I’m kind of a newbie to this website. I’ve been enjoying reading all of the topics and supplementing the reading I’ve been doing over the last couple years. What a great resource!
One thing that I haven’t seen much on is the logistics of buying a multifamily propety (like 8 units) and converting it to condos. Are there any “rules of thumb” for when this might work and when it might not? Is it just a bad idea now that interest rates seem to be on the rise? Anyone have experience doing such a thing?
you’ll needd to check with your local municipalities to make sure they will allow your condo conversion…
You’ll also need the owners operating expense statements for the past 2-3 yrs ( this should be easy for the owner operator to produce since it can be taken off their tax returns), current rent roll, your application & credit report pulled by a mortgage/commercial broker/lender.
What is your exit strategy?
Some lenders want to know your summary for the use of the proceeds…
What is your cash investment in the project?
What is your loan payoff strategy?
Make sure you have a positive cash flow of course.
At this point I’m really just tire-kicking. There’s a very low-priced multi-unit apartment just across the street from some brand spanking new development. Motivated seller, the whole deal. I’m wondering what the best use for the property would be. Renovate and keep, fix and flip, condo conversion, whatever. I understand the first two, but haven’t read much about condo-conversions.
But to answer your question:
Strategy: Convert existing multiunit apartment building to condos, sell units, pay off loan, keep profit.
Haven’t run any numbers at all. Just thinking about the big picture.
I would contact a good attorney. They will help with the condo docs, tenants’ rights laws, etc. Depending on the laws in Colorado, tenants may get first rights of refusal, etc. Also, when converting from multi-family to condos, a surveyor and architect will need to be hired. Each unit will get its own unit plat. Also, you must decide on how to determine unit voting rights, etc. For example, if there are 10 units, 5 2 bd/2ba and 5 1bd/1ba, there must be a division of voting rights for the condo association, such as a 2 BD unit owns 12% and a 1 bedroom unit owns 8%. Also, be sure to get the maintenance numbers from the existing apartment building, this will help to establish an operating budget for the condo association fees which will probably be included in the condo docs. Lot’s of stuff to think about, but it does seem that sale prices can justify the conversion.