Condominiums are a solid investment when they’re in the right location and at the right price. That pretty much goes without saying perhaps but it was at one time a mistaken mantra that condos = profit, regardless. The “condo craze” causedreal estate investing in condos developers to overbuild without regard to proper market studies in certain areas.

As with any real estate, yes it’s about location and price, but it’s also about the market. Today, there are condo bargains to be found as prices have stabilized and condo volume has definitely picked up. However, when empty condos sit on the market, it can present some problems when buyers seek long term financing.

A condo project typically has just a few different floor plans from a studio to a three bedroom then some luxury penthouse suites. This means they’re all mostly alike with regard to floor plans. It’s easy for a bank to establish a market value in a condominium project due to the similarities. If a one-bedroom sold last month for $200,000 then a one-bedroom on the market for $200,000 should sell rather quickly. But lenders do place specific requirements for condos that must be met before a loan can be placed. What are some of these important condo rules?

  • The first requirement is turning over the control of the project from the developer to the condominium association.
  • No single owner can own more than 10 percent of the project
  • There can be no more than 50 percent of the units rented out
  • Commercial space must be limited and not exceed 10 percent of the total square footage
  • All common areas must be completed including sidewalks, workout facilities and swimming pools
  • No more than 15 percent of the owners can be more than 30 days late on condominium dues

Individual banks may impose their own condo guidelines but these are the “biggies” that most lenders follow. Once a contract is signed and accepted and a loan application is provided, the bank sends a Condominium Questionnaire that management completes and returns to the lender for review. Once a project is approved, the condo approval process for the next borrower is streamlined.