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Condo conversion to rent to own

MarkTorgerson

MarkTorgerson

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REIN Member
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Oct 17, 2007
Messages
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Hi

I have been viewing the rent to own information over the last several months and have been putting together information from a number of sources. Although I do feel the hype was over marketed, I do believe that there still lies good opportunity with the right conditions.

I have a duplex that I purchased 10 years ago. I purchased it as one title for $160,000. The place had become a bit of a thorn in my side and I wanted out. I recently split the title into 2 separate units (basically 80k per door). The place needed renos so I thought I would take a different approach and offer it up as a handyman special on a rent to own basis. I just sold both units for approx 220k each. I received a decent deposit, higher than market rents (credits back of course), a futuristic selling price 2 years down the road, and no more maintenance!!

Part of the (potential) great profit was from the rent to own strategy but also part was from the splitting of title (or conversion). This got me to thinking why not do both if the opportunity arises?? I have a 12 suite apartment building that I want to eventually convert into condos. The market conditions really aren`t there right now as there is a saturation of condos in my area. But....one thing I haven`t seen are condos being offered on a rent to own basis. I am not sure if this unchartered territory but it makes sense to me to try and sell the units in the building on a rent to own basis BEFORE a full condo conversion. I do understand there would be some legality issues with this and how the contracts would read. Maybe a person could just take care of the minimum costs of strata titling the units and not worry about the full condo corp until the units are say 50% sold.... ???
Any thoughts or experience in this area???

Thanks
 
QUOTE (MarkTorgerson @ Feb 23 2010, 03:24 PM) Hi

I have been viewing the rent to own information over the last several months and have been putting together information from a number of sources. Although I do feel the hype was over marketed, I do believe that there still lies good opportunity with the right conditions.

I have a duplex that I purchased 10 years ago. I purchased it as one title for $160,000. The place had become a bit of a thorn in my side and I wanted out. I recently split the title into 2 separate units (basically 80k per door). The place needed renos so I thought I would take a different approach and offer it up as a handyman special on a rent to own basis. I just sold both units for approx 220k each. I received a decent deposit, higher than market rents (credits back of course), a futuristic selling price 2 years down the road, and no more maintenance!!

Part of the (potential) great profit was from the rent to own strategy but also part was from the splitting of title (or conversion). This got me to thinking why not do both if the opportunity arises?? I have a 12 suite apartment building that I want to eventually convert into condos. The market conditions really aren`t there right now as there is a saturation of condos in my area. But....one thing I haven`t seen are condos being offered on a rent to own basis. I am not sure if this unchartered territory but it makes sense to me to try and sell the units in the building on a rent to own basis BEFORE a full condo conversion. I do understand there would be some legality issues with this and how the contracts would read. Maybe a person could just take care of the minimum costs of strata titling the units and not worry about the full condo corp until the units are say 50% sold.... ???
Any thoughts or experience in this area???

Thanks

Anyone???
Thomas???
 
QUOTE (MarkTorgerson @ Feb 23 2010, 03:24 PM) ..Any thoughts or experience in this area???
We also are experimenting with it .. ran some ads for one of our condo converted buildings .. had some calls but many tirekickers ..

IN THEORY: yes a great idea.

IN PRACTICE: much harder as the "typical tenant" in a 1BR or 2BR is usually not of ownership mentality .. which is different in a house or duplex.

To sell as condos you must have a dischargable mortgage or create 12 small mortgages which is hard but not impossible to get.

So I suggest you do that first.

Condo conversions also need
a) a lot of cash .. no make that A LOT OF CASH for reserve fund, in-suite upgrades, exterior upgrades, common area upgrades, marketing, surveys, legal ..
b) the right area to make them sellable
c) the right size
 
QUOTE (ThomasBeyer @ Feb 24 2010, 12:43 PM) We also are experimenting with it .. ran some ads for one of our condo converted buildings .. had some calls but many tirekickers ..
IN THEORY: yes a great idea.

IN PRACTICE: much harder as the "typical tenant" in a 1BR or 2BR is usually not of ownership mentality .. which is different in a house or duplex.

To sell as condos you must have a dischargable mortgage or create 12 small mortgages which is hard but not impossible to get.

So I suggest you do that first.

Condo conversions also need
a) a lot of cash .. no make that A LOT OF CASH for reserve fund, in-suite upgrades, exterior upgrades, common area upgrades, marketing, surveys, legal ..
b) the right area to make them sellable
c) the right size


The condos make sense as they are in a quiet desirable area but close to ammenities. They are all 2-bedroom and 930 square feet. Most of them are already upgraded. I have already upgraded the common areas with new tile throughout building, new rug on stairs, and new entrances. I still have about 10 years left in the boiler (at least), but need a new roof which I will take care of in the spring (approx $35,000).

I need to look into what it would take to create separate mortgages.

I might just advertise an open unit as a RTO just to see what kind of market feedback I get.
Could I sign RTO`s on the units before I do a full conversion??

Thoughts??

Thanks
 
QUOTE (MarkTorgerson @ Feb 25 2010, 03:38 PM) The condos make sense as they are in a quiet desirable area but close to ammenities. They are all 2-bedroom and 930 square feet. Most of them are already upgraded. I have already upgraded the common areas with new tile throughout building, new rug on stairs, and new entrances. I still have about 10 years left in the boiler (at least), but need a new roof which I will take care of in the spring (approx $35,000).

I need to look into what it would take to create separate mortgages.

I might just advertise an open unit as a RTO just to see what kind of market feedback I get.
Could I sign RTO`s on the units before I do a full conversion??

Thoughts??

Thanks
Get full conversion done first .. This takes 2-3 months ... then get many small mortgages (one per condo) or partially dischargable large mortgage .. Then worry about selling ..

Or, if you are VERY experienced, line up ALL sales/RTO first, then convert !

Route 2 assumes deep (!!!!) exeriences based on dozens and dozens of sales and a sales channel ready to deliver !! A senior step recommended only to pro`s with battlescars !!
 
I`ve been mulling over a similar idea with my 4 plex. The fact is, some of the tenants that I have are young couples and I think it may be a great way for them to start to build equity as well as ease a situation where some tenants could get upset about the conversion. If they are given an option like this, they might go for it.

Nik
 
QUOTE (2ndstory @ Feb 25 2010, 10:18 PM) I`ve been mulling over a similar idea with my 4 plex. The fact is, some of the tenants that I have are young couples and I think it may be a great way for them to start to build equity as well as ease a situation where some tenants could get upset about the conversion. If they are given an option like this, they might go for it.

Nik
indeed .. but before or in parallel you have to have 3 other mortgages too .. and a permit to convert which is not always granted by the municipality .. plus appraisals plus a reserve fund study + a reserve fund seeded plus a condo corp (or a party wall agreement in a 4-plex) !
 
QUOTE (ThomasBeyer @ Feb 25 2010, 08:43 PM) Get full conversion done first .. This takes 2-3 months ... then get many small mortgages (one per condo) or partially dischargable large mortgage .. Then worry about selling ..

Or, if you are VERY experienced, line up ALL sales/RTO first, then convert !

Route 2 assumes deep (!!!!) exeriences based on dozens and dozens of sales and a sales channel ready to deliver !! A senior step recommended only to pro`s with battlescars !!


The 2nd route just seems to make more sense. Similar to having pre-sales in a condo building prior to starting construction. It would mitigate risk and differ costs until contracts were in hand. Can a person execute a sale/RTO BEFORE a building is converted??

Would this not be similar to a pre-sale in a construction project? The deposit being held in trust and refunded in the event that the project doesn`t move forward....or in this case the building doesn`t get converted..
 
QUOTE (2ndstory @ Feb 25 2010, 09:18 PM) I`ve been mulling over a similar idea with my 4 plex. The fact is, some of the tenants that I have are young couples and I think it may be a great way for them to start to build equity as well as ease a situation where some tenants could get upset about the conversion. If they are given an option like this, they might go for it.

Nik


The process is a lot of work with surveys, applications, legal work etc...... but you don`t have to do that work yourself. You pay someone else to do it. I have only converted a duplex at this point and I am not sure how it differs from a 4-plex. I do know that when getting into a 12-suiter, it is an entirely different ballgame. The conversion for the duplex took 2 to 3 months and cost me a total of approximately $6,000. I am estimating that the conversion is getting me an extra 25k per door or 50k total at resale. In my case, well worth the exercise.

When selling a 4-plex (duplex) as one title, you truly limit your market....mainly to investors.
The unit does indeed need to make sense for conversion. I have a 4-plex that I would not consider converting...
I would suggest you contact your local survey (engineering) company that have executed conversions before to get a quote and have them walk you through the process. I was intimidated at first to make this move and then found out how willing they were to work with me and explain things....
 
QUOTE (MarkTorgerson @ Feb 25 2010, 11:33 PM) ... Can a person execute a sale/RTO BEFORE a building is converted??
..
yes in theory ..
 
QUOTE (ThomasBeyer @ Feb 26 2010, 10:39 AM) yes in theory ..


Could you give any insight on how?
Could I just write up a RTO on a unit referencing the building and unit number? If the RTO was say for example....2 years, would I then just make sure that I completed the full conversion before that 2 year time frame expired??

Thanks!
 
QUOTE (MarkTorgerson @ Feb 26 2010, 10:16 AM) When selling a 4-plex (duplex) as one title, you truly limit your market....mainly to investors.
The unit does indeed need to make sense for conversion. I have a 4-plex that I would not consider converting...
I would suggest you contact your local survey (engineering) company that have executed conversions before to get a quote and have them walk you through the process. I was intimidated at first to make this move and then found out how willing they were to work with me and explain things....

I met with my lawyer the other night and he figured that the legal costs, engineer and architect costs, etc. shouldn`t take me over the 10g mark with my four plex. This is not the first one he has done. The others were apartment blocks. In Manitoba the tenants have a heck of a lot of rights and that seems to be the biggest challenge here in Winnipeg.

Nik
 
I suspect the main reason more people don`t do RTO with condos is the numbers tend to get mangled after you factor in the condo fee... Because RTO prices are generally already much higher then traditional rent you really can`t deliver value for the client..

We had one client try to get into a condo as part of our tenant first plan and get the shock of her life when she realized that little $229,000 condo was going to cost her as much as a $290,000 property because of the fees.. In theory I believe it could work in high priced areas where houses are just astronomical in price compared with condo`s but if the price points are fairly close together like the Hamilton area I operate in... Doesn`t seem to make sense.

She`s moving into a lovely freehold townhouse now...
 
QUOTE (2ndstory @ Feb 26 2010, 08:38 PM) I met with my lawyer the other night and he figured that the legal costs, engineer and architect costs, etc. shouldn`t take me over the 10g mark with my four plex. This is not the first one he has done. The others were apartment blocks. In Manitoba the tenants have a heck of a lot of rights and that seems to be the biggest challenge here in Winnipeg.

Nik


So approximately $2,500 per door.
How much more do you feel these units will be worth at resale once they have been converted?
 
QUOTE (jseib @ Feb 26 2010, 09:10 PM) I suspect the main reason more people don`t do RTO with condos is the numbers tend to get mangled after you factor in the condo fee... Because RTO prices are generally already much higher then traditional rent you really can`t deliver value for the client..

We had one client try to get into a condo as part of our tenant first plan and get the shock of her life when she realized that little $229,000 condo was going to cost her as much as a $290,000 property because of the fees.. In theory I believe it could work in high priced areas where houses are just astronomical in price compared with condo`s but if the price points are fairly close together like the Hamilton area I operate in... Doesn`t seem to make sense.

She`s moving into a lovely freehold townhouse now...


I would agree with your comments but the thing about buying a full building and then trying to convert is that you always get the price cheaper per door. That savings you can pass to the buyer once the conversion is made to make it more marketable. For example, this building cost me approx 83k per door. Similar units sold as condos are selling for approx 135k per door which gives me lots of room to play. I could go with a 2 year LTO for around 145k. A single family home in my area starts at around 200k for anything decent.

The idea of going with the RTO on the units BEFORE the conversion lets me test out the market to see if this would work. It would mitigate my risk and differ the big costs unit the option dates come due a couple of years down the road. This is of course all theory......but it just seems to make sense to me.

The question comes down to......how do you write up RTO contracts on units in a building that has not been converted?
 
QUOTE (MarkTorgerson @ Feb 27 2010, 12:17 PM) The question comes down to......how do you write up RTO contracts on units in a building that has not been converted?
it is called a disclosure statement similar to the one used by builders selling pre-sales on condos not yet strata titles / that do not yet exist with language rigged into your favour to protect yourself !

Only for a substantial discount to market will you find a buyer as the contract will have to be worded such that YOU can get an out if the conversion fails !!

Suggestion: forget this "pre-sale" / "RTO while not ready" route.

Convert the asset legally. As you stated this is quite in expensive. Then get 4 new, short term, variable rate mortgage .. THEN sell to owners or as RTO !!

Send send us a postcard from paradise from your sales proceeds !
 
QUOTE (ThomasBeyer @ Feb 27 2010, 11:49 AM) it is called a disclosure statement similar to the one used by builders selling pre-sales on condos not yet strata titles / tat do not yet exist with language rigged into your favour to protect yourself !

Only for a substantial discount to market will you find a buyer as teh contract wil have to be worded such that YOU can get an out if the conversion fails !!

Suggestion: forget this "pre-sale" / "RTO while not ready" route.

Convert the asset legally. As you stated this is quite in expensive. Then get 4 new, short term, variable rate mortgage .. THEN sell to owners or as RTO !!

Send send us a postcard from paradise from your sales proceeds !


Thank you for your input Thomas!
 
QUOTE (MarkTorgerson @ Feb 27 2010, 12:03 PM) So approximately $2,500 per door.
How much more do you feel these units will be worth at resale once they have been converted?


With no renos, $100 to $125 000.
With modest renos $125 to $150 000
With designer renos $145 to $175 000

The risk goes up with each one, but the potential return is there.

Nik
 
QUOTE (2ndstory @ Mar 2 2010, 10:47 AM) With no renos, $100 to $125 000.
With modest renos $125 to $150 000
With designer renos $145 to $175 000

The risk goes up with each one, but the potential return is there.

Nik


Good work.
Even if you don`t do anything with the conversion, you should have no problem getting back the $10,000 (or more) at resale. It would be more marketable to investors as a converted building.
 
QUOTE (MarkTorgerson @ Mar 2 2010, 01:29 PM) .. It would be more marketable to investors as a converted building.
not necessarily as the price would be higher ...
 
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