July, 2011
properly managed condominium communities
Posted on July 1, 2011 |
The recent economic downturn has created massive problems along with unprecedented real estate investment opportunities. The number of properties purchased for investment has sky rocketed in concert with the numbers of foreclosures. Many condominium communities in most of large cities have become virtually non financeable due to several factors associated with a high percentage of rental properties within the specific condominium projects. The lending community has drawn the line on the number of investment units in any condo regime at 50% of the total number of units and in many cases even less. This is a subject for another day but there can be serious effects of high investor concentration. Although the landlord normally pays the condo fees, rental units can initiate delinquency in condo fee payments which can seriously affect the financial well being of the association. In today’s mortgage environment, lenders take a close look at investor concentration, percentage of condo fee delinquency, and the financial reserves of each condominium prior to approving a mortgage in any community. Anyone buying a condo should do the same.
In summary, condominiums can make great rental properties, create positive cash flow with a minimum investment and require lower maintenance but they can also carry substantial risk. It is not a good investment if it can’t be financed and conversely can’t be sold because it can’t be financed. As always, location is practically everything when buying real estate but when buying a condo there is homework to be done. The lender will protect the buyer by conducting their viability investigation but it is best to avoid writing purchase contracts on properties that can’t be financed. A realtor experienced in condominium sales, members of the association, and neighbors may provide the answers the buyer needs to make a buying decision.
In a stable economy, appreciation is primarily dictated by inflation and supply and demand. All residential property appreciates in a robust economy. Most American families would prefer a detached single family home to a condominium. A yard for the children and a traditional family oriented neighborhood is truly the dream of growing families but the condo has its place as well. The single person or young working couple beginning their life together may not be in a financial position to afford the house with the yard or they may not be ready for the time and expense of maintaining a single family home. Many homeowners scale down for the convenience of a condominium during their retirement years. The point is that each type of residence has appeal to its’ own segment of the home buying market.