Newbie question about Condo Conversions in FL

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Newbie question about Condo Conversions in FL

Sean Clark
Member since 2009 · 2 posts · 0 votes

Hello everyone! I am a somewhat new investor currently residing in Ohio where I bought my first foreclosure home. I am looking at investing in a property or two in Florida and am hoping that someone who is familiar with condo conversions, or just the South Florida real estate market in general can help me here. I am looking into purchasing some condo conversions in the broward county area in Pompano Beach FL. However, I am skeptical to say the least after seeing some of the rediculous prices these condos are going for. One of them had sold for $147,000 in 2006 and just listed for $39,000. Recently I have been reading about entire complexes going under because of insufficient funds to keep the complex afloat. If I do purchase, am I at risk of losing everything? Is resale value on these types of units not predicted to go up in the future? It just seems like its too good to be true, there has to be a catch? Would anyone here recommend investing in something like this? Any help would be greatly appreciated! Thanks in advance!!!!

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Rich Weese
Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
17y

There are other tricks that many of the condo converters used. I was in contract to buy The Green Tee condos on the side of FT. Myers country club in FL. There were originally 123 units and and 27 units "sold" back in 2006. The avg sale was 150K. I was buying the remaining 96 for 34K per door.
When I pulled the county tax rolls to check owners of the 27, there were 21 that were either a CORP or LLC with the same signator and many of the other units were owned by people with the same surnames as the selling partners! THey had just salted the deal, by buying from themselves at inflated prices. I would not go near a conversion in FL currently, and I live there. It would be suicide for an out of stater, imo. Rich

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    17y

    Yeah, the catch is they built way too many residences in FL. Many sold to out of state investors on the assumption prices would never come down. The ridiculous part is not the current price, its the price in 2006.

    There may well be deals there. But you need to go down there yourself and spend some time.

    Real estate has the nasty problem that you can lose more than "everything". Even if you pay cash, you can end up stuck with huge bills. You can end up with a property that has no demand, sets empty, and still requires you to pay taxes, insurance (very high) and HOA fees. Yes, HOAs are failing because there's nobody paying.

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  • Rich Weese
    Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
    17y

    There are other tricks that many of the condo converters used. I was in contract to buy The Green Tee condos on the side of FT. Myers country club in FL. There were originally 123 units and and 27 units "sold" back in 2006. The avg sale was 150K. I was buying the remaining 96 for 34K per door.
    When I pulled the county tax rolls to check owners of the 27, there were 21 that were either a CORP or LLC with the same signator and many of the other units were owned by people with the same surnames as the selling partners! THey had just salted the deal, by buying from themselves at inflated prices. I would not go near a conversion in FL currently, and I live there. It would be suicide for an out of stater, imo. Rich

    2Reply
  • Sean Clark
    OP
    Member since 2009 · 2 posts · 0 votes
    17y

    Rich and Jon, Thanks for the advice, I REALLY appreciate it, this is tough for me because I have no one I can go to for advice on these matters. However, I really would like to invest in the florida market sometime soon in SOME way. It sounds like the cc's could be trouble. Rich, you sound very experienced in FL investing, since your a local, what would you recommend doing?

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    17y

    Why do you want to invest in FL? I do, but only in a beach front condo I can visit once in a while. From what I've seen, the investment pickings are good in OH, and you're right there. Just because prices have fallen a bunch doesn't mean they at a bottom. This seems like the "catch a falling knife" scenario to me.

    That's an interesting situation, Rich. We saw exactly the same thing in some subdivisions here. The builder, an agent, an appraiser and a mortgage broker would work together. First they would "sell" a few houses at inflated prices to create comps. Then they would dump the next batch of houses to unsuspecting buyers, using falsified documentation for their income. Lots of money made by these scammers, but then the buyers couldn't make payments and ended up losing the houses.

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  • Kevin Kevin
    Member since 2009 · 6 posts · 0 votes
    17y

    be careful of the monthly dues. .they can be $500+ per month and often times much more. also, many condo conversions have occupation rules. Resale market is tough too, because financing is not available for most units.. oh, and one more thing, Onsite management may take 40%-60% of the profits generated from the rental program..

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  • Ian J.
    Investor · Toronto, Ontario · Member since 2010 · 34 posts · 3 votes
    16y

    This is the best of times and the worst of times....
    Now is the time to do the "RIGHT" deals.
    We've been Developers for 47 years through 5 Recessions and I think we've seen most of it.
    The key is to buy the asset or note at a deep discount (first safety valve), that had a major rehab in the past 5 years (second safety valve), then canvas the existing tenants and sell to them at a total carry (Mortgage/taxes/HOA) that equates to their current rent (third safety valve) thus minimizing Marketing and Sales Commissions ( fourth safety valve) -and that includes taking back a Seller 2nd if necessary, and credit repair if necessary, then in parallel sell the balance to investors with tenants in place (for the units that tenants didn't/couldn't buy) (fifth safety valve), and then sell the balance to the general market (discounted if necessary after all the other deals are done).
    An acquisition loan for condo conversion will be tough to buy the Project and then have the buyers get individual mortgages as the exit strategy.
    We have the answer to that -if we JV....

    2Reply
  • Rich Weese
    Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
    16y

    In my opinion there is NEVER a discount deep enough to buy a condo conversion property in this amrket. You could get involved with problems that affect your property, for which you have zero control to fix. I have a thread somewhere here about 100 units in SWFL. Units had sold for as high as 200K and I could buy for 40K. After research, they weren't worth anywhere near that. Run the other way from condo conversions/fractured condos. , imo. Rich

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  • Jackie Patterson
    Real Estate Investor · Kalamazoo, MI · Member since 2010 · 681 posts · 241 votes
    16y

    It's very difficult to get financing for condos right now. We have a high end green built condo development (average price $325K) and because of Fannie and Freddie's 71% sold / owner occupied rule, we just lost a 20% down relocation buyer. If you don't have a cash buyer, then you need to get a portfolio loan at a higher interest rate. Lenders tell us this is all because of the condo conversions and high rises in Florida.

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