Rentals make it tough to sell

In a cooling housing market, too many rentals in a condo building can make selling a lot more difficult.

Those holding the bag at this time (those who bought last year or the year before that, for a quick flip.) are forced to rent out the apartments to meet mortgage payments and carrying costs.

The value is negatively affected by large numbers of rentals in a condo building. There are a number of reasons, but the main one is that the tenants do not exhibit the same pride of ownership as buyers do. And investors, who are losing money monthly, are typically more inclined to sell and to sell at a lower price.

Both factors are important in today’s real estate climate, because of the slowdown. There are too many units on the market, and investors who are experiencing significant negative cash flow are more likely to discount further, lowering units and buildings value even more.

When half or more of units in a building are rented, bankers look askance. In the past you couldn’t get a 90% loan if the community that you are buying into was more than 50% rented. When lenders find out that that’s the situation, they want a higher rate of interest, since it represent a greater risk.

A large number of rentals is a clear indication of investor-owned units. Most banks place limits in the portion of a condominium that can be sold by a developer to investors to avoid this very situation.

If multiple banks lend to condominium buyers, as is frequently the case in re-sales, the condominium board usually will limit rentals, but with the sheer number of units coming on the market now, there’s almost no way you can control it.

Thus you can, at this time, rent a nice high quality unit for the same price or less as an older building. And now more people will be renting because of the housing affordability factor.

That may not be good news for the condominium owners who occupy their own units, however, if the building has a high rate of renters, renters rule and the owners stock would most likely be devalued.

For professional advise on all aspects of buying or selling real estate, please contact me at-786-287-9272 -email:Richard@RichardRecuset.com Richard Recuset-Multi-Million Dollar Producer-The Recuset Group