Real Estate Reminders
Real estate investing, done right, can be one of the most secure methods of growing individual wealth. Every financial portfolio can benefit from the income real estate ownership can generate, the returns it can accrue, and the offsets it can justify. A strategy that some investors have found favorable is converting an apartment complex into condominium homes. But if the transition is not managed wisely, you can kill your potential profits before the contract ink has time to dry.
Conversions of any sort, if done with due diligence, can turn a handsome profit. Changing apartment rentals into condominiums for purchase is a lucrative option. The key, of course, is choosing the correct existing property to convert. You want to find a property that’s 95 percent occupied or greater. You want to purchase it when 70 percent of the renters’ leases are due to expire within six to seven months. You want to offer current qualified residents an opportunity to stay on and purchase one of the units, and explaining and contracting the requirement for a 30-day period of vacancy to accommodate for renovations and upgrades.
Have your project manager arrange it such that a clear 3/4 section of the apartment complex will remain empty for the renovations and the start of the condominium sales. When you start selling the redesigned apartments that are now condominium homes, you do not want any old units readily associated with the new property. This is especially true if the old renters are still living there in run-down conditions. No new prospect is going to want to pay you $300 thousand dollars for a unit that’s obviously renting for less than a thirtieth of that on an annual basis. No amount of declared renovations will close the discomfort gap at the negotiation table once that realization is noted. As a matter of fact, you may find it best to complete the changes to the outer perimeter of the property, including final signage, after your construction team completes all of the conversions. If you’re concerned about marketing, use a print out of the digital workup. The best way to sell a home is with a showing that can accept an immediate ‘yes’ versus ‘we’re still working on that one.’
The timeframes discussed have the objective to use the income from the remaining renters to contribute to the new renovations. Generally, your chosen style of renovation will have little bearing on its marketability as long as you’ve selected a wise location. Whenever you’re looking to purchase real estate as rental property, whether whole or partial, go for a location that is within a 20 to 40 minutes walk and/or drive of a stable, renowned university and/or an established and/or growing research development hospital.
Do not skimp on the renovations. Design every unit to have two bedrooms and 2.5 bathrooms. Of course, this would not apply to units that are only suitable as studio apartments or other types of units designed for efficiency. Let each bedroom unit contain a bathtub shower combination en suite with an away toilet and strong vents exceeding code standards. Let each bedroom unit contain an alcove that can function as a business area and measures as 1/6 or 1/8 of the puchaser’s overall home space for ease of tax calculations for any business ventures pursued from home. Also allow for a 2.8 cubic ft. fridge, microwave and coffee pot to fit in the bedroom alcove/library/business center area. This would be in addition to the regular kitchen in the unit.
The kitchen/dining area design will feature as an entertainment space with streamline appliances. The half bath will feature a toilet and sink and a shower designed for guests. It will also have two stackable washer/dryer units on either side of the sink or toilet. The kitchen/dining area would feature a stage and projection wall. The purchaser could use it as a regular dining area but also as a section for play (adult or child’s), presentations, KJV Bible study, karaoke, charades, children practicing public speaking, etc. You can vary the units by adding fireplaces to some, libraries or bookshelves to others, sky observatory balconies to others, etc.
You may also differentiate the units per their turnkey color, making some stark white, others egg-shell white and some creamy or off-white. While these designs are strongly suggested, remember that it is fine to do so without gutting the existing units. Make the 2/2.5, special amenity, office alcove, spacious closets, double stackable sets stand even if the floor plans for some units will differ slightly.
Another negotiation angle that you could employ for the apartment to condo conversion is to purchase the property when 80 percent or more are due to terminate lease in 95 days and let them. But purchase the complex at day 95 and use a heavier commercial loan for the renovations. Do not start sales locally until after all units have emptied except you’re okay to sell to previous renters. Spend for large, speedy renovation teams and unique luxury materials such as marble, stone, crown molding, French patio doors, etc. Aim to sell all units within a 7 month to 1 year timeframe using an expansive, global marketing campaign that covers key potentials based on local university enrollment, current neighborhoods and frequented eateries of staff and medical professionals of the local hospital, etc. When marketing abroad, do so with network connections through local banks that sponsor relocation packages on a global scale.
When you buy a home, you’re buying into your future and that of your progeny, as well.