How Little Owner-Occupied is Too Little?
Dilemma (I seem to attract them) … Landed on a condo in an 8-unit building that I like. Then did some research and found that many of the units in the building are tenanted. Out of the 8, it looks like only two are actually owner-occupied, and, according to Property Shark, as many as 3…
Dilemma (I seem to attract them) … Landed on a condo in an 8-unit building that I like. Then did some research and found that many of the units in the building are tenanted. Out of the 8, it looks like only two are actually owner-occupied, and, according to Property Shark, as many as 3 of the other units in the building are owned by the same person! I haven’t met that person, and I suppose a lot depends on their attitude about the building. But I’ve heard very mixed things about situations where a building has more rented units that owner-occupied ones. Ultimately I’m looking for a place to live and rent when needed, but I would still like to make sure the place will eventually appreciate in value whenever I do get around to selling. Plus what does this mean about the upkeep of the building if one person owns so many of the units? Any thoughts on this?
Good advice. Another problem is this: the owner with the multiple units will have more shares than you (and anybody else). If s/he is really serious about having the building kept up well, that needn’t be a problem, but it could lead to problems if assessments are necessary.
I read someplace that you don’t want to buy into a small condo if one shareholder owns a clear majority. I’m not sure if this is the case, but if it is, tread warily.
Good luck.
we live in a small brownstone with 8 apartments, currently only 1 is rented.
i dont see it as that big a deal but be prepared to hassle the owner if his tennants are being unreasonable ….however if an owner gets unreasonable parties etc you dont really have much more recourse.
regarding the mortgage, we got ours through citibank, they browught up the 10% rule for one owner…until we told them stop being idiots every owner is over 10%.
(in our case we own 25% as we purchased 2 apartments).
It worked out fine and no it didnt cost us anymore.
Would i be concerned if one owner own 3 apartments…. nope not really as we have a 20% down policy and if they stop payment dues in a co-op you can sell the apartment on them and easily get your dues before you get to short sale.
One more issue:
Are the tenanted condos free-market or rent stabilized. If R/S, the owner may just stop paying maintenance.
Yes, but 10% is not set in stone, and was likely never applied to small buildings in recent decades. Every time I filled out a bank questionnaire for a buyer or refinancer in our 4 unit coop building, I answered the 10% question by explaining that all 4 owners owned more than 10% by necessity, as there were only 4 units. (This would obviously be true in an 8 unit, too). Everybody got their loans. (And yes, mortgage rates were slightly higher for 4 unit buildings, that’s nothing new, or prohibitive of sales.) And yes, even in the best of times, only some banks loaned to small building buyers…but it was enough.
You need to get detailed data on what rules are currently being applied to specific sized small buildings in this recent post-meltdown era, not generalized rules made for large buildings that didn’t apply to small ones anyway.
You will have a problem getting a mortgage. 9 1/2 out of 10 banks will not lend in that building. Too many renters and one owner that owns more than 10% of the units. That’s a deal killer for most banks. I know a few banks that will do the loan but you are not going to get the most attractive rates. Since most banks will not lend it will affect the future marketability of your unit.
Adam Dahill
WCS LENDING
adahill@wcslending.com
There are two issues here. What percentage of non-owner occupied units is too many, in my mind, is whatever magic number (usually determined by Fannie and Freddie, though FHA is now a big factor as they are behind more loans) that makes it impossible for buyers to get mortgages. Ask a mortgage broker or banker what this percentage currently is.
A wholly separate issue is what % of the units is owned by any one owner. Again, this creates an issue for financing. Ask a mortgage broker or banker how much is too much.
On both issues, the numbers will be quite low.
This is your dilemma – you want a place that is a condo so you can rent it out. To do this while effectively preserving your ability to sell to someone who needs a mortgage (and the ability of anyone else who owns in your building to be able to sell to people with mortgages), you need a condo that controls what percentage of the units are rented out, and what percentage can be owned by one person. You may find this in a quite large building. You are unlikely to find this in a small building, given that there aren’t enough units to provide for much renting out, or much ownership of multiple units, without tripping over lending restrictions.
Less renting and less multiple ownership is more common in coops than condos. If you really want to buy in a small building, you might be better off in a coop – even if that means you may eventually have to sell it rather than rent it out indefinitely. If you really want a condo in a small bluilding, you are going to have to take more risk about availability of financing. I’d avoid a small building with multiple units owned by one person for the same reason that banks do – if that person falters financially, the building is in real trouble. Units rented out by single unit owners are less problematic, until the % of rented units makes it hard for anyone to get financing to buy an apartment in the building. You want the units to be as liquid as possible, meaning people can get financing to buy them, in case an owner needs to sell.
What you want is a well managed condo – one with clear rules about how much any one person can own, and how many units can be rented out at once. You may have to be instrumental in convincing others of the wisdom of such rules, and convincing them to vote for them and enforce them. You will be more able to rent your own unit without causing problems with financing sales if you are in a building with a lot of units.
Unless you don’t care about ever selling your unit, and are happy to basically own a small rental building with the other owners, where any sales that occur are necessarily all cash.