Financial Facts: Condo or condotel
Years ago when I moved from the Midwest to the High Country I was exposed to a few new words. Boarding and gapers were easy to understand, Apres-ski ski was a bit confusing and then there was condotel. What in the heck is a condotel? I have lodged in a condo, but a condotel, is this some new form of European hostel, I really did not know for sure.
Then I gravitated into the wonderful world of mortgage lending and right off the bat I was thrown into the world of having to know the difference between a condo and a condotel.
So here is a sort way for you to know the difference between a condo and condotel and why you should store this information in a back of your brain.
A condo, or condominium, is a defined residential unit in a complex of residential units where the unit is held in full ownership by an individual or individuals and where the common grounds are owner in joint with all other unit owners. This type of unit is by far the most common here in the High Country.
And a condotel unit is also defined residential unit in a complex of residential units where the unit is held in full ownership by an individual or individuals and where the common grounds are owner in joint with all other unit owners. But here is the difference; condotel units have shared services such as a front desk like one you would see at a hotel or motel. They may have daily maid service and a central phone service or concierge service available on site. Owning a condotel unit is much like owning a room in the local Holiday Inn or Best Western motel.
And now why the distinction and what difference does it make to a mortgage lender? Mortgage lenders consider a condotel unit solely as an investment property, even if you as the owner do not rent it short term or long term. In the infinite wisdom of those who set the Underwriting Guidelines the rules set out condotel units are heavily used units and of higher risk for late payments. The higher the risk the higher the mortgage interest rates you will see when buying or refinancing such a unit.
Now from my perspective I think the rules are obsolete as if you have a greater chance to receive income due to rentals the higher the chance in tough economic times those who receive income will have the funds to make the mortgage payment. But keep in mind I do not make the rules.
So what is a better investment? A condo or a condotel? There are no clear cut rules as you may receive a lower interest rate on a condo but your rental figures may be less. If you own a condotel unit you may have higher incomes generated from the rentals but the cost to maintain the unit may be higher too.
The best thing is to be acquainted with both types of units and to understand the pro’s and con’s of each prior to making that offer to buy.
For answers to your mortgage related questions call Bob Kieber are (970) 262-1199 or e-mail him at firstname.lastname@example.org. Bob is a local mortgage lender and principal of Resort Lending. He has 30-plus years of professional experience in real estate, finance and investments, and is a longtime resident of the High Country.
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