people don't think about. Many years ago, at the request of the automobile dealers in the state, the Legislature capped the sales tax on vehicles at $300. So if you buy a Kia for $17,000 the max you pay is $300. Of course, if you buy a $80,000 Mercedes the max you pay is..... that's right. $300!! I think this is what's called a 'regressive tax'. The wealthy, presumably the ones buying the Mercedes, pay proportionally less in this tax than others. The wisdom of the idea of depending on the whims of consumers is debatable but one thing isn't. When sales volume decreases so does the tax revenue. Voila- budget shortfalls like the ones we're experiencing now. State budget cuts of up to 20%. Don't forget the schools. With so many people moving here with school aged children the need for schools and teachers and all the services they require is not declining. But, the legislature stripped the local school boards of the authority to levy tax millage to meet their needs. So, where do we go from here?

The Legislature made an attempt to amend or modify the property tax policy recently but was unable to. Hopes are high that 2009 will produce a fair and sound property tax policy for the state's residents. We'll see.

Here's the formula to estimate property tax bills when buying real property in SC. Multiply the sales price of the property by your assessment ratio (ie resident @ .04% or second/vacation/investment property @ .06%). Then multiply that number by the specific millage of the district in which the property lies. Here's an example:

A condo on the ocean in North Myrtle Beach selling for $100,000. This condo is being purchased by an out-of-state resident for use as a 2d home.

Purchase price $100,000
Assessment ratio .06
=$6,000
District millage .2228
Tax bill $1336.80

I think it's safe to say no one will ever come up with a tax scheme which everyone accepts as fair. Someone will always feel they pay too much. Until the Legislature modifies the property tax rules, it will be unfair for buyers of property in South Carolina.

Congress may take action to strengthen the housing market

Here's an interesting bit of news. Congress may actually take the reins in hand and actually do something to help the housing market, not just the few lenders at the top. According to a report I heard on NPR's Marketplace changes to the bankruptcy law and more oversight of the bailout (TARP) of the banking industry are just around the corner. Of course details are few now but here's what it looks like.

The bankruptcy laws will be amended so that bankdruptcy judges can change the terms of home mortgage loans. They'll be able to extend terms and change rates so that homeowners can make payments within their means. If this works and is implemented soon maybe the 2.4 million foreclosures predicted for 2009 can be reduced drastically. But, someone doesn't like the idea. Guess who? The Financial Services Roundtable, an industry trade group. They claim such actions would drive up costs for all borrowers. Maybe, maybe not. I think it's time we stopped listening only to people and organizations who stand to lose and start thinking about the homeowners too.

By the way, did you ever wonder why banks are willing to let homes go into foreclosure rather than really work out a deal with the homeowners? Me too. Seems that the servicers of the loans get a percentage of all of the fees generated in the process. So, it's in their interest to prolong things.

Common sense (which isn't all that common these days) tells us that a bank would be better off taking less money each month for 2 years than foreclosing on the property with all the costs that entails.

Another Congressional attitude change is demanding more accountability for the money TARP is making available. This same Marketplace report included a conversation with a small bank in the Northwest. They applied for and received TARP money. Guess what? They didn't need it. They even admitted they were well capitalized and were not at all worried about failing. They simply asked for government money while the asking was good.

They did point out that the government received shares of the bank in return. Great. But that's not what the bailout was supposed to do. And it's not an isolated incident. Thousands of banks which are not in any danger have received TARP funds. If you think this situation is ridiculous like I do call your representaives in Washington DC and demand that only banks that need the money (and commit to showing that they'll use it as intended ie lending it) get it.