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?