Demand for rental units has been rising in the last few years as a result of rising home prices, declining senior homeownership, increasing single-occupant households, and difficult mortgage lending standards. To combat this, a new trend has emerged where all units in a condo are sold to a third party who “deconverts” the condos into apartments.

Here are 5 considerations in the deconversion process:

  1. Profitability. Transforming condos into apartments and renting them for the current market rental rate can be incredibly profitable.
  2. Letter of Intent vs. Binding Agreement. There are two scenarios in which a deconversion transaction may occur. The first is an unsolicited offer from a developer or purchaser, the second is an association that voluntarily seeks out an offer.
  3. Deferred Maintenance. Developers and investors should keep in mind any maintenance issues that may arise when evaluating whether a condo is a viable deconversion candidate.
  4. Building Code Violations. Code violations and uncleared permits can slow down or prevent the sale of all units in a condo deconversion transaction.
  5. Legal Issues. If 75% or more of the condo ownership approves the sale of the units, the action is binding for all unit owners.

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