Although the collapse of the national economy has forced hardships on most of the population, the downturn has created opportunities in the conversion of multi-family properties into condominiums.
Through a "condo conversion" a multi-family rental property such as apartments and townhomes is converted into condominiums which are then sold individually. The key to the successful (profitable) conversion is the purchase/ownership of the rental property at a low price per square foot and then selling the converted condos at a much higher square footage price. CCC prefers to work in markets wherein the population is less than 500,000. These markets do not have many companies who do condo conversions which means that there is less competition for properties which can drive prices up. Another reason is that governmental regulations and legal requirements for a condo conversion are much less demanding which results in the saving of time and money.
Due to the housing crisis existing in most areas of the country due to the COVID-19 virus an opportunity has been created in the condo conversion business. A multitude of the population have lost their homes and realize that they cannot afford the "big house on the hill". The market that CCC targets is the potential purchaser who can afford a condo in the $60 - $150,000 price range. This price range is affordable to most purchasers and is bankable. At this price point the absorption time is much quicker than for properties that are more expensive. The market is not just the population of who have lost their homes but is made up of singles, retirees, small families and others who do not need and cannot afford the larger home. The number of home buyers who can afford a condo at these prices is considerably larger than the number of home buyers seeking a home at $150,000 and above.
Where will the conversion properties come from? Many existing multi-family property owners might want to consider the potential in a condo conversion. Many individuals who have had their stock portfolios, savings and retirement plans devastated by the collapse of the stock market and/or may have lost their employment might want to convert their multi-family property. A condo conversion gives the owner of a multi-family property the opportunity to enjoy/use the equity in their property now as opposed to waiting until the property is paid off. This would allow the multi-family owner to invest in another conversion or use the proceeds for retirement or other investments. These multi-family property owners may not be able to justify rehabbing their complex for a rental operation but a condo conversion may justify the expense the expense of the rehab. An investor who wants to get into the conversion business can look to a number of sources for a potential conversion property. Some of those same individuals who currently own multi-family properties might want to or have to sell their property to raise capital or assist in their retirement planning. Another source of properties is the financial institutions that have had to foreclose on multi-family properties across the country. These institutions are under pressure to get these non performing assets out of their loan portfolio. This same type scenario occurred during the late 1980's and early 1990's. At that time the, Resolution Trust Corporation was established to assist failed financial institutions in the disposal of billions of dollars of real estate including multi-family properties. CCC has purchased three conversion properties from such institutions.
The conversion of suitable multi-family properties in today's economy is a "niche" that can be very profitable and is worth considering at this time. This opportunity should be around for at least five years.