Have you noticed the “boom” in condominium sales? Have you noticed the substantial market-value price appreciation for most condominiums? Have you noticed the tremendous increase in condo conversions and new condo construction?
In almost every community there is a big surge in condo sales. Recently, a local Realtor told me why, based on her everyday observations. She said, “Condos are ideal for first-time home buyers and last-time home buyers.”
Purchase Bob Bruss reports online.
That summarizes the condo sales market very well! Of course, she meant condominiums are a great first home purchase for young buyers as well as a last home purchase for retirees. Yes, there are a few “in between” middle-age condo buyers, but most condo purchasers are either young or elderly.
In addition to the first-time and last-time principal residence market, there is a huge “second home” condo market for those of us who want a vacation or secondary home that is not our primary full-time residence, but a “get away” condo where all we have to do is turn the key in the door and walk away without any worry.
In addition to the condominium “users” described above there is a dangerous “unknown” condo speculator market. Sometimes known as “flippers,” these buyers of brand-new, “to be built” condos purchase with no intent of occupying.
These profit seekers help condo developers by signing purchase contracts during the pre-construction phase. Many developers welcome these speculative buyers who are hoping the market value of the new condos will substantially appreciate during the 12 months or so needed for construction.
Meanwhile, the developer can show the construction lender, “Hey, Mr. Lender, we’ve already sold 50 percent of the units before construction even starts!” However, the full truth is many of these speculative buyers have no intent of ever moving in since they plan to “flip” their units for quick resale profits and sell just before the condos are ready for occupancy. According to the National Association of Realtors, this market of speculative condo investor buyers may be as high as 15 percent to 20 percent of condo buyers in some cities.
Many responsible developers refuse to sell to these speculator buyers because when those units come back on the market for sale, often all at about the same time, it will at least temporarily depress the market for that condo complex, especially if the developer then still has other unsold units. These speculator condo markets are especially obvious in South Florida and Las Vegas, but they are also occurring elsewhere.
Owner-occupant buyers, especially in the new condo complexes, should ask, “How many of these units are being sold to non-owner-occupant speculator buyers? Be wary if there are large numbers of speculator investors buying in a condo complex because such a situation increases the risk those speculators will dump their units on the market at the same time, thus depressing values and causing homeowner association (HOA) cash-flow problems for the developer and the other buyers.
Aside from the speculator-induced risk, there are many reasons for buying a condominium instead of a detached single-family house. Primary benefits and reasons for buying a condominium include (1) usually less expensive than purchasing an equivalent square footage house; (2) exterior maintenance is the responsibility of the condo homeowner’s association (the condo owner monthly fees pay this expense); (3) security of being able to leave your condo for an extended period without worry (called “lock and leave”); (4) tax benefits similar to single-family houses; (5) security (and pride) of ownership rather than being a renter; and (6) potential resale profit as the condo appreciates in market value.
When I bought my first condo way back in the mid-1970s, condominiums were not well known for appreciation in market value. In fact, condo market values were rather stagnant. The reason was as soon as a local condo market started appreciating in market value, developers would often quickly flood the condo market with lots of brand-new condominiums and apartment building condo conversions, thus depressing condo sales prices and market value appreciation due to an oversupply.
I fear this might be happening in several major condominium markets today. Supply and demand is what causes houses and condos to appreciate in market value and there is usually a much lower number of prospective condo buyers than potential purchasers of single-family houses. Most prospective home buyers prefer houses and will look at condos only if they realize that is all they can afford, or they are unable to maintain a house, thus limiting potential market value appreciation.
There are, however, many potential drawbacks to buying a condominium. They are (1) a homeowner association (HOA) board of directors, which makes decisions you might not like, including expenditures for “improvements” you think are not necessary; (2) unexpected increases in monthly fees and/or special assessments for surprise costs such as a leaky roof or an elevator needing major repairs; (3) policies and rules you don’t like (such as no pets or no rentals); (4) poor quality maintenance and/or management that hurts condo enjoyment and resale values; (5) noise from adjoining units (the number one complaint of condo owners); (6) lack of freedom to do as you wish, such as having noisy parties or turning up your TV as loud as you want; and (7) neighbors you don’t like or who don’t like you.
As my good friend Jimmy Napier, a former condo owner, once told me, “I don’t like strangers voting on how I must spend my money!” Needless to say, he sold that condo and never bought another.
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