Condo Conversions

Authored By: Michael Southard

The past few years has seen a boom in condo conversions, which allows buyers to generate cash-on-cash returns within a short period of time. This, in turn, allows prior apartment owners to cash out at the top of the market.

The condo conversion craze began with the low interest rate affliction that was crippling apartment fundamentals. Condo developers were willing to pay a premium to buy and turn rental properties into condos.

The cash-on-cash returns that successful condo sales can generate are between 15% and 30% or more in a matter of months. Another benefit seen from condo conversions is the creation of more affordable housing in areas famous for steep single-family home prices.

Condo conversions can be a double edge sword, however, as conversions likely will hurt most rental markets. While condo conversions benefit multifamily owners by shrinking the supply of apartments, condo buyers are typically renters, so conversions won't necessarily lead to a jump in occupancy rates. In fact, some conversions directly compete with apartments because they end up as rentals. Also, many renters currently living in an apartment when it is bought and turned into a condo cannot afford the price of the condo. They are left searching for a new place to live. If they can afford to stay and choose to buy the condo, they are most often offered a much cheaper price than outside buyers.

Despite any controversy that condo conversions have created in the real estate market, it is still a smart, beneficial way to invest in real estate.

Michael Southard is the Vice President of Security National Capital. To learn more about condo conversion loans, visit Security National Capital.

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