Investing and Financing for Non-Warrantable Condos

By Dennis Spivey.

Condos provide investors of all sizes an opportunity to expand their portfolios. Although there are HOA costs, solvency as well as lending restrictions, there is often less competition seeking to invest in this asset type. Conventional sources such as Fannie Mae and Freddie Mac have strict limitations on investor concentration and financial stability which can limit their ability to provide debt. Lenders designate condos that don’t meet these standards as “non-warrantable” which simply means that conventional sources of capital will not finance them. This leads to lower investor interest, which again, creates opportunities for those willing to put in a little extra work. This work can include researching and finding the best sources for private, or “non-conventional” financing. At CoreVest Finance, we pride ourselves on creating financing opportunities for investors of all sizes through our ability to fund properties that other lenders generally cannot. In this article, we will dig deeper into the different types of non-warrantable condos that conventional lenders generally struggle with, but we can typically finance.

Broken Condo Projects

First up on the list of non-warrantables is what we call a “broken” condo. A broken condo exists when the builder of a condo project cannot complete it or fails to sell out of all the units. They will then keep a portion of the units themselves and convert them into rentals. This often creates a high concentration of “investor” condos within a complex and limits financing options. Without conventional sources of capital, many investors have no choice but to stay clear. Because CoreVest does not have the same restrictions, broken projects can be financed using various loan types. This allows you as an investor to expand your “buy box” and look into opportunities you may have ignored in the past.

Condo Conversions

A condo conversion is generally an old apartment that has been converted to condo units through title. Once the conversion happens, the developer typically looks to resell the units one at a time to the retail market. Because they are new HOA’s, most conversions have not gone through the protocol to become approved projects. The same solvency and concentration requirements are still applicable, and because the developer owns the majority of units through the resale process, the sold units are usually non-warrantable. Investors interested in purchasing a unit have historically had to use hard money or all cash to acquire these types of condos. Because we are not selling to the typical GSE entities such as Fannie Mae or Freddie Mac, CoreVest is able to entertain financing requests on these types of projects. This again opens up additional opportunities for investors.

Heavily Investor-Owned Projects

Although a particular condo project may start out as “warrantable,” if a high number of investors subsequently begin to purchase units, it may lose its stamp of approval. This is particularly true in areas with high appreciation potential, like Miami or Los Angeles. It’s not uncommon to see investors flock to newly built projects in high opportunity areas. What once qualified for financing through traditional sources, may now be Non-Warrantable. It’s important that interested investors locate a private source of capital, such as CoreVest Finance, to finance these types of investments.

Low-Occupancy Complexes

Investment opportunities can arise in a multitude of fashions—new condo projects are no exception. One scenario could include a project where the builder is releasing properties in phases—meaning units go up for sale while construction is still going on within the development. This creates a non-warrantable situation for conventional lenders. Another low-occupancy scenario includes value-add projects which may have different maintenance challenges that led to loss of tenancy. Both scenarios can create great investment opportunities, and both scenarios create issues for conventional lenders, but not with CoreVest.
 

 
As you can see, there are various reasons that any particular condo might be blacklisted as “non-warrantable,” and subsequently not eligible for conventional financing. Because of this, many investors seek opportunities elsewhere. If you are an investor who wants to expand your “buy box” by creating exponential investment opportunities, non-warrantable condos may be something to explore.

CoreVest issues private debt that is not subject to conventional lending limitations. More importantly, Corevest provides private debt at very attractive rates and terms – often very close if not better than conventional outlets. For more information on non-warrantable condo financing or our other loan products with CoreVest Finance, please call Dennis Spivey at 949.558.2353 or email [email protected].

#IG