Since the year 2000, we have seen condo-conversions and condo-reversions. In the present day, our lending climate has also ushered in a cycle of condo-inversions. Oversupply combined with the difficulty in securing a loan has created a huge shadow market competing directly with traditional multi-family homes. Fannie Mae and Freddie Mac will guarantee condo loans where buyers and properties meet heightened criteria. Under the new rules, buyers must pay 25% down or will pay an additional 0.75% at closing. 70% of the units in new condo communities must be sold, and 50% must be owner occupied to qualify. Tightening the criteria even further, not more than 10% of units can be owned by one individual or entity, all amenities and common areas must be administered by the HOA, and reserve funds have to be higher than anticipated expenses. Unless all of the stars align, current condo owners will find it almost impossible to sell or refinance, leading more to be forced into rentals or foreclosures.
The new restrictions have also created an atmosphere conducive to multiple unit sales at bulk pricing, further reducing values and sending the remaining owners and units into the “no-mortgage” zone. It’s a vicious cycle.
While new protections are available to renters finding a foreclosure notice on their door, individual must be aware that there is no guarantee the mortgage will be paid even when the rent is paid. Assuming a foreclosure, the expense to move and inconvenience to relocate within 10 days far outweighs the bargain prices renters may find. As they become more aware of renter’s rights due to the plague of foreclosures, traditional multi-family communities will benefit.
Multi-family owners and operators need to help educate new and potential residents on the securities and advantages found in dealing with professionals. On-site maintenance, functional amenities, and the security that comes with knowing utilities and mortgages will be paid are just a few factors to mention. While in the immediate future more condos will convert to competing rentals, it’s a waiting game where educated multi-family professionals have the advantage.