Condominium Conversions
Testimonial
I purchased a 20-unit apartment building in San Diego to convert to condominiums. Pacific Investment Properties has very successfully guided me through the process and sold all the units. They consistently demonstrated a keen awareness and understanding of all aspects of the transaction.
Mr. L.S. -Escondido, CA
Success Story
My LLC acquired 24 2-bedroom apartments at a price of $159,000 per unit. The units sold at an average of $327,000 representing an increase in value of over 200%. The cash on cash return on my investment was an even more incredible 236%!
It is no wonder that Condominium Communities are becoming increasingly popular: the condominium lifestyle is attractive to a large group of people who enjoy the kind of maintenance-free living afforded the condominium dweller. This group includes retirees, baby boomers, singles, recently married, single parents and young professionals - busy people who have neither the time nor the inclination to work on the upkeep of the structure and the grounds of their dwelling.
Perhaps most importantly, Condominium Conversions allow the investors/owners of multi-family properties to realize the equity in their property in a short period of time. In some markets, inflated rental rates have made it essentially less expensive to purchase a condominium than to lease an apartment.
Outlined below are some of the positive aspects of a condominium conversion,
RISK
A condominium conversion will allow you to get out from under your indebtedness sooner than the typical amortization of a loan on a multi-family investment. This is assuming that the loan is in the early stages of its term. The investor's/owner's risk may be mitigated by this early debt retirement as they may be out of the property before the next real estate cycle hits which is inevitable.
As the owner sells condominium units, his risk as it relates to expenses will be shared by the purchasers of the individual units. The new owners will pay all of their interior expenses and their pro rata share of exterior expenses.
REWARD - RETURN
The potential savings, and hence return, enjoyed as a result of a condominium conversion can be very significant. To illustrate this point, you need only compare the return on your multi-family property as if you had paid it off in three to five years as opposed to letting it amortize over fifteen or twenty years. You will enjoy your equity ten years sooner. It is possible that the owner of a multi-family property might achieve a significantly higher return with a condominium conversion than with a bulk sale of the same complex. That difference can be attributed to the fact that the retail price of condominiums is usually much higher, on a square footage basis, than the bulk sale price of multi-family rental complexes.
FLEXIBILITY
A condominium conversion allows the owner to sell the units at his own pace. This rate may be determined by how much income he will require in a particular year or by what his retirement needs may be.
The owner of the condominium conversion can elect to pay off his entire indebtedness with unit sales and still maintain a stream of rentals by retaining a number of units that he can continue to lease out.
The owner can diversify his real estate holdings by using one or more of his condominium units to acquire other properties. Using an IRC 1031 "tax deferred" exchange, the owner finds a property he desires and then exchanges a number of condominium units for the property.
The owner can more easily justify the expenses of the rehabilitation of his complex when doing a conversion as opposed to a straight rental operation. This allows the owner to update his amenity package and the property in general.
The above information is provided as a brief overview of Condominium Conversions. Should you wish to receive more detailed information, please do not hesitate to contact our office and we will gladly provide this to you.
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