New member with questions on condo conversions.

[Joebio]

I have owned a business for about 9 years and am getting a little fried. I have been looking for something else to get into and would like some advice on whether or not it is a good plan. I have completed the Mass. real estate course, and will be taking the test soon, the purpose is not really to sell but to save a little on commision when buying and selling.

Anyway what I would like to do is to buy existing 6+ tenemant houses in the area, convert them into condos and attempt to sell to the existing renters. In our area these units are abundant, right now, there are over 150 on the market. The city I am pursuing is lower income therefore many of these folks are destined to rent forevor. With houses costing at least $250,000 most of these folks will never be able to own anything. However if I am able to buy a 6 unit, for around $320,000 (which is very doable) put another 12 to 15K into the property for the conversion, and sell each unit off at 85K, will it work? Normally 2 BR condos are going for 105 to 125K in this area so they will be purchasing below market value. My lender is going to be working on no money down programs to the client to finance them so essentially they will be able to move from a rent payment to a mortgage payment seemlessly.

I am hoping that some of you more advance folks will be able to pick out flaws in my plan. To purchase the properties, I have a private investor who will finance the entire project at a 1% origination fee and 10% deffered interest, with a payoff target of 12 months.

Thanks for any advice or insite you may have.

Joe Pacheco

[Dan Auito]

Joe I too am hoping that we can get a few conversion specialists to visit the site to answer questions such as this. I would suggest that you contact a reputable real estate attorney in your area who is familier with conversions as it is a specialized field.

My first question is if planning and zoning would allow the conversion, but then again I always seem to find myself down at city hall asking those who should know something or of someone who does.

If it was allowed, before I went any further I would ask the tenants the question ( If you could buy your apartment for $89,000 would you be interested in doing this?) Make sure you have the end game in place before getting to deep in the deal.

Note to all viewers, if you know of someone who you feel is qualified to answer this question with certainty then please by all means invite them to visit our community to help Joe out.

I encourage you all to get the professionals in this business that you know to drop by and become a part of this group, we are in a building stage and can use your knowledge of smart investors to build this community's foundation pillars.

Sorry for the commercial Joe, but your post brings this subject to light through a solid illustration of our needs.

[Joebio]

Thanks for the reply Dan, I have met with the #1 attourney in our area dealing with conversions. As far as zoning it is pretty wide open and won't have any problems. My biggest concern is the feasability of selling 85k condos to those who have rented there whole life. I suppose that I will have to find out by doing. All those that I have talked to have said yes, however I asked in a hypothetical sense. I am hoping to settle on a property this week, and I will keep you posted. In the meantime any thoughts are more then welcomed.

[Dan Auito]

Thanks for the reply Dan, I have met with the #1 attourney in our area dealing with conversions. As far as zoning it is pretty wide open and won't have any problems. My biggest concern is the feasability of selling 85k condos to those who have rented there whole life. I suppose that I will have to find out by doing. All those that I have talked to have said yes, however I asked in a hypothetical sense. I am hoping to settle on a property this week, and I will keep you posted. In the meantime any thoughts are more then welcomed.
Hey Joe, you might get a lender to run the numbers and create good faith estimates of closing costs, down payments and forecasts of monthly mortgage payment figures and then show people how they will save by buying. Then give them an U.R.L.A. Uniform Residential Loan Application to fill out. Start helping them get qualified!

You'll find out who's serious and who's not real fast if you focus on getting them to commit with a small deposit as well.

I have to fly for the next two days Joe so I won't be able to add further reply or comment until late Tommorrow so don't think I'm not answering, I'm just in flight! Thanks. Dan

[DionEvalueMortgage]

I like Dan's Idea! Next problem comes from the part of the people renting might not be likely buyers. Bad credit, low income, high debt etc. I think that is really the thing you need to eliminate. I know if deal like this came our way we would set up shop infront of the place and pre-qualify all your tenants. Also, one would ponder why worry about it you might just have to market the property correctly cause where are the tenants going to live during the conversion? Before any lender is going to loan on the property they are going to want to see at the extreme least 20% Cash Sold with a total 30% commitment to buy. And then it is still a toss up on who goes in first (Lender). No lender wants to be that guy, first into a condo complex the risk it too high. Unless your tenants can afford to just buy them they are not your market. On the other hand, it sounds very afforadable in terms of surrounding market.

One of the things that could help you is form an alliance with a realtor and/or realtor mortgage shop. Bring those guys in and let them do their thing. This stratagey is very popular and helps you tremendously.

I have recently sat down with a very good construction company and one of the problems that he relayed to me from the investor was COST. Make sure what you seek is cost effective. Remember your price will be fixed your constuction cost will not.

OK, I have a meeting....I will post some more when I get back...I like this topic!

[DionEvalueMortgage]

Well, I read my response from earlier and I am happy about it. And I am not really sure what else to write. So I guess I will just wait for someone else's opinion.

I would like to thank Magic Bullets for giving me something to do between appointments over the last 2 days! :praise:

[Dan Auito]

Well, I read my response from earlier and I am happy about it. And I am not really sure what else to write. So I guess I will just wait for someone else's opinion.

I would like to thank Magic Bullets for giving me something to do between appointments over the last 2 days! :praise:

Alright Dion, your in trouble now. You should come here when your on an upswing as well, not just when your bored. Just kidding! Glad your here. :thumbsup: