If you want to get more out of your real estate investment, turning your apartment complex into a condominium may be the best solution. Many renters love condos for their improved quality and the freedom of ownership. Before you start the process, though, you have many things to consider.
Is a condominium the best use of your investment? What will you do with your existing tenants? Are people in your area receptive to condos, or is location an obstacle? Will there be a little or a lot of competition to consider? All these questions and more set the stage for kicking off your project.
Schedule a Building Survey
One of the first steps of a condo conversion includes a building survey. An inspector will come and review your units, then your attorney will create a remapping of the complex. This document includes each rental unit’s dimensions and interior structures. Common areas will also receive new drawings, as well as any exterior structures involved.
The documents involved in surveying should always be clear and concise to avoid misunderstandings with future tenants. Living in a condo is similar to homeownership, but it still requires individuals to live next to one another. Creating boundaries for each unit ensures everyone understands their home’s specifications.
Calculate Conversion Costs
A condo conversion involves many expenses, including property taxes, possible repairs, application fees, and condo insurance premiums. Condominiums typically have higher insurance premiums than apartments, meaning some of your monthly payments will increase. You will likely need to refinance the building, too, which determines if the project will gain approval to move forward.
You’ll have to pay more if your building needs rehabs, which apartment conversions often require. Establishing a top-tier condo means upgrading existing appliances and taking out old components. Renters often expect more from condominiums than other rental properties, which will factor into what kind of renovations you do. Consider the housing design trends in your area.
The building’s current safety requirements may change alongside its foundational structure. Devise a new fire safety plan by contacting a local fire company about the improvements your property will need. If you install window gates, ensure professionals approve of them. Not all versions facilitate a safe escape in case of fire, which puts tenants in danger should an incident occur.
Follow the Local Laws
Research the legalities of condo conversions. The laws are different for each state and city, and your real estate investment must be eligible. Some states limit the number of units your building can have, while others require you to provide options for existing residents. You may assist them in finding new rental properties or offer purchasing options.
The San Francisco real estate market has expedited conversion programs, allowing small apartment owners to jump ahead of the condo conversion lottery. The Boston real estate market enables owners with four or more units to convert, but they must comply with the additional eviction rights tenants receive.
Vet New Tenants
Condo owners don’t have to worry about maintenance — like mowing the lawn or repairing leaks. Tenants take care of these tasks, which can be a double-edged sword. You’ll do less work to have an attractive condominium and a great income every month. However, if the tenants aren’t proactive about keeping up with the rental property, its quality could depreciate.
Rental applications can help you figure out who your tenants are before approving them. Do they have a good track record with rentals, a steady income or excellent credit? If not, you may think twice about bringing them in. Always remember to adhere to the Fair Housing Act to avoid denying applications based on unrelated factors.
Related: Renting Out a Condo: A Guide for Real Estate Investors
Join a Condominium Association
Being part of a condominium association will bring extra fees and responsibilities, though most of these fall on tenants. Residents often make up the organization themselves, unless they decide to appoint a separate board of directors. They become responsible for maintaining the community and paying dues. They must also follow whatever rules the group establishes, such as no pets allowed.
Each unit owner will have an individual share in the fees, meaning not everyone will pay the same price. If one condo is bigger than others, its owner is likely to see a higher rate.
The Difference Between Apartments and Condos for Investors
Make the best choice for your real estate investment. You want to opt for moves that will earn money and please your tenants. Educating yourself on the condo conversion process will protect you against potential surprises and ensure the project goes as smoothly as possible.
This article has been contributed by Holly Welles.