Understanding the Condo Conversion Process
Considering converting your existing property into a Condominium? This can be a great way to increase the return on your investment – learn more about the process here, and contact Marino & Marino, P.C. to get you through it!
Marino & Marino, P.C. Source: Old Republic Title
The condominium (“condo”) market is often the go-to option for low-to-moderately priced housing in metropolitan areas across the nation. When the demand for condos is high, many investors and developers look to condo conversions to increase their profit revenue, since working with an existing building is generally faster, less expensive and less risky than building from the ground up.
When converting an existing property into condos, it’s important to fully understand the developmental process, including steps taken to vacate the property, fees and costs, state and local regulations, financing and timing. Let’s explore a general overview of the process and some important things to consider.
What is a condo conversion?
A condo conversion is when a property that is wholly-owned by a single title holder is transformed into individual residential units that can be sold to the public. It usually involves converting rental units like apartments, but other types of properties can be converted into condo ownership, such as a hotel, office space, parking garage or an industrial building.
What are some pre-conversion factors to consider?
When investing in condo conversions, there are some important factors to consider before you purchase a property:
Consult with a real estate attorney. It’s best to retain the services of a real estate attorney who specializes in condo conversions and is well-versed with state and local laws that could impact your project. In San Francisco, for example, condo conversions are limited to buildings of no more than six residential units. Those units must be partially owner-occupied, meet certain occupancy requirements and have a written Tenancy-In-Common (TIC) agreement in place. Having an attorney who knows the local restrictions and limitations can help you avoid making costly mistakes.
Conduct a market assessment. With the help of a real estate professional, conduct a market assessment of the property to determine eligibility and feasibility. The assessment should include information about comparable sales in the area, market trends and property history, such as ownership percentages and eviction history. Conducting an assessment allows you to determine if the property qualifies and the converted units are likely to yield a profit, once the cost of purchasing the building and making renovations are deducted from your investment.
Retain a licensed professional to examine the property. Prior to purchasing a property, it is important to review the condition of the land and structure with a licensed professional, such as an architect, engineer or land surveyor. Most states even require it. In Florida, for instance, The Roth Act requires an engineer or architect to prepare a report before the property is purchased or renovations begin that discloses to the local municipality, among other things, the condition of certain components of the property and estimated replacement costs and a pest infestation report from a certified pest control operator.
Talk to a mortgage broker. You will need to secure proper financing in order to convert a building into condo units. Speaking with a mortgage broker prior to starting a condo conversion can give you an idea of mortgage-related costs, such as loan terms, interest rates and closing costs.
Understand the role of the title company. The assistance of a title company is imperative to complete your condo conversion. The title company will provide information about the ownership of the property and whether any liens or restrictions have been recorded against it. It will also record documentation for the project, such as the Master Deed and Covenants, Conditions and Restrictions (CC&Rs). When it is time to sell the units, the title company can also issue title insurance policies to protect the property rights of the new owners.