Risk of investor taking over small condo?

10 Replies

Hi, 

New to this forum but already got a good amount of information out of it. Thanks to all the community for this! 

I'm currently an owner in a small condominium (13 units) in an area that's been rather "hot" for investing. High-rise and mid-rise are literally getting build almost all around our residence. We (HOA) recently got an application of an investor who would like to purchase two units that were for sale, cash. Reading the buy-laws, there does not appear any legal reason for us to refuse it.

However, for my peace of mind, I was curious to know if there could be any risks associated with an investor buying more and more units to the point where they could force the demolition or vote decisions detrimental to the residence. 

Any input would be appreciated. Thank you! 

why would they vote something that is detrimental to their "investment", that does not make much sense. Investors are there to make their investment better, not worse.

If the HOA is worried about an upset of power, maybe the HOA needs to make sure they are doing the right thing. A HOA is there to keep a property safe, in good standing with maintenance, and manage the overall property. Most of the time the members form a clique and dont know their *** from a hole in the ground and then get butt hurt when someone questions decisions that are made.

Talk to the investor, find out what their intentions are, you may find that they bring a lot to the table to make everyone's world a better place.

@Rick Lucette   the bylaws are what you need to read.  They control what happens in the condo.  It appears you may be concerned that they would vote to tear it down to make way for new developement or put some not so great renters in or even vote to not spend money to keep the place looking nice so they make more money.  You have no way of knowing in advance.  Check out their background and maybe look and see how they keep up the other properties they own.  Good luck.

Speaking with other investors, the primary reason is based on the kind of tenants that would be placed in the rental condos, turnover, noise control - items that a normal live-in owner would make sure they self-control.  Not owning the condo but renting makes the tenants act a little different than an owner-occupier. 

Most condo HOAs have a by-law that limits the amount of rental units in the community as well. This enables the HOA to help maintain the value of the investments for the owners. Again - if you don't own the property, you tend to treat it differently.

Finally, some HOAs have gone to an HOA security deposit system to ensure damages to common areas are paid if caused by renters.

Not intended to be legal advice but just commenting as to my experience.

Thanks for your help! We do not currently have a limit on the number of tenants and am not sure we'd want this for the time being. Although I'm aware of the difficulties it might create to get financing for new buyers in the future. 

I'm really more concerned about the risk of someone moving in with intentions to get majority of the votes at the HOA meetings.

Thanks again!

not to alarm you but

http://www.cnbc.com/id/101746928

Yup. Found this yesterday. That's actually the article that got me to register on BiggerPockets and post about it! 

Thanks Steven.

There are two main issues with an investor buying up units in an association: first, if more than 50% of the units in the association are rented or an investor owns more than 10% of the units, the association won't qualify for FHA financing. Second, people generally don't want to live in an association that is primarily tenants, otherwise they'd be living in an apartment complex.

I don't know the laws in your state but you may want to consider speaking with an attorney about this. If the investor buys both units, that puts you above the 10% for FHA approval. I'm also not sure what you mean about having to "approve" him unless it's specifically written into your governing docs or you're a cooperative rather than a condo. In the DC area, condo boards have no say in who buys into the association. Coops are different.

interesting. You're correct. Although they are doing something a little intriguing. One of the units is purchased in their own name and one under a Company name. I am not aware of the reasoning behind it. So that may still qualify us for FHA. Regarding the 50% rented, I think we are close to pass this mark but these two units were already rented, so it wouldn't make a difference.

Thanks for your help folks. I'll report based on what I heard during the interview. 

Originally posted by @Rick Lucette :

interesting. You're correct. Although they are doing something a little intriguing. One of the units is purchased in their own name and one under a Company name. I am not aware of the reasoning behind it. So that may still qualify us for FHA. Regarding the 50% rented, I think we are close to pass this mark but these two units were already rented, so it wouldn't make a difference.

Thanks for your help folks. I'll report based on what I heard during the interview. 

I don't believe it matters whether it's in a company name or individual's name; I'm 99% sure it goes exclusively by the number of units that are rented. Also, your FHA approval is good for two years. It may not be an issue now but it may be an issue when you go to renew it.

@Rick Lucette would hope the declaration states somewhere that no single owner or entity can own more than 10 or 20% common interest. If not, you could be SOL

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