A hotel condominium or otherwise called as a condo hotel, Condotel, or hotel condo is a high rise building opened as a hotel with condominium units at the same time, allowing anyone to own a luxurious vacation home. If not in use, hotel condominium owners may leverage the management and marketing as done by the hotel to manage and rent out the condominium unit just like the rest of the hotel rooms.

The hotel condo trend has created such a clamor these days. But you may notice that many lenders out there are sitting on the sidelines when the issue lies on condo hotels mortgage financing. This is because the secondary markets have not come across sufficient hotel condo papers to grade the risks or rewards of this new asset. And second, hotel condominiums are in between commercial hotel loan and property investment consumer mortgage or residential second home.

Most of the latest hotel condominiums in the realty market are harder to mortgage in market terms and rates due to smaller areas like 600 feet square meters in sizes, no kitchen and more likely are part of projects that collaborate with mixed uses and with fractional and or timeshare components. These factors defy the present-day mortgage guidelines.

However, given the mentioned challenges, it has become apparent that lenders are keeping watch of the evolution of the real estate market dealing with hotel condominiums. With the interest rate on the rise, and real estate industry has cooled down, lending community is face with an increasing capability to lend, wherein lenders are in the lookout for better niche opportunities to satisfy their appetite for loan and yield volume.

A typical buyer of a condo hotel is someone in search of a hassle-free quasi-vacation home with rental benefits, as well as a great potential for investment. With most mortgages, borrowers will personally sign for debt and usually pay 20% or more of the actual price as down payment. One requirement of the underwriting guidelines for almost all existing condo hotels in mortgage is the so-called “borrower” to be able to qualify for debt even without a credit for the possible rental income acquired from the real property. In the event that the hotel fails to deliver a rental income, it is said to be a cash-flow loss, though it is not really a loss. If anyone purchases a hotel condominium with the primary intention of using it and enjoying its facilities as his or her second home, such consumer is already benefited with an affluent vacation condominium for a portion of the average condo unit ownership expense.

When it comes to investments especially in real estate properties, there is always a risk somehow. In hotel condominiums, the risk to consumers and lenders lies beneath the motive of the procurement and the sales approach. What is really the intent of the buyer for the purchase? Is it for a condo alternative or as an investment property? If within the sales process, the potential income is emphasized, then the consumer has the right to claim against the realtor or the developer who represented the property. Albeit the SEC discourages this practice, still a lot of sales operations cannot completely stay away from any discussion about rental profits when buyers ask for information and disclosure.

Valuation is another probable risk. The real estate industry’s cost of per square foot has been expanded by residential condominium hotels which now include designer decorating, brand name management, spas, 42” plasma television sets and gym packages as all part of the real estate amenity package. A valuation of $1,000++ for every square foot is obtained. More often than not, a purchaser’s view is of price per point and not price per foot.

Hotel condominiums are commonly situated in amicable and upscale areas like near the beaches, casinos, golf courses, theme parks and other enviable vacation spots. And these are operated by overly prestigious companies such as Hilton, Ritz-Carlton, Sonesta, Trump, Starwood, Hyatt and Four Seasons among many others.