Home Buying in Austin>Question Details

Ethan, Home Buyer in Austin, TX

Why is the motivation behind creating 2 unit condos?

Asked by Ethan, Austin, TX Thu Nov 20, 2008

I've ran into this a lot during my online search for new homes, but there seems to be a glut of 2 unit condo associations created and sold. The units are either freestanding condos or duplex condos, but the condo association is made up of yourself and 1 neighbor next to you.

1) What is the reason developers do this?
2) It also states that it's easier for the owners to negotiate the HOA dues since it's only yourself and a neighbor? If this is the case, can you and your "neighbor" (the other HOA memeber) dissolve the association so the free standing condo can be converted into single family homes?
3) What are the benefits and downside of having a free standing condo with no hoa dues?
4) What happens when you and your neighbor which both have a 50% stake in the association can't come to an agreement?

Thanks for your help!

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Answers

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Ethan:

Hello and great questions! There has been a fair amount of this type of activity in Austin in the last couple of years largely due to the general economics of being able to sell two units versus 1 duplex. Duplex's have traditionally been great rental vehicles and could only be sold as 1 package (2 units = 1 sale). With the creation of a 2 unit condo, you could actually sell the units individually. This opened up a part of the market to buyers that did not exist - get a more "single family" type residence with generally only 1 common wall. This is something that is appealing to both buyers and sellers. Before the creation of the 2 unit condo, sellers would need to seel the both sides to the same person or group. Now, they can go after a more traditional condo buyer.

Also, most deeds for duplexes specifically state that the land can not be subdivided - split it apart and sell the units seperately - this would be more closely related to a townhouse. Because of this, the land itself is owned by the association with ownership rights granted to each owner for the common interest.

There are definitely pro's and con's to the arrangement. If you buy one to redo (duplex), keep in mind that there are two of everything as you redo it (fridge, ac, stove, bathrooms, floors, etc...). Make sure that you factor these things into the overall expense.

The creation of the condo association does require legal documents to filed with the state about the creation and ongoing care and feeding. This can be done through an attorney. I have specfically worked with Julie Alexander's office in Austin to do this. She and her Team have done a considerable number of these conversions. She is top notch.

Now to answer your specific questions:

1. Answered above - greater opportunity to sell and attract a buyers that you would not have traditionall with a duplex.

2. This is true. You will establish as the developer the starting point of the HOA. Yes you can dissolve the condo association through the legal process, but you will not be able to own the units individually - most likely due to deed restrictions. You may be able to own them together. It could be turned into a single family home, but again would require legal assistance to uncovert from a condo. If it would ever loose its desigation as multi unit - even though you could buy both sides as well as open it up to make 1 home.

3. Benefits without dues... This really should be driven by the units, homeowners and needs of the hoa. I have worked with one recently where the HOA dues was only for water. It was established at 50 per each side per month. There was 1 water meeter coming into the structure. The HOA could actually decide to increase this to include lawn care or other items for the common benefit. Insurance is another thing that dues usually cover for the common area. Depending on the structure - different roof lines that can be insured seperately may allow no common area insurance. AGain, you will want to consult an attorney.

4. You will want your legal formation documents to clearly state how things are to be resolved. You need to understand that going into it you are still sharing a wall with someone. This is pretty close to single family ownership - but not 100%.

Hopefully this has provided some extra help in understanding how these have come to be. I would be glad to talk further if you have an interest.

Thanks
Ritch Haenke, Realtor
Coldwell Banker, United
512.633.3909
rhaenke@sbcglobal.net
1 vote Thank Flag Link Fri Nov 21, 2008
Hey Ethan,

I own and live in a unit like you are talking about! My neighborhood has a number of these; we bought ours last January. The main benefit of 2 unit condos is to the builder/seller - he has more potential buyers.

I disagree with some comments here by agents - if they are new, well built, in the right spot, and in an average price range for Austin, they move very quickly. A resale one about 5-8 years old, a few lots away from me just sold VERY quickly, and the sellers had multiple offers to choose from. It is important however, how they are built on the lot -....

I wish you could talk to my neighbor on the other side of the one that sold - for numerous reasons they tried to buy the other side, but were outbid. They have also had problems with the structure of their condo docs, and it took a while to sort them out ( well prior to the listing ).

I have no ax to grind here. I am NOT an agent, just a homeowner. I can offer you a different outlook than most agents - feel free to contact me at theurbsuburb@gmail.com. I'd be glad to discuss this with you. I'd like to help you avoid the problems my neighbors experienced, as well as sharing with you how we solved some potential problems!
0 votes Thank Flag Link Sat Feb 1, 2014
Hi, I'm considering converting my duplex to a condo/townhome.Id like to know what issues you and your neighbors encountered
Flag Sun Apr 13, 2014
Great question Ethan - I think the specific points have been covered well by the other agents. In essence, it's a great way to buy half a duplex as a condo. I second Ritch's advice, and you can reach Julie Alexander at (512) 478-9770
0 votes Thank Flag Link Wed Jan 29, 2014
Dear Ethan,
It appears whe all have skipped part of your questions.
#2. I know of no way to disolve a condo HOA. You may be able to contact an attorney that can assist you with this inquiry, as Realtors it is not our area of expertice and we may not give legal advice.
#4. This is typiaclly known as a stalemate. Nothing gets done until someone gives in or gives up. This is yet another reason most people won't buy one of these properties, because you have limited control of your own home.
I hope this clears things up. Good luck and call me if I can help you further.
Sincerely,
Betina
0 votes Thank Flag Link Mon Dec 29, 2008
Ugh, I teach a duplex class and I get this question a lot -- "Can we build a duplex and sell it as condos?" or "Can we buy this old duplex and turn it into Condos?" --... It's a tough question to answer because the answer is YES and YES to both questions... but it is not the sort of property investment I would recommend because NO ONE wants to buy half of a duplex... At least not in this town... This is west coast phenomena, it's very rare here in Austin. It is far easier to sell an "intact" duplex with tenants paying rent, than it is to sell half a duplex as a condo.

Developers doing this are normally being ordered to do so by misguided investors. I specialize in Duplexes and investments and I would never recommend this course of action. If we were to develop anything, we'd develop single family homes -- period. The HOA, to agree with previous posts, is a legal entity -- which causes additional problems for someone wanting to covert the darn property to anything else other than a condo... Even if both sides is owned by the same owner -- as in the DR horton community on Dessau north of Parmer, these are townhomes built as duplexes sold as condos... Nearly 80% of them went to investors since they couldn't sell them to individuals. A free standing condo with no HOA dues... I don't know if it's still a condo at that point, on the books it might be. If you can't come to an agreement it might have to be legally mediated... That would be nasty...
Web Reference: http://www.duplexstore.com
0 votes Thank Flag Link Tue Dec 16, 2008
Dear Ethan,
The short answer to your questions is greed.
0 votes Thank Flag Link Thu Dec 11, 2008
Hi Ethan -- I actually just sold one of these "condos" in East Austin. Here's my understanding:

Two reasons why a builder may classify a freestanding residential dwelling as a condo instead of single family home. First, on many of these central Austin lots where the builder puts two structures, the lots are too small to qualify the property as a singe-family home but the property can qualify as a detached condo. Another possible reason is that subdiving the lot into two single family structures requires a public hearing where neighborhood associations and residents can object to the subdivision. Creating a condo regime is essentially an administrative legal process.

If you and your neighbor (HOA) are motivated to go through the legal process -- of course it's a possibility -- but you will be met with the same challenges as the builder.

Some other downsides to consider:
1- Financing for condos is becoming increasingly more difficult to attain; may create problems down the line when you go to resell. Some federally backed loans require a % of condo project to be owner occupied... and if you only have 2 units and 1 is owned by an investor...that might create problems for you to find a buyer.
2 - The HOA is a legal entity that is required to file tax returns... either you or your neighbor is going to have to take care of this and there are expenses associated with that. Read through the Condo Regime to see budget for tax preparation.
3 - "Condos" in genearl have lower perceived market value... folks looking for a "house" do not want to buy a "condo" even if it looks and talks like a house.

The condo regime should also outline what happens in a deadlock vote if the HOA cannot come to an agreement. It's possible that it's an all or nothing deal -- either everyone agrees or no changes are made.

However, these condos sell... generally because they are very well done and built in densely populated close-in neighborhoods. Which is ultimately why my clients bought theirs in East Aust. They just LOVED it.
0 votes Thank Flag Link Tue Dec 2, 2008
Dear Ethan,
This has become a more common type of development in the central areas of Austin over the last 5 years. I would not say that it is popular except for with the developers.I Most people prefer the privacy a single family home provides. The point is there are several reasons this"condoization" is happening.

1. Existing Duplex properties are being divided and turned into condo associations of 2 units. This allows the owner to keep one side to live in and sell the other side.
2. Developers buy single family homes desirable central neighborhoods like: Hyde Park, Tarrytown, Barton HIlls, Zilker, and Travis Heights for around $200-$300K. Then the developer tears the original home down and builds two or three condos. The exact number of condos built depends upon the lot size. The bigger the lot, the more condos. Each of these condos are then sold for $350-$800K depending on finish out and location. So the developer can make some serious money by doing this.
3. I don't see how you can convert them back to single family homes. The lots typically are too small to be subdivided for each unit to be classed as a single family home.
4.The benefit of a free standing condo is fewer neighbors, easier parking, lower HOA dues, and you have more control of HOA.
5. Some HOA's have mediation as an option should the HOA board reach an impass on a praticular topic. This is one of the reasons I prefer single family homes. I would hate to essentially be "married" to another person and have to consult with them for every decision I made about my home.

As a Realtor I can tell you I have more clients that want single family homes in the middle of town and the developers are impacting the type of inventory that is available by destroying single family homes to build condos in their place. That is not to say that I don't sell these condo properties, because I do. However I feel there are more clients that are looking for the independance of a single family home over a condo.
0 votes Thank Flag Link Tue Nov 25, 2008
Hi Ethan,
The duplex to condo conversions became popular in Austin a few years ago. People who were interested in purchasing a property to remodel and sell found that a duplex converted to a condo could maximize the return on their investment. The HOA dues on these projects were typically low because there are not large maintenance issues associated with the property. You are correct that with only 2 members of the association there is a potential for unresolved conflict. However, I have participated in many of these transactions have have never run into that problem.
One of the advantages for these properties is that it allows buyers to purchase a property in a neighborhood where they would otherwise not be able to afford to buy a home. You get the price of a condo without the large complex feel.
I have more experience with this type of property than most agents in the Austin area. Let me know if you would like more information.
Diana
0 votes Thank Flag Link Tue Nov 25, 2008
Interesting.....this must be a local Austin thing to do. Maybe to get around city or zoning requirments. Here in the Dallas area almost all duplexes that I see can be sold seperately....each side. It's almost hard for me to find for investors duplexes that have both sides available. Sometimes, but not as frequently as one would think.
All the questions you bring up are good questions and some of the risks involved.
I'm going to guess that these are set up so that they association cannot be disolved easily.
Not sure about the benefits, other than that if there were zoning laws to avoid, that was the only way for these units to get built.
Downside is many....if it is a single roof or other common features such as drive....what happens when you have differences of opinion as to when things need to be replaced, painted, repaired. What if you can afford a new roof, but the neighbor can't. Do you replace 1/2 to the line? What if drive needs to be repoured and there is a shared section. Do you repour your portion and the shared section only?
Good luck and let us know what you decide.
Web Reference: http://www.teamlynn.com
0 votes Thank Flag Link Fri Nov 21, 2008
Bruce Lynn, Real Estate Pro in Coppell, TX
MVP'08
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