apartment converts

[klewlis]

Just a general question--I live in Edmonton where there are a LOT of apartments that have been converted into condos.

I have noticed that they are generally cheaper than regular condos. What kinds of ramifications does this have for rental rates, resale values, and other potential issues? Are there advantages or disadvantages to converted apartments? Warnings?


(I`m not looking to buy one right now... but I`m curious!)

 

[Eric Peters]

Buyer beware! Many units were converted in the past couple of years with no substantial improvements and minimal Reserve Fund contributions. THERE ARE EXCEPTIONS TO THIS. Be certain you check for quality and extent of improvements as well as the deficiency in the Reserve Fund.
These kind of non-upgraded units command the same rent they did prior to conversion. Tenants don`t see the title - just the suite. If it looks like crap, that`s what they pay.
A well done conversion competes with a property built as a Condo, but a cheap quick flipper can get you into a lot of trouble.

 

[klewlis]

QUOTE (EricPeters @ Sep 23 2008, 09:19 PM) Buyer beware! Many units were converted in the past couple of years with no substantial improvements and minimal Reserve Fund contributions. THERE ARE EXCEPTIONS TO THIS. Be certain you check for quality and extent of improvements as well as the deficiency in the Reserve Fund.
These kind of non-upgraded units command the same rent they did prior to conversion. Tenants don`t see the title - just the suite. If it looks like crap, that`s what they pay.
A well done conversion competes with a property built as a Condo, but a cheap quick flipper can get you into a lot of trouble.


Thanks... that`s kind of what I was thinking as well. Also, is there more wear-and-tear on a convert due to all of the previous tenants? It seems to me that you`d have a lot more people going through the building and (perhaps) not taking care of it as well as they would if they were owners. This could be fixed with renos, of course... but I`m wondering if overall quality suffers?

There is a complex here right near the Heritage LRT extension which has half a dozen units for sale starting at $140,000. I haven`t looked at them in person (since I`m not buying, just watching!) but for that price one could do some renos and get a decent rental income... ?

 

[Thomas Beyer]

it`s like a used car .. lower price .. but more wear & tear !

Of course a newer condo is better .. but likely costs a lot more ! A used condo may be a better investment !

Check for:
a) reserve fund
b) improvement to major items
c) management
d) is there a rental pool
e) "as is" rents and rental upside
f) price per sq ft
g) location
h) # of owners that invest vs. owner occupied
i) price / annual rent

A used condo may be better as you may be able to hold long term to build true wealth with cash-flow ..

Why is real estate a great investment - EVEN IN A FLAT MARKET WITH $0 POSITIVE CASH-FLOW ?

If you buy an asset with a 20% down-payment, and no positive cash-flow for 10 years, with:

a ) No appreciation (equity upside) :you have more than DOUBLED your money as the mortgage has been paid down over 20% !)

b ) 20% price increase (less than 4% annually compounded, below Canada`s long term average !!), you would have TRIPLED your money.

c ) 30% price increase (less than 6% annually compounded, about Canada`s long term average as house prices in Canada have doubled every 15 years in a normal economy !!) you would have made 250% on your money.

d ) 40% price increase (slightly higher than Canada`s long term average as house prices in Canada have doubled every 15 years in a normal economy, and AB has a better economy than the rest of Canada !!), you would have made 300% on your money, i.e. quadrupled it!

This latter scenario "d" is very likely in a strong economy like Alberta with cheap investor condos (or apartment buildings or cheaper townhouses or cheaper homes) - even if higher priced condos or houses are not so great an investment these days due to very high prices and ongoing negative cash-flow with 20-25% down! And yes, there may be better markets like SK or TX right now showing higher growth potential for the next few years due to lower prices .. but AB is OK too ! .. many markets have potential .. some more .. some less ..

HOLD ON TO YOUR (cash-flowing or at least break even) ASSETS .. AND ENJOY THE RIDE !!

Happy investing .. with cash-flow AND (at least inflationary) equity growth (in time ..) !!!!

 

[klewlis]

thank you--that`s very helpful!