How Does a Landlord Convert Apartments To Condos?
Question
Many apartment building owners in my area have converted their apartment properties to condos and I am interested in perhaps doing so for my 24-unit property. How do I do it?
Answer
You will have to subdivide the property. Whether a particular property qualifies for subdivision and the procedure for obtaining approval depends on state and local laws where the property is located.
Among the dozens of factors that may be relevant are zoning, building codes, floor plans, sizes of units and rooms, separate metering for all utilities, sound proofing between units, parking, and in-unit laundry. All units will almost certainly have to meet all current building codes and all improvements having been done with required permits. Additional expense may result from needing to meet certain building code requirements for new construction that were not in effect when the property was originally built. As examples, fire sprinklers and/or handicap construction items may be required when converting.
An attorney experienced in conversions and licensed engineers and architects will almost certainly have to be involved. Before incurring the high costs of engaging these necessary professionals you should talk with those agencies who will have jurisdiction for approving condo conversion plans in order to reduce the risk of spending a lot of money and finding conversion is not possible or not economically feasible.
Conversion of existing apartment complexes is often not economically feasible. Larger properties are more likely to make sense than smaller properties, partly because cost per unit for many items becomes cheaper the more units involved. For example, the costs of legal work won’t be much higher whether there are 10 units or 100 or more units.
Unless you are doing the project with cash, you also need to discuss the project with potential lenders. This is important both to determine if conversion financing is even available and the total costs of the financing.
Finally, it is always possible that you will need to rent up some or all of the condo units even though immediate sale of all units was planned because the market changed during the time it took to do the conversion. Accordingly, you should determine ahead of time how conversion will affect cash flow of the property as rentals because loan interest, property taxes, and insurance may be higher than currently being paid.