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:
- Profitability. Transforming condos into apartments and renting them for the current market rental rate can be incredibly profitable.
- 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.
- 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.
- Building Code Violations. Code violations and uncleared permits can slow down or prevent the sale of all units in a condo deconversion transaction.
- Legal Issues. If 75% or more of the condo ownership approves the sale of the units, the action is binding for all unit owners.
To learn more, click here.