So in a nearby city, they converted a hotel to a condo tower a few decades ago. I visited and although it's kinda outdated looking its nice. The building manager said there's a waiting list to rent there.
What's interesting is that due to zoning (I believe), you can't get a mortgage. A studio goes for $150k so of course it's all investors owning the place and then renting them out.
I will say that you do get good rents. For that $150k investment, you get $1500/mo rent. HOA is like $500 but includes cable and utilities. That's way better then if you bought a house or even a condo in the same city.
The drawbacks obviously are a limited market if you decided to liquidate. I guess thats why you're paid the premium.
Is this buyer beware?
Condo tower doesn't allow mortgages: buyer beware?
byu/Affectionate-Reason2 inRealEstate
Posted by Affectionate-Reason2
3 Comments
That ROI sounds too good to be true tbh – 12% annually before expenses is wild for real estate. I’d be digging deeper into why no mortgages are allowed because that’s usually a red flag about the property’s legal status or structural issues
The reason you can’t get a mortgage is most likely because it won’t pass the condo questionnaire required for mortgages. The rental part alone would make it unwarrantable. You then mention it looks aged, here’s another reason I’d guess is preventing a mortgage from being done. They may not have the reserves to complete capital improvements, again à failure for a condo questionnaire. All in all I would avoid.
This makes perfect sense and I wouldn’t say buyer beware. I don’t know if it’s zoning. It could be not enough owner occupied or other reasons. I see it occasionally here in the Seattle area. I can’t say exactly but typically if they aren’t financiable, condos will go for a chunk less money and it makes sense. You reduce the number of potential buyers and you’re just going to have to reduce the price .
But the numbers pencil out. And you know the reason it’s cheap. Sometimes you look at something for sale and you say that’s too good to be true what’s the catch? Well the catch is, you can’t finance it, and when you go to sell it’s not going to bring as much money as if you could finance it. But since you bought it cheap, and you sell it cheap, you’re still doing good on the rents and it should still appreciate.
And, if you can get in, honestly, down the road it might become financiable and then you’ve just scored some nice extra profit. Now, of course you’ve got to do your due diligence, and buyer beware, right? You’ve got to find out everything that’s going on with it and why it’s not financiable. If it’s something weird like a big lawsuit or a bunch of work that needs to be done and maybe they’re going to have special assessments or something, well then obviously you want to be careful. But, if there’s a logical reason why it’s not financiable, and the price reflects that, but the rents are good, and you go in with eyes wide open, then you’re all set.