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When an owner converts existing rental apartments to a condominium project, there are certain advantages over building a new property.
April 01, 2004 -- Some of these are:
1. FINANCING. Since the structure is already there, loans may be easier to secure.
2. MARKETING. The owner is estimating market conditions for selling the units only weeks or months ahead rather than years.
3. MATERIALS AND INFLATION. Cost factors will be easier to estimate, again because of the shorter time span. This reduces problems of cost spiraling of labor or materials, labor strikes or shortages.
4. LESS FACTORS IN PLANNING. As in item #1, since the structure is already there, many less cost factors will come into the planning. Only permits, engineering, legal and selling costs, etc., will come into planning.
5. LOCATION. can be a definite advantage. Owner can pick older units near a downtown or other desirable location where no open land for construction is available.
6. SALES. Units can be offered at prices that are competitive. Units that are in a sound structure built years ago can offer greater values than newly built units, even after major improvements and refurbishing. Often, according to HUD data, 25% of the units can be expected to be purchased immediately by the existing tenants.
7. LESS PROBLEMS. The structure is already located in an established area and shouldn't be affected by density or zoning requirements.
Benefits to Tenants in a Conversion
As stated, only about 25% of the tenants will be expected to purchase one of the units. There are advantages for this tenant to make this purchase, and this should be communicated in sales information to tenants.
The property is located in a familiar area. The tenant already knows this neighborhood.
After the purchase, the former tenant now has the usual advantages of ownership: A tax deduction on the portion of the monthly payment that is interest. The benefits of appreciation of value of the unit in the future. The reduction of loans each month from the principal payment.
Above all, the new unit owner is free from the problems of rent increases. The monthly payment is an amortized loan which does not change during the life of the loan. There could be small increases in the charge for common area maintenance, but this is not in the same league with rent increases. |
