Condo Conversion finance

[pilly48]

Hello Investors,



I was just reading up on condo conversions and i was wondering if any of you have tried this type of investing and what you think of it. I was also wondering what the best type of financing is for these type of deals, i was thinking hard money lenders but thats just my opinion.



If you have any stories about this type of investing i would love to hear what you think of it.

 

[Thomas Beyer]

Easy money in theory as you can sell a condo for 10-40% more than the whole building. Far more difficult to execute in practice. Some lenders allow partially dischargable mortgages, up to about 70% LTV, and others allow you to place one per condo, around 60-75% LTV. It depends on the city, asset quality and financial strength of the owner.



Since you usually have to upgrade the property's many larger components like roof, balconies, windows, parking lot, boilers or hallway carpets AND the interior of each suite to make is sellable at a higher price it is a very cash-intensive business. If you need a hard money lender charging you 10% or more you will likely fail due to the timelines involved of upgrading, then selling the asset. Most active condo converters from the 1995 to 2005 space have disappeared as the business model is very difficult to execute in the current environment. Not impossible, just difficult.



It may work on an asset you've owned fro a while, in a big city, where you have upgraded many parts and the suites are all in decent condition, with a cheap dischargable mortgage at around 3.5 to 4%, with a reserve fund and a gradual sale of condos as they become vacant perhaps or to investors with a rental pool.



Many pitfalls. Many bankruptcies.



I have done 5 condo conversions, 2 successfully and 2 shelved i.e. pulled off the market, and one in progress in an asset we have owned for almost 5 years.