Condo Conversions
The housing market has definitely taken some interesting turns in recent months, and one of these has been into the condo-conversion market.
A condo-conversion is when an apartment building gets sold and all of the units are essentially turned into condos, where the renter has the option of either buying or moving out.
The article, “Is your building going condo? Here’s what you should know,” by Terri Cullen of The Wall Street Journal Online, discusses the pitfalls and possible advantages of a condo-conversion.
These condo-conversions can be great opportunities for some investors, but huge problems for some tenants who are renters.
“I know what you're thinking: Condo conversions are so 1980s. But the boom is back, fueled by the torrid residential housing market. Low mortgage rates and creative financing have turned thousands of would-be renters into homeowners, and a growing number of building owners have decided to cash in on the trend by converting apartment units to condos. The boom started heating up in 2003 as the broader real-estate market experienced a home-buying frenzy.”
“And, as has been the case in other areas of the real estate market, lenders are doing their share to feed the beast. ‘As conversions became more profitable, banks have become more readily willing to loan money,’ says Dan Fasulo, director of Real Capital Analytics, a research and consulting firm in New York that tracks condo conversions.”
If you come into a situation where your apartment is being turned into a condo, you should keep a few things in mind when deciding whether to buy it or move into another apartment.
There are some advantages and some disadvantages.
“The price of the condo is the first of many expenses that renters should consider when determining whether to buy the apartment or take a pass. In addition to the down payment, mortgage and annual maintenance fees, buyers should consider the cost of insurance, the possibility of special one-time assessments, and any legal expenses that may arise when sharing ownership of a property with other people. On the other hand, renters who decide against buying may face moving costs and higher rents elsewhere.”
So as you can see, the costs of each situation may turn out to be the same or pretty close in the long run.
To entice current tenants to buy their apartment many of the investors and owners of these buildings offer discounts and incentives.
“A condo conversion can end up being a boon for some renters. When a building goes condo, renters may be given ‘right of first refusal,’ or the opportunity to buy their apartments before any other offers are considered, depending on their state's regulations governing condo conversions. It's also not uncommon for building owners to offer price concessions for a limited time to make a quick sale. The promise of an upfront discount can be attractive at a time when condo prices have surpassed those of single-family homes.”
If faced with a condo-conversion, do not make a hasty decision. Buying a property is a huge financial commitment, even if it is just your apartment you are buying, you have to think of the big picture.
