Resort Real Estate Musings

In today’s blog I’d like to talk about two topics that are very relevant to today’s real estate market. First will be financing resort real estate and the second will be an interesting observation about the current market.

In my travels around Park City this winter, whether it be riding with someone on a chairlift, meeting somebody in a restaurant or talking to a prospective buyer on the phone, one of the first questions always asked of me is “Is it possible to get a loan these days?” Contrary to what you hear in the media and popular rumor, financing for resort properties is not only possible but not all that difficult. I believe that a lot of the misconception about financing is coming from a change in lenders’ attitudes. For several years preceding the financial meltdown in 2008, pretty much anybody who was breathing could get a loan on a property without regard to their actual ability to pay it back. Those were the days of the “liar loans,” where lenders would make a loan based on what the buyers stated their income was without the need to verify.

In today’s lending climate, lenders are once again requiring verification of employment, income, and assets, and are looking at the borrower’s debt to income ratio. This is really not much different from when I was selling real estate in the 1990s where buyers had to show they actually had the ability to repay the loan. What a concept! Now with all of the foreclosures that have occurred in the last two years, lenders are looking much harder at buyers documents and are often verifying employment and income several times during the loan process and almost always just prior to funding of the loan.

Another area that has become more difficult but not impossible as a result of all the foreclosures in the resorts is condo financing. Both Fannie Mae and Freddie Mac, who underwrite the majority of all loans, have tightened their requirements for underwriting. Much to the detriment of the resort markets, is the stipulation that condo developments that are used for vacation rentals are not eligible for Fannie Mae and Freddie Mac financing. On the surface this would seem to eliminate almost all resort condo projects from the ability to obtain financing because vacation rentals is what we do. This certainly was the case in 2009 and into 2010 when we saw the condo markets take a dramatic downturn in number of sales which then forced the prices down.

As with any new government regulation, it just took some time for mortgage brokers to understand the laws, understand what was being asked for, and then packaging the loan to meet the requirements. So while it certainly is more difficult to obtain financing in the resorts and particularly for condos, it is certainly not impossible.

But I do want to stress (and I cannot stress this enough) that in today’s lending climate it is absolutely crucial to use a local lender who understands the resort market, understands the various projects and how to package the loan to meet Fannie Mae and Freddie Mac guidelines. The days of searching for the internet lender with the best rates is over as far more often than not, despite their promises, they just will not be able to fund the loan and close on the contract. This is where your local realtor will add even more value to your purchase by recommending a good local lender who can get a purchase closed. While the loan process is hateful, time-consuming and annoying, remember that it does come to an end and you will have your property to enjoy.

The second thing I wanted to talk about today is an observation about today’s market. A telling aspect is the number of buyers who are purchasing multiple properties right now. When I say multiple, I’m not talking about two or three, but dozens. These buyers/investors are seeking developments that they feel are under-valued and have a strong up tick on appreciation. When they find one, are purchasing 15, 20, or more properties in a single development. This can be a newly constructed condo, a golf-course property, or a new subdivision. In some of these projects prices have dropped to 1/3 or sometimes even less of the original purchase price. These investors are feeling that purchasing at these prices will give them a strong profit margin if they hold on for a couple of years. With the economy improving and interest rates slowly creeping upward the feeling is that this opportunity may not exist much longer.

It is springtime in the Rockies, which means long sunny days interspersed with frequent snowstorms. Yesterday everybody was outside on the decks enjoying lunch in the sun and today it is snowing, so come out and enjoy springtime in the mountains.