18
Feb

The Bubonic Plague of Housing?

 The Bubonic Plague of housing is know by another name, Condos!  Foreclosures abound, associations running deficits, folks leaving units abandon in droves!  The daily news stories are plentiful on all the reasons why NOT to purchase a condo in this market.  In fact, the Tampa real estate condo market has taken its own share of bloodletting, with more condo’s going to REO’s or short sales each day.  So why with a market in such frantic free fall would anyone in their right mind purchase a condo property? It’s simple, “investment opportunity”!

I am sure there are a number of naysayers rolling their eyes.  They are probably thinking to themselves “He is just another real estate agent pumping up properties to get a sale”.  The reality however is that the proof is in the pudding or in this case the numbers.  Now, before the critics speak up lets get something straight.  I am not suggesting that folks find any condo and things will be great, this would be insanity. What I am suggesting is like with ever other investment opportunity you have to run the numbers and look at the facts.

There are three specific criteria I look for when evaluating potential condo investments; the financials, the location and the construction or F.L.C.

The Financials:

Do the property numbers make sense?  I immediately look at two specific numbers hoa fees and rental rate potential. High hoa fees can be a killer for making a profitable investment and low current or future potential rental rates in the area are a nonstarter. Next, take a look at the amount of reserves the association has set aside for future capital improvements and their reserve roll estimates for these capital expenditures. If these look good next review the associations allowance for bad debt on hoa fees and unpaid unit hoa fees, these numbers should be low. A high bad debt number can mean financial ruin for the complex. Next, are there any special assessments coming down the pipe. Nothing can be worst then purchasing a unit, only to find you need to pony up another $10K to cover repairs. Finally, can the unit be cash flowed and garner a strong return on investment. Cash flow is critical, if you can not generate a positive cash flow you need to walk away and keep looking.

The Location:

As with any real estate purchase, location is critical. Finding the right location can mean the difference between success or failure in your investment. One positive note is that in certain markets condo developments were built in areas that were being revitalized. If the revitalization takes hold your investment can certain increase in value over time, if not you could be in for some difficult times. A good way to help assess the strength of the revitalization process is to understand the continued commitment by city or county governments to further invest in the area. Other important considerations are the emergence of bulk distressed buyers and the strength of the neighborhood associations.

The Construction:

During the days of condo gluttony, it was less about the construction of the property and more on how fast the units could be built. In many markets frame/stucco or frame/siding became common place; however there were many complexes which were built with concrete block or brick. I am of the opinion that concrete block/brick construction is the smartest move for condo investors. First, in my opinion these complexes hold up better to external wear and tear, thus reducing future exterior improvement costs. Second, they tend to be more desirable for renters; with strong unit noise insulation as well as being built in desirable urban dwelling locations.

One final note, in this real estate market many lenders will not even finance condo purchases, so cash is king.  The benefit of this is that banks holding these REO or short sale condos are taking substantial discounts to get the units off their books.

About the Author

Cristan owner of Fadal Realty Group of Century 21 Fisher & Associates, a real estate firm in South Tampa.  He works with buyers, sellers and investors in the real estate market and can be reached at www.dwellintampa.com

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