Condos As Investment Property

In a low-inventory market, investors tend to evaluate all options. Recently, I have been working and have been in contact with buyers and sellers who have turned to condos as potential investment.

Condos are appealing for a variety of reasons, ranging from low maintenance, to location, to community, to value, and to investment potential.

These units are regulated by bylaws. Some condos allow tenants, some only co-owner occupants, and others allow both, in various proportions. Hence, it is imperative to investigate all bylaws and amendments to ascertain that one’s investment plan is permissible under current rules. It is not uncommon to discover minimum homeowner occupancy requirements prior to renting, or restrictions on pets, rental unit caps, fees, and board approval. Sometimes rules are changed and if limiting amendments are approved while tenants are already leasing the units, co-owners are typically given a deadline or grace period to remedy the situation. With the unintended consequence that in some cases this could imply divesting or selling.

Case in point. Last week I showed a condo purchased one year prior as investment property by the current co-owner. Bylaws were amended afterwards, transforming that condo association in an owner-occupant only community. Owner had no other option but to sell – now to a restricted pool of buyers, one that no longer included investors.

Which brings me to a second aspect of the investment. While collecting rent certainly represents an immediate benefit, part of the financial appeal is in the real estate itself. Values grow along with the market and depreciation provides immediate fiscal advantages. Some investors see the ownership of rental properties as a retirement fund. Rental income offsets mortgage and maintenance expenses – in the very least; until the right conditions to cash in on the equity materialize. One word of caution should be spent on membership dues. In addition to monthly fees, condo associations may have plans that require the levy of special assessments. Depending on the nature and the scope of these improvements or repairs, additional fees could be small or otherwise significant; and when a unit is sold, assessments could be due in full at close, thus affecting one’s investment plan when sellers are reluctant to absorb them.

Condos in certain communities may be cash machines. When tenants abound and maintenance is low, fewer units might be on the market, sometimes giving FSBO and unlisted units an edge. And if a unit does not sell at or above a certain price, the seller will continue to rent and enjoy the cash flow.

Condos are also about community, more so than just conforming to a dry set of rules and regulations. One of the situations I encountered this month reflects the spirit of a community slowly moving away from rental units.

Here is the story.

At the beginning of July I was contacted by clients to help secure a unit in a condominium. Although a few units had become available and had sold there in the previous two months, only one was currently on the market and listed as FSBO. I approached the seller, and as part of our conversation I asked for copies of the bylaws, which I promptly obtained. Scrupulously, I contacted the association management, and requested a copy of the bylaws as well. Based on the available information, I advised my clients on the possible offer to submit, which was accepted by seller after short negotiations.

During the inspection and investigation period we discovered that the bylaws had been recently amended, but none of the amendments disclosed or shared with us. In order to investigate further, all parties agreed to extend inspection period and closing date.

The general sense that was gathered by our following contacts with the Board and the management was that this community was trying to move away from rentals in favor of co-owner occupancy. Bylaws did not prevent rentals, however one of the amendments specifically placed restrictions. Owners were required to occupy the unit for at least one year prior to renting. Furthermore, I was told that rental units were capped at a percentage of the total, that an application to rent had to be filed along with a fee, and that a spot could not be reserved ahead of time.

My clients felt the restrictions contained in one of the amendments and the rental rules were in conflict with their needs. Hence, we pursued further a conversation with the Board and the management in the hope of being granted an exception – for example in light of the incomplete information we were given. Nevertheless, our requests were all denied, including the possibility of seller placing a tenant in the unit before conveying the property to my clients. In the end this deal had no more margins for negotiations, and the agreement was terminated.

My clients’ offer was in cash and generous. Per my research, historically it had the potential to become the highest paid price for similar units within the association. In real estate, a general tenet among agents is that the first offer is almost always the best offer (as this Zillow article explains.) Ours was the first offer on this condo. Shortly after these events, another homogenous condo was listed on the MLS, priced below the one we were transacting. Given these facts, my personal opinion is that in this case, due to the restrictions imposed by one amendment, the seller probably lost an excellent opportunity to close quickly and sell well.

Communities change, boards change, bylaws are amended. Condos make excellent rental options, however anyone planning such investment should maintain a continued conversation with seller, Board, and management before, during, and after the purchase in order to maximize profit and minimize risks.

Happy condos everyone!


Giuseppe Lupis REALTOR®

A Week In The Life Of A REALTOR® – Part One

Many wonder what a REALTOR® truly does. Finally the mystery is about to be revealed: real estate is about stories, people, and their lives.

We buy or sell properties at the most critical junctures of our lives. Marriages, divorces, new jobs, job losses, new babies, emptying the nest, moving, aging, dying, lottery wins, inheritances, investments, divestments, developments, business, bankruptcy, going to college, tired of renting: these are just but a few of the reasons that bring us to the decision to sell or acquire a property.

These events can be emotional, intense, and life-changing. Thus, a real estate agent becomes a client’s best friend. A caring and empathic friend who must fully embrace a client’s needs, and needs to understand the client’s available finances, timelines, and sometimes compelling issues. Clients open their lives to their agents as they would never dare with anyone else. Would we ever tell our friends how much money we have on our account and show them a bank statement to prove it? With how many friends would we share that our marriage is on the rocks and divorce might be nigh, with all the details that pertain to the property division? Our clients expect us to be caring, and to show empathy and consideration. Because it is through our service that people continue to pursue their dreams and their journey in life.

Yet, this week a curious story raised above others for its peculiarity. Events similar to the one below should not be considered the norm.

Thursday morning I was on a showing tour with a young couple. Among the properties we visited sat a vacant single-family unit that had been newly renovated. The listing card advertised all new stainless steel appliances, accompanied by a series of pictures. When I arrived on site – slightly ahead of my clients – there stood a colleague with his client in the front yard. Both were quite puzzled and wondering why, out of all the new appliances advertised, only the dishwasher was in place. In fact, when my clients and I accessed the property, no stove, refrigerator, or microwave could be found indeed! Undeterred, we carried our showing as planned, giving it thorough consideration, then left for the next property on our schedule. Although the lack of appliances did not seem a deal breaker, I felt that the showing was concluded below expectations, with the potential cost of new appliances looming on our mind. When… surprise! Later that afternoon GRAR sent an email to all agents. Apparently, the evening before someone with a van had parked in front of the property, entering undisturbed, and had loaded all the appliances onto the van leaving shortly thereafter. In full daylight. It was a theft!

Real estate is also a data-driven reality. Net to seller, property taxes, value, square footage, days on the market, HOA fees, are just a few of the elements involved in any transaction. Numbers are everywhere, numbers matter. Each address begins with a number. Parcel numbers, are in fact… numbers. Listings are defined by a MLS number and a listing price. Offers start with a date and a purchase price. Commissions, closing dates, EMD’s, possession: everything is quantified.

There are also numbers that do not appear in any deal or in any contract, but are still an essential part of it. If you ever wandered what a REALTOR®’s week looks like, this list below might help.

  • 434 miles driven
  • 130 significant incoming emails, countless the insignificant
  • 81 phone calls, to or from clients, lenders, agents, FSBO’s, and floor (the technical term to indicate the agent on duty who answers office calls)
  • 67 outgoing emails
  • 41 car drives
  • 33 separate text conversations with clients, agents, inspectors, office manager, FSBO’s, and unrepresented potential buyers
  • 18 scheduling of showings
  • 14 showings of in-town properties concluded
  • 10 clients served
  • 8 hours of floor
  • 7 new real estate articles read, including: FHA minimum standards, HUD, and property taxes
  • 5 comparative market analysis’ (CMA’s) completed and delivered to clients
  • 4 contacts with rental property manager due to tenant eviction
  • 4 new MLS automated searches set up
  • 2 meetings with new clients
  • 2 car drives with a colleague
  • 2 days of negotiations on a submitted offer
  • 2 meetings with current clients
  • 2 collecting and reading of condo association bylaws and meeting minutes
  • 2 real estate articles completed and published on blog
  • 1 showing of out-of-town property
  • 1 in-person meeting and negotiations with FSBO
  • 1 out-of-town in-person meeting with clients to write an offer
  • 1 cash offer submitted
  • 1 offer accepted
  • 1 referral from client
  • 1 inspection set up
  • 1 work with a client’s lender on VA loan paperwork for a pending property: termite inspection, invoice, addendum to purchase agreement (PA), and affidavit
  • 1 work with a client’s lender on estimated closing costs and monthly payments
  • 1 work with title company in preparation of a closing
  • 1 inspection of an investment property
  • 1 preparation for an upcoming open house: listing cards, business cards, signs, disclosures, and publicity
  • 1 prospecting activity
  • 1 contact with rental property manager for unit prep work
  • 1 real estate article draft prepared for publication on blog
  • 1 travel to inspector’s office to pick up an invoice
  • 1 travel to client’s house to pick up an EMD check
  • 1 travel to seller’s home to pick up Seller Disclosure and Lead-Based Paint forms
  • 1 garage door repair
  • 1 office business meeting
  • 1 accounting
  • 1 estate sale attended
  • 1 outgoing referral placed
  • 1 open house (almost 2)

These represent only some of the possible activities, which for example could include attending continuing education (CE) classes, taking pictures, closings, listing appointments, and offer presentations.

Pictures to follow in part two, for those curious… to see with their own eyes how fascinating and enticing this profession can be!

Happy summer everyone!


Giuseppe Lupis REALTOR®

How To Win Multiple-Offer Situations

Great a number of buyers who have submitted an offer to purchase a property in the Grand Rapids, MI, area in the last couple of years have become acquainted with multiple-offer situations, accepting them almost as a unavoidable tenet of life. Often an insurmountable obstacle to some, a few grow discouraged and eventually throw in the towel (more below why this could be a fatal mistake.)

So, how do buyers emerge victorious in a bidding war? Agents who carry out their duties with diligence will win an offer through attention to details, perseverance, and patience.

Attention to details. An offer should never be construed as a one-item contract, namely the purchase price. Rather, because it comprises many movable parts, each of them surges to equal importance in the equation. In bare terms, the purchase price always stands out as an initial statement. Especially, going above asking price carries enormous appeal, but it comes with drawbacks, which listing agents are quick to point out to their sellers. For example, unless cash, a financed offer is contingent to an appraisal ordered by the lender. Offers that seem too good to be true risk not appraising. Among the possible consequences are a renegotiation of the deal in terms which are more favorable to the buyers; or deals not closing at all: both situations are not in the best interest of the seller.

Sellers who receive multiple offers are looking for their net-to-seller, a speedy and smooth transaction with fewer contingencies, and above all the reassurance that the sale will close.

Typically sellers are responsible for outstanding loans; broker’s fees; the Michigan Transfer Tax; the County Revenue Stamps; title insurance; recording fees; unpaid taxes, assessments, or liens; some inspection costs – i.e. termite inspection in case of a VA loan; and perhaps home warranty costs when warranted by the situation. Some of these costs cannot be negotiated: for example VA loans do not allow buyers to pay for termite inspection. Others however can, and will be negotiated.

Thus, offering to cover some or all of seller’s closing costs will increase the net-to-seller without increasing the risk of under appraising.

Let’s consider a property listed for sale at $150,000. An offer at $165,000 and an offer at $160,000 with buyer covering $5,000 of seller’s closing costs are equivalent in what they will net to the owner. However the latter has better chances to appraise than the former. If the risk of property appraising below purchase price is still present, this can be minimized by adding a provision to bring extra cash, if available, at close.

On the other hand, asking for seller’s concessions will reduce the net-to-seller. Yet, it is still possible to win over other offers with such provision.

It’s no mystery that sellers prefer cash offers. Typically there is no appraisal contingency, unless buyer makes it contingent to buyer’s appraisal, and the deal can close fairly quickly. On the other hand buyers making a cash offer are aware of the strength and advantages of their bid, and tend to be more conservative on the purchase price.

When a lender is involved, its reputation will go a long way. A well-know local lender with a history of closing all deals timely could potentially be seen more favorably than an unknown lender from out of state with no history on record. When multiple offers are on the table every detail matters.

The downpayment size should not be overlooked. A mortgage in the amount of 75% of purchase price versus one in the amount of 97% speaks to the greater strength of the former to close the deal.

Similarly, the type of mortgage in a multiple-offer situation may be viewed differently by sellers: a conventional mortgage for example carries fewer requirements than an FHA or a VA one.

Offers that are not contingent on the sale or exchange of another property have a higher chance to close and/or close sooner. If possible, it is preferable to sell first, then buy. The discomfort of a housing hiatus is easily compensated by the increased strength of one’s offer.

When speaking of contingencies, inspection and investigation is probably the most consequential. Any offer waiving inspection is by far a seller’s favorite. It speaks to the absolute commitment of the buyer, who no longer relies on the ten-day exit-window protection, and accepts the property as-is.

Asking for appliances, light fixtures, and window treatment is customarily accepted and acceptable. But if the seller has specifically excluded some or all appliances, or has reserved that beautiful chandelier gifted by her late grandmother, then the offer might be moot. A chandelier too many could be all it takes to lose a property with another twenty offers on it.

Before writing an offer, it might be a good idea to verify taxes and assessments. These can be negotiated, for example by offering to cover all outstanding assessments: yet another way to increase the net-to-seller without incurring in appraisal issues later on. I recall writing an offer in which my client proposed to cover these figures. They were less than $300, a relevant amount, but quite insignificant when compared to the purchase price. In the end, it is not the amount that can make a noteworthy difference, as it is the kind gesture to take a burden away from the seller.

It is always recommended to verify property boundaries. Even when… a garage looks solidly in the backyard of a property, it could be in fact comfortably sitting on the property line – yes, I heard of a similar situation once. Ordering a land survey will immediately dispel any doubts, as long as its cost does not burden the seller – who can choose among… twenty seven different offers! Asking for an existing survey could be an acceptable compromise, making sure that the seller does have an existing survey and she would be willing to share it before submitting the offer.

In a seller’s market it is not unusual for sellers to ask for possession to be delivered to buyer a week, a month, or sometimes two months after the closing of the sale. In a financed offer a seller cannot ask for more than 60 days of possession, because of lender’s rules. In fact, at close seller becomes buyer’s tenant, and lenders would consider the property an investment property beyond 60 days of tenancy. As tenant, seller can be asked to pay an occupancy fee. Minimizing or waiving that fee allows seller to live in the property saving on rent. Yet another way to increase the net-to-seller without having to touch the purchase price.

And now the final touches. Sellers want to sell, now. They want to close, now. They want to cash that check, now. Understandably so. Keeping a house clean, with a perfect yard, ready to show, requires work. And while the house sits on the market unsold, sometimes already vacant, utilities and mortgage must be paid. Even for a property that is owned free and clear, taxes, insurance, and maintenance, are still the owner’s responsibility.

Hence, proposing to close two weeks sooner than the competition can make a significant difference. On a property that pays $1,500 per month in mortgage, taxes, and insurance, and $400 per month in utilities, such closing date places an astounding $950 in the seller’s pocket.

If not enough, adding an earnest money deposit (EMD) that is substantial, and partly or completely non-refundable, in the very least will make the seller seriously consider one’s offer.

Perseverance. Losing on an offer pinned against many others can be discouraging, especially in a low-inventory market – which in turn is one of the causes of multiple offers. However a loss can become the opportunity to foster problem solving skills, to remain focused, and to allow for more flexibility in crafting the next bid. Managing client’s expectations should be one of the agent’s areas of expertise. If you know that properties in the $150,000 – $170,000 range are selling in two days and for an average of $20,000 above asking price, you should have a conversation with your buyers about what might reasonably be within their reach and what might not. For example, buyers who qualify for a $175,000 conventional loan with 5% down repeatedly losing bids on $170,000’s properties, would be better served by considering just-listed properties in the $150,000’s, or properties at the top of their borrowing abilities, which have been sitting on the market for a while.

Moving away from a difficult market because of a few losses might not always be the best idea. If a market analysis reveals a strong market tendency, waiting or abandoning the search will make all but impossible to secure a property in the near or far future. This is because while prices and interest rates continue to increase, buyer’s borrowing power remains unchanged. It might be better for buyers to secure anyway a more affordable house not at the top of their list, build some equity, then resell a few years later: property value follows the market.

Patience. Purchasing a home requires time, thus a good amount of patience. Losing a bid does not mean that the deal is necessarily lost. In fact, not all deals close, due to various circumstances. In these cases, back-up offers can be the ultimate key to success!

This is the perfect time to hone and test those skills. I am always reachable for comments or advice, and… happy purchases!