Financing Condo Hotels and Condominium Resort Residences by Craig M. Flaherty

by 02 Jul 2008
Understanding this Niche Market The first thing I ever learned in business was this: Niche marketing is powerful. In fact, it?s the only way to go in my opinion. Before entering the mortgage industry, I worked as a top producing Account Executive for a Fortune 500 company. I also have an M.B.A. from one of the top business schools in the world. From all my experience and all my studies, one thing has always rung true about business: Get a ?Niche? and go from there. When I first started in the mortgage business, I didn?t have a clue what I was doing and just like everyone else, I started doing single family home purchases and refinances. After about a year and a half, I wanted to pull my hair out?what was left of it anyway. I kept coming up against way too much competition for each and every lead and each and every referral source. Don?t get me wrong, a little competition is good for the soul, but competition isn?t exactly like chicken soup. All of the wasted time spent chasing after business with little return would drive me nuts. I remember going into realty offices to create relationships, and thus get referrals. On occasion, the realtor would actually laugh because I was the tenth mortgage professional who visited their office that day trying to get those same exact referrals. You need to find a specific target market. Niche marketing in the current mortgage environment is an absolute must. As a general rule of thumb, the worse a market gets, the more niche marketing becomes necessary. Imagine you are fishing at a lake that is full of fish. And the fish are biting all over the place. In this situation, it?s not very important to have a niche in your fishing style. Simply throw your line in the water and before long you will have fresh food to eat. Something will bite sooner or later so you don?t need to worry about being discriminate. But when the fish population is moderate and they are generally afraid to bite, you need a niche or you?re going to starve. You better find the right bait; throw your line in the right place; and go after the fish that can provide the most food. In the mortgage lake we find ourselves in today, we must find the right way to ?niche fish? or we won?t survive. You can?t simply go into the marketplace and say you do mortgages. That kind of bait is simply not attractive and the hook you are working with is inadequate at best. If you enjoy that type of fishing you are setting yourself up to be the main character in a Herman Melville novel. Who wants to be called Captain Ahab anyway? So, of all the niches in the world, why choose condo hotels and resort condominiums? ?Of all the gin joints, in all the towns, in all the world, she walks into mine.? - Humphrey Bogart - Casablanca, 1942 With all the news these days about condo hotels, you might be asking yourself, ?Is this guy crazy? He wants me to finance condo hotels?? Well I probably am crazy, it runs in my family. But not about the virtues of condo hotel financing! In fact, I don?t think there is a better time than now for mortgage professionals to start learning about condo hotel financing and make this one of their niches. When searching for a niche in any marketplace, look for two things: the niche with the least competition and the fastest growing market place. Condo hotels and resort residences offer that exact type of opportunity. I know about the lack of lending sources and all the peripheral problems associated with condo hotels and the mortgage market in general. But when you have a market that has almost no competition and a growing marketplace, you simply can?t ignore it. That has to be one of your niches. Let?s take them one by one, we will start with the competition and then talk about the marketplace. As for the competition, I would venture a guess and say that there is no state in the country that has more than five condo hotel/condominium resort ?mortgage experts?. And most of them are not very good. That is what I call a ?no competition? market. So, what about the marketplace (supply)? The condo hotel market is growing faster than any other property type in the world. Industry experts estimate that as much as ten percent of all hotel rooms being built right now are condo hotel! Condo hotels are EVERY WHERE, and they are being built with a vengeance, despite the current housing and mortgage problems. A new development just got underway in Iowa? yes, I said Iowa. What makes this niche so exciting is that the growth rate of condo hotels over the past five years has far exceeded the growth rate of mortgage professionals that finance them! And this trend shows no signs of slowing. That is the key to a good niche and that is exactly the type of niche a mortgage professional should want to be in; one where demand is outstretching supply. Look at the chart below: It?s a bit over-simplified but it makes its point. Another reason to be excited about today?s market is the overwhelming growth of refinance opportunities that have resulted from the general condo hotel boom over the past five to seven years. The average condo hotel owner in the United States has owned their property for less than five years and the ARMs are resetting like wild fire. In addition, the vast majority of folks who currently own condotels will be looking for new lenders and brokers to assist them with their refis. Why? Because they probably didn?t get very good service the first time around. The lack of condo hotel expertise in the mortgage industry has translated into an enormous pool of upset mortgage customers. This unfortunately is not good for the condo hotel trend as a whole, but it is something that is good for you and you need to exploit it. There are of course no hard statistics on this, but I would venture this guess: If you polled all mortgage customers over the past five years about customer satisfaction, and then compared it to just those that got condo hotel loans, there would be a very wide discrepancy in their levels of satisfaction. Current condo hotel owners are not very happy about their mortgage service. What does all this boil down to? Current owners looking for refinancing are looking for new mortgage professionals to help them. Realtors and developers are looking for new sources. And current sellers are not likely to recommend their previous mortgage professional to prospective buyers. That bodes well for you. Remember, you always need to look at the niche with the least competition and the fastest growing marketplace; that?s your niche. And the condo hotel financing market has it. Let?s talk quickly about one more thing that makes condo hotel/condominium resort financing so lucrative. Condo Hotel and Resort Residence Buyers The average condo hotel buyer is wealthy. They have disposable cash and they buy multiple second home properties. Many of them are attorneys, doctors, engineers, entrepreneurs, and retired folks with money in the bank. Several months ago I did a rough analysis of my total condo hotel originations over the past five years and I discovered something pretty spectacular. For every condo hotel loan I ever did for someone, I ended up with 1.7 loans from that particular buyer within a five year period! What does that mean? I was almost guaranteed another loan from someone every time I closed their condo hotel loan. I would like to think it was my debonair charm and razor sharp wit that got me those additional loans, but, well?. I really don?t possess either of those characteristics. It in fact had very little to do with me and almost everything to do with the buyer profile I was dealing with. Condo hotel and resort residence buyers will simultaneously own weekend getaway units in Las Vegas, ski lodge units in Colorado, and winter escapes in the state of Florida. These are the buyers you want to be working with! One thing I always loved about the condo hotel buyer is that they are savvy. You rarely need to explain what an ARM, or an INDEX, or points are. They know. In most cases, they already know exactly what type of mortgage they want and you can get right down to business. They overwhelmingly have access to the internet, email, and they actually scan and email their personal docs to you! Some of my friends focus on first time home buyers and I have a great deal of respect for them. They love that niche and do very well with it. I on the other hand would not last one month dealing with first time home buyers. I have been pampered what can I say. For the past five years, 95 % of my applications have come to me via online applications. And believe it or not, the vast majority of them were actually done correctly! A ten minute conversation with the buyer and I was off and running. Those are my kind of clients. Most of the recent negative news surrounding condo hotels revolves around the unhappiness of speculators and cash flow investors. Condo hotels are not cash flow investments. Not even close. They are great second homes and primary residences, period. As more and more true second home buyers purchase them, you will see the market improve. The day of the condo hotel investment speculator is almost over. More and more second home owners will turn in their beach houses, cottages, and log cabins for condo hotels and resort residence properties. Let?s face some hard facts about our society. We work ourselves to the bone and we want products that are ?head ache free?. We want products that provide relaxation and enjoyment, with out any of the work. Our professional lives are enough work. ?Do it yourselfers? are a dying breed, both literally and figuratively. The average American finds themselves devoting so many hours at work, they can?t find the time or desire to do anything themselves. Think about this; 100 years ago, the average American actually built their own home. Today, we can?t even fix a leaky faucet without calling in an expert. We just don?t want to deal with it. We?ve become a society of remote controls, ten minute oil changes, and miracle diet pills; anything to save us the trouble. We devote 50, 60, 70 hours a week to our professional lives. Let someone else build it, fix it, and maintain it. That?s the American motto, and the motto of most industrialized countries. One can argue the virtues of a society such as this, but one can?t deny that condo hotels and resorts residences are uniquely positioned to meet this demand. And the demand is ?head-ache free home ownership.? And it?s not just us, it?s happening all over the world. And it is certainly not just real estate products, it?s every product. One excellent example is the automobile industry and the ?warranty? phenomenon that has occurred over the past 10 years. Every manufacturer has been competing for the industry?s ?best warranty?. What they are really competing for is the most ?hassle free? product. No one wants to fix their car and no one has time for routine maintenance. The companies that are creating the most hassle free products, regardless of the industry, are the ones that are successful. Real estate developers possess excellent radar about this phenomenon and they are moving to meet the demand with new and innovative, ?hassle free? home ownership opportunities. For more information on this genre, please visit Craig M. Flaherty, M.B.A. National Mortgage Consultant



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