Selling a condo in a 4 unit complex
Disclaimer: I'm brand new to real estate investing; please feel free to correct any assumptions I have made.
I am considering a purchase of a condo in a 4-unit complex as an investment property. I understand that lenders will generally only lend money if more than half are owner occupied. I assume this applies on the back end, meaning my purchase can't be the one that pushes it past 50%. So in this case, if two are already investment properties, I'm out of luck getting a loan. In this case that's only 2 units.
Hopefully I have that right so far.
My concern is that, even if I buy the condo (all cash or others are owner-occupied), down the road when I'm looking to sell the unit I'll potentially be limiting my pool of potential buyers if 2 units are investment properties since other investors might not be interested or couldn't get a loan. And even if my unit is the only investment unit, that might be considered a risk factor and a turnoff to other investors.
So, I turn to the experts here. As an investor, would a unit in a 4 unit condo complex with the restrictions that come with it be a turn-off to you?
Hi David. I am a bit confused when you discuss lenders lending on owner-occupied units.
Sorry that wasn't clear.
My understanding is that if I want to use a loan to purchase a single condo, at least 50% of the total units need to be owner-occupied. Otherwise there is too much risk for the lender and they won't provide the loan. (This is apparently a Fannie Mae/Freddie Mac rule.)
So my concern is that in a 4 unit complex of condos, it only takes 2 investor-owned units to trigger this situation. No more investors can step in at that point on the other units if they want to use a loan to purchase.
Maybe I'm worrying too much about it since, if I own a unit as an investor, and I want to sell to another investor, they can still purchase it because they can just take my "slot" as one of the investor units.
How much does that situation dissuade investors, if at all?
I have not heard of this rule. I know often HOA's will often limit the number of investors, but not the lenders. For example, the city creek condo buildings have a 10% investor maximum set by the HOA.
Ok, that's good to know. Thanks!
For reference, here is some info on the 50% rule I came across: https://selling-guide.fanniema...
And here is an article that discusses that and some other restrictions: https://fha.co/blog/owner-occu...
#3 1031 Exchanges Contributor
- Investor
- Las Vegas, NV
Lenders often won’t/wouldn’t lend on condo buildings with less than a certain percent owner occupied. This happens/used to happen in vegas where whole buildings would be listed as unlendable. I use the past tense because it was happening 5-10 years ago, the last time I looked at condos. I also know that in the 6 units complex where I own a townhome they have a limit of 2 rentals as they were told by a lender doing a refi that that they wouldn’t be able to lend if a 3rd unit became a rental. (50%)
OP: I would ask the specific lender(s) that you plan to apply with if they have a 51% owner occupied rule before going through all the legwork.
PM me and I’ll connect you with my lender for a definitive answer
Thank you for the replies! It's good to hear from people with experience. It sounds likely it is at the lender's discretion.
@Logan McKay Zylstra thank you for the offer. I'm currently working with a lender but if that doesn't work out I'll reach out.