Mortgage for a Hotel Conversion

Investing in a hotel conversion or a strata title hotel property is becoming quite common with many older hotels now being renovated and re-sold to accommodate for a growing population. Units and apartments are in high demand, especially in inner city areas that are close to shops, schools, universities and other amenities.
Whilst a hotel conversion sounds like a great investment, they generally require quite a big financial commitment. Further, it may be difficult to get a loan as some banks have restrictive lending policies for this property type. However, there are ways to get approval!

What is a hotel conversion?

A hotel conversion is used to describe the transformation of a former, often older hotel, into an apartment block, containing separate strata title units.
However, they differ from most regular units in that they may have shared kitchen and bathroom facilities on the one level. Once the units are renovated, they are put up for sale. Investors usually buy these apartments and rent them out.

Converted hotels can be popular with singles, couples, students or retired persons. As they are quite small in size, there is a limited market of buyers and renters. However, most converted hotels are in city areas and as such, they can be quite popular.

What is a strata title hotel property?

A strata title hotel is the name given to a hotel that comprises of rooms that have each been individually purchased by investors and are being rented by the hotel. Unlike converted hotels, the actual hotel still manages the unit.

This property type is treated by the banks as a regular investment and as the property is rented back to hotel, there is a guarantee of return. Most banks will approve a loan of up 80% of the purchase price and 70% for low doc borrowers.

How much can I borrow?

If you are looking to borrow money to finance a hotel conversion most banks will require a 15% deposit, thereby allowing you to borrow up to 85% LVR. However, where you cannot provide adequate documentation to prove your income, it is advisable that you go low doc.

This option is popular with self-employed individuals. If you get approved for a low doc loan, you may be able to borrow 80% LVR. Note that as with most low doc loans, interest rates may be higher.

What do the banks think?

Hotel conversions are an unusual property type and as such there is a higher risk involved in lending. Regular homes are more sellable and in higher demand and the banks can be certain that they will be able to recover any funds through re-sale. The shared facilities and small living spaces in converted hotel units are not desired by many buyers. Equally, the banks recognise that investors may have difficulty renting these apartments out. Accordingly, most banks will be reluctant to lend and many will decline your loan outright. But how can you make the banks see that you are a responsible borrower? Read on to find out how you can get your loan approved.

How can I get approval?

Investors with big portfolios and a stable income are usually favored by most major banks. However, borrowing for a hotel conversion or using a converted hotel unit as security for a loan can be difficult. This is why it is essential that you have a strong credit history and can demonstrate that you have the ability to repay the loan.
Getting in touch with an expert broker will increase your chances of getting approval. We can help formulate your application in the best possible light and ensure that you get a competitive loan package and great discounts. Speak to us today.