investing in condos

We’ve all heard the notion that the whole is greater than the sum of its parts, right? That individual pieces joined to make something whole are worth less when apart than together.

But not necessarily in the world of real estate investments, and certainly not when considering turning an existing apartment building or commercial space into condominiums.

The theory works this way: an investor considers the purchase of an apartment building that has 20, two bedroom units. The current owner of the property is asking $4 million for the apartment complex but in nearby condo projects, two bedroom condos are selling for $300,000 to $350,000 each. By purchasing and converting the apartment building from 20 two-bedroom rentals to 20 two-bedroom condos, the gross profit on each two-bedroom unit can be upwards to $150,000 each, before selling costs. That’s the attractive feature of condo conversions.

But converting real estate into condominiums is not restricted to large, multi-family units. A duplex can be turned into a condo, so can a triplex or fourplex. There is no limit on how few or how many units there needs to be in order to convert to condos. Why would someone turn a duplex into a condo? For the same reason another investor spends $4 million to sell for $6 million, just on a smaller scale.

However, condo conversions require a bit more than good intentions and a permit from the city. There’s quite a bit of legal as well as site work involved and can be a rather lengthy process. And there’s the issue of existing tenants, those that are currently renting must be given fair notice that the property is being converted to private ownership. Many of the current residents have the opportunity to purchase the unit in which they’re living but others will choose to move on.

Getting involved in a condo conversion can be a profitable investment but go into the transaction with eyes wide open. If you’ve never been involved in a condo conversion and are sizing up a potential project, you need to get others to partner with you or at minimum provide much needed guidance along the way.