Turning an apartment building into condos, is it difficult?

Question

Hey Investors,

I found a 20 unit building of 1b/1ba and efficiency (studio) units. It is right by a college and I was wondering if buying it, rehabbing it, and then splitting them all into their own condo wouldn't be super profitable...especially with how I hear more and more about parents buying properties near their kid's schools and renting them to their kid's friends instead of paying the crazy campus living expenses.

How expensive and how long does the process take? I'm just trying to think outside of the box to in a way local investors already are not.

Matt L. · Answer

What's the downside to buying the building, and renting to students compared to a massive conversion product to sell units individually to people likely to rent them?

Pat L. · Answer

We have looked into it more for older tenants than students as off campus rental housing here is huge & well financed. I spent some time with my attorney going over the strategy but its tough to find a building that can return what we need without significant rehab/conversion costs. However, we have many friends who literally bought their kids a home/condo near the campus they attend then rent rooms to supplement incomes. Once they graduate/or 'move on' the rentals usually revert to an REI because of the high returns. We did it with our 19yr old daughter & after 7 years she has paid the home down significantly.

But I have met other parents who come in from out of town/state & buy in the wrong 'hood. In fact one of my younger daughters dorm mates refused to move into the home her father bought & significantly rehabbed because it was simply too dangerous after dark.

I consider the concept viable as long as the units all have separate utilities, 'conversion' costs are manageable & your company per se manages to run the maintenance side of things for the proverbial monthly fee. Holding the notes on each unit 'sold' would make it even more interesting.

Marc M. · Answer

While this might be a great idea, it's going to take a LOT of money to do.  Unless you are an experienced developer, investors may be hesitant to loan you money to perform such a major project.  Just the legal fees alone to draw up the governing documents, record everything and get you legal are going to be in the tens of thousands of dollars.  Not saying it can't be done, but if you don't have the experience, I would suggest teaming up with a a developer who does - there's a lot of details that go into a project like this.

There's no doubt it can be profitable, one of the developers I work with has made tons of money off exactly what you're proposing to do but he has a track record in the construction/development business.  If I were looking to do a project like that, I'd work for a developer for a year and get the lay of the land; figure things out before it's your money on the line.

Meghan McCallum · Answer

the parents wouldn't buy and rent these one beds to their kids friends. They would buy one for their kid for the time they were at the school. The interest rates make the monthly payments less than renting.

Plus, it's a condo. When their kid graduates...they will need to sell again...so...I may be able to get a deal to buy it back after their kid destroys it.

Maybe...make it a co-op and sell as many as I need to in order to pay it off and get all my cash out...plus some.

Hence, why posting in innovative strategies.

Jacqueline Carrington · Answer

Lots of students still rent off campus, I'd just consider buying it and marketing it to the college market as you can only sell a condo once, but you can continue to rent to students "forever".

Parker Detweiler · Answer

Do they actually have bedrooms or are they efficiencies? Either which way how are the parents going to charge rent to the friends if they are only 1 room let alone efficiencies?

No its not a difficult conversion if you know what you are doing and have the right contacts. However even just from what you did post, I wouldn't recommend it on this building.