What are the risks of buying into a condo that is less than 50% owned by the investor. (Majority of units are rented out.)

Asked by uman9286, Brooklyn, NY Thu Sep 6, 2012

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Alex Levin, Agent, Staten Island, NY
Fri Sep 7, 2012
BEST ANSWER
There are no risks involved. It is a reason why so many units are rented. I suspect it's due to the Fannie May regulations for a new condo development. You cannot get a mortgage unless certain percent of the development is already sold and closed. It is a common situation today. As for you, there no financial risks involved. May be the qualify of the tenant?
0 votes
Joseph Runfo…, Agent, Staten Island, NY
Sun Sep 9, 2012
If more than 50% of units are home to renters, your property value is affected because FHA won’t finance loans to buyers for your condo or refinance your existing loan. Plus, would-be buyers typically seek out condos in buildings that are majority owner-occupied based on the perception that owners are quieter and more stable than renters. Since renters are not owner-occupants, they will not have a vested interest in maintaining the value of the project. More importantly, a lender may consider all units in a condominium project that allows too many rental units to be investment property. For example, if the project's rules allow 30% or more units to be rented (even if they aren’t actually rented) lenders could deny potential buyers a home owner’s loan and will instead offer an investment property loan that entails a lower loan-to-value ratio and a higher interest rate. If a rental restriction is not in place, or if there is room for the HOA to adjust the level of rentals, your ability to sell the unit later could be impaired.
1 vote
Jill Subes, Agent, New York, NY
Fri Jul 26, 2013
It is usually more difficult to get a mortgage in this. instance. Also go through the building and see how you feel about the people living there. Remember these are renters and there might be a big turnover of tenants
0 votes
Lorraine Vel…, Agent, Staten Island, NY
Thu Sep 6, 2012
More than half the condo units must owner occupied, and no more than 15% of owners can be delinquent on condo dues. Lenders want to see a higher concentration of owner occupancy.
0 votes
Hector and M…, Agent, Staten Island, NY
Thu Sep 6, 2012
The other thing could be that is the building a recent condo conversion? The building might have been an apartment building that is in the process of converting from apartments to condo and the investor could be the sponsor still tring to sell off the rest of his units. If that is so then the building would not pass FHA guidelines, and could falter the future sales in the building. There are banks that would finance this but would need a 20-25% down-payment . I have sold many units in a building like this, if you have any other questions feel free to call me @ (718) 801-3005 or email me Hector@Mesa4Homes.com
0 votes
Jessica Tracy, Agent, North Windham, CT
Thu Sep 6, 2012
If you are an FHA buyer then you will not be able to purchase the condo. But, as for other concerns most condos have guidelines that need to be followed wether you own or rent in the complex. I would take a look at the other condos in the complex to make sure that the outside is to your liking. If you see lots of trash or it's unkept then you know that the association probably doesn't enforce many rules.
0 votes
Thanks for the response. Would it be a risky investment on my part? I don't want to take out a mortgage on a unit and be stuck with because the owner leaves.
Flag Thu Sep 6, 2012
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