"Condotel" vs "Non-Warrantable" Condominium

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Real Estate

Are you in the market for a condominium? Did you know - a non-warrantable condo is NOT a condotel? They are different animals. If you opt to use an out-of-town lender (as opposed to a local lender that understands our Emerald Coast condominium market) that is adamant that they can finance your new condominium purchase because "we do condotels," but they don't realize that a condotel is not the same as a non-warrantable condo, RUN!!!

Characteristics of a Condotel:

• The HOA is licensed as a hotel, motel, resort, or hospitality entity.
• The HOA or project’s legal documents restrict owners’ ability to occupy the unit during any part of the year.
• The HOA or project’s legal documents require owners to make their unit available for rental pooling (daily or otherwise).
• The HOA or the project’s legal documents require unit owners to share profits from rental units with the HOA, management company, resort, or hotel rental company.
• is primarily transient in nature;
• offers hotel-type services (including those offered by or contracted through the HOA or management company) or characteristics such as registration services, rentals of units on a daily or short-term basis, daily cleaning services, central telephone service, central key systems, and restrictions on interior decorating;
• is a conversion of a hotel (or a conversion of a similar type of transient housing) unless the project was a gut rehabilitation and the resulting condo units no longer have the characteristics of a hotel or similar type of transient housing building;
• is subject to voluntary rental-pooling, revenue, profit or commission sharing agreements with the HOA or management company, or similar agreements that restrict the unit owner’s ability to occupy the unit such as blackout dates and occupancy limits to assure an inventory of units for rent on a frequent basis. This may include daily, weekly, monthly or seasonal restrictions;
• is professionally managed by a hotel or resort management company that also facilitates short term rentals for unit owners or projects with management companies that are licensed as a hotel, motel, resort, or hospitality entity;
• is deemed to be ineligible under Freddie Mac’s requirements because of condo hotel, resort, transient or short-term rental activity;
• has a legal or common name that contains hotel, motel, or resort, unless the use of hotel, motel, or resort is a reference to the historical use of the building and not reflective of its current use as a residential condo or co-op project;
• is marketed as a hotel, motel, resort or investment opportunity; or
• has obtained a hotel or resort rating for its hotel, motel, or resort operations through hotel rating providers including, but not limited to, travel agencies, hotel booking websites, and internet search engines.
• 75% or more of the units are owned as investment and second home occupancy - especially when the loan transaction is not a principal residence transaction;
• units that do not contain full-sized kitchen appliances;
• advertisements for daily or short-term rental rates;
• franchise agreements;
• location of the project in a resort area;
• units that are less than 400 square feet;
• amenities that are common in hotels or resorts including spa services, concierge services, rentals of recreational equipment or amenities, childcare services for short-term renters, scheduled social or entertainment activities for short-term renters, airport shuttles, ski lift shuttles or ski lift and trail passes, or other vacation amenities and packages; or
• interior doors that adjoin different units.

Characteristics of a Non-Warrantable Condo

• HOA is a named party in pending litigation that relates to safety, structural soundness, habitability, or functional use of the project
• 10% of assessment income isn’t being put into a reserve account
• More than 35% of the project or of the building in which the project is located in commercial or mixed-use
• Project has mandatory memberships that require the HOA to pay dues to a third-party organization (i.e., golf course or recreational facility)
• The project HOA must be the sole owner of its amenities (can get an exception if there is an executed shared amenities agreement between HOAs)
• Subject to a recreational lease
• Live/work project (allows owners to run a small business from their unit)
• A single entity owns more than 20% of the units (or more than two units if there are 5-20 in the project)
• Project operates as a continuing care community or facility
• HOA receives more than 10% of its budgeted income from non-incidental business arrangements, i.e., health club, spa, restaurant, etc.
• Project contains multi-dwelling units that allow an owner to hold title to a single unit that is sub-divided into multiple dwellings with ownership on a single deed or mortgage
• Any project that permits a priority lien for unpaid common expenses above FNMA’s priority lien limitations

Use a local lender when you're purchasing a condominium!