I am looking at a condo in a development that has a lot of distressed properties for sale. This may be a

Asked by Dynamicdeebythesea, San Diego, CA Fri Apr 10, 2009

good time to buy this for a rental, but I am concerned with so many properties upside-down in this large development it may a bad situation all around??

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Kari Shea, Agent, San Diego, CA
Fri Apr 10, 2009
Hi D,

Here are the basics you need to know about this type of purchase:

1. If you are purchasing with cash, the remainder of this discussion does not matter.
2. If you are purchasing with a loan, know the following:
A. Lenders are scrutinizing the financials for HOA’s
B. Lenders are looking at the percentage of owner occupied to non-owner occupied.
C. Lenders are reviewing if the HOA has any pending litigation that could effect their position.
D. Lenders will not fund a loan on condo/townhouse complexes where more than 10% of the properties are late on their HOA fees.
E. Lenders are looking at rental rates and occupancy rates for rentals in the area where you want to purchase.
F. You will have to put a minimum of 15% to 20% down because it is a condo/townhouse ownership.

We hope this information helps you in your decision.

Best regards,

Mark and Kari Shea
San Diego Real Estate Experts
Foreclosure, Short Sale & Investment Specialists,
Development Opportunities & Traditional Real Estate
1 vote
Kari Shea, Agent, San Diego, CA
Fri Apr 10, 2009
Dear D,

The scenario Rick provides for appreciation works in a 7 to 10 year time frame. In our opinion, and those of the financial experts, the market will take 5 to 10 years to recover. We are more conservative based on our own research on market trending.

The solution for an HOA that is financially distressed is do a 1 time assessment or raise the HOA fee.

Best regards,

Mark & Kari
1 vote
Jeffrey Doug…, , San Diego, CA
Fri Apr 10, 2009
Right now there are quite a number of investors in the market purchasing rental properties. I assume you have confirmed that the rental rates in the complex and area are high enough for the investment to make sense. As the others have answered below, without knowing the specifics of the complex it is hard to give specific advice. You are correct to be concerned about the complex because it could affect your rental rates if the project continues to run down and become more and more vacant.

I have always liked single family homes are investments in San Diego. Finding homes in good areas with strong schools is a good way to go and you don't have the HOA fee issues to deal with.

The key as noted below is to work with a seasoned REALTOR to help you with the process.

You have not said what part of the County you are looking in, but I have just added live market statistics for most of the Coastal San Diego market which identifies those areas with high inventory and market time. See the link below for graphs and free sign up.

Depending on your whole financial package this may be a good time to buy, and it may not.
1 vote
Patti Philli…, , Carlsbad, CA
Fri Apr 10, 2009
Dear Dynamic- I agree with what both of the previous Realtors had to say. There is a lot to take into account, and details that need to be known. Some of the developments that have a lot of properties upside down, also have more available units than there are renters, so it wouldn't help you out too much to purchase it to use as a rental.

Contact a realtor in your area that you can trust to help you explore all sides of the developments you are considering, so that you make an informed decision.

If you don't have a realtor, I would be happy to help.

Patti Phillips
"Advice You Need, Attention You Deserve"
1 vote
Melissa A. S…, , 92040
Fri Apr 10, 2009
I would need to take a look at the development. If it's relatively new or recently "converted", it could be that many people bought them at the peak of the market and got involved in an adjustable rate mortgage (ARM) that they could not pay. However, there are some developments that are having trouble paying HOA fees. It's important to have a great Realtor working FOR you to make sure you are protected. Feel free to call or email me with questions.

Melissa A. Santich, Realtor, ePRO
1 vote
Dynamicdeeby…, Home Buyer, San Diego, CA
Sat Apr 11, 2009
Thanks for all the great advice. I discovered that this was an apartment complex converted to condos at the peak of the market. Therefore, too many owners are upside down, some have "walked away," and the HOA fees are high. The area is UTC and while the prices of the units are low compared to the area (Lucera complex), I decided I do not like the risk and high HOA with potential for special assessments. Even with 20% down, I have concern that a lot of lenders would feel the same way as I do. We have property in Austin, TX and may look in that area as well.
Thanks again for the great advice.
0 votes
Nick Rhea, , San Diego County, CA
Fri Apr 10, 2009
Hello Dynamicdeebythesea,

By the bad sell the good. I will give you an example. You buy a condo knowing the HOA is broke and so it is priced in to the purchase price. You stand to capitalize on your transaction once the HOA repairs its finances. When the finances were in bad shape, lenders would have been reluctant to provide financing. Maybe you had to pay all cash or put more than 20% down. Now that the financials have been improved, lenders are more likely to lend to borrowers looking to buy your unit.

Summary - You would have purchased at a deflated price because demand was low because few people could finance the transaction. Now you can sell at appreciated prices because demand increases because more people can afford to buy your place becasue lenders will provide financing.

I think I just confused myself. Call me if you need more help.

Nick Rhea, MBA, Broker
Bombora Investments, Inc
0 votes
Katrina Hami…, Agent, San Diego, CA
Fri Apr 10, 2009
Dear Dynamicdeeby,

Without detailed information about the developement, especially extact numbers in comparison to the # of defaults, particularly in larger communities...what percent of distress are we talking here? Without assessing the current HOA of the community I'm not able to offer much assistance. If you'd like to talk and share in detail I'd be happy to help. Please feel free to contact me direct.

Katrina Hamilton
Direct: 858-405-4407
Web Reference:  http://www.downtownREOs.com
0 votes
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