CONDO CONVERSION TECHNOLOGY YOU CAN USE
Want to know if your existing apartment complex is ready for a condo conversion?
As an MAI designated appraiser, many clients have come to me for an analysis as to whether or not their existing apartment complex is ready for immediate condo conversion.
Recently, there has been a spike in interest from multi-tenant apartment owners and Realtors if the highest and best use of their property is for condo conversion. This interest is mainly due to rapidly rising housing rents, low interest rates and a lack of affordable housing supply for mainly first time millennial buyers.
In many situations, the apartment owners can possibly have readily available condo buyers by converting their existing rental tenants that currently reside in their buildings. When these renters realize it is cheaper to buy their unit then to continue renting, it becomes a win/win situation for both the landlord and tenant.
Even if this built-in demand exists for your property, how do you know if condo conversion isn’t your best exit strategy as opposed to just selling the property as an apartment complex?
The only way to tell if condo conversion is your best option is by conducting two separate appraisals on the property. The first appraisal assumes you will sell the property as it exists as a fully leased apartment complex at stabilized occupancy and at current market rents. This appraisal indicates the property’s current “as is” Market Value.
The second appraisal assumes you will convert the apartment complex into a condominium complex and sell each condo to individual buyers until all are sold out. This appraisal indicates the property’s current “as is” Bulk Market Value.
Whichever of these to “as is” values is higher represents the property’s highest and best use. Even if you don’t intent on converting your existing apartment complex into condos, you should always sell your property based on its highest and best use corresponding value.
If your property’s current “as is” Bulk Market (as a condo conversion) is higher than the property’s “as is” market value (as an apartment complex), sell for the higher value. Don’t leave any money on table! Your buyers are condo converters NOT apartment investors, in this case.
The problem apartment owners have in selling their property is determining what the highest and best use of their property might be. To hire an MAI appraiser, like myself, would involve two separate appraisals as indicated above. This would cost several thousand dollars and possibly take weeks to complete.
If you choose to have a professional appraiser prepare both appraisals, you will only receive the reports one time indicating values as of the date of the appraisers inspection. If appraisals indicate condo conversion, you will have to pay the appraiser to update the appraisal as more reliable data becomes available to you as you start the conversion process.
To appraise the property as a condo conversion, the appraiser or property owner must know the following major components of value.
- Cost and time it will take to entitle the property for condo conversion
- Individual condo retail selling price points
- All cash competitive property yield based on the risk of the project
- Entrepreneurial profit needed to entitle and sell out the project
- Costs and expected time it will take to sell all the condos (absorption rate)
- Temporary rental income and expenses as complex is sold out as condos
As the apartment owner, you might already know many or all answers to these questions. Even if you not sure, a “best guess” will give you a rough idea of your property’s “as is” Bulk Market Value if converted to condos. If this value is significantly higher than your property’s “as is” market value as an apartment complex, you might want to further explore condo conversion as the highest and best use of the property.
Through technology, there is now a way for you to personally solve these problems, fast, inexpensively, without bias or appraiser mistakes, and be able to update the appraisal as more verified data becomes available. You can even keep monitoring the progress of you condo conversion once you commit to proceed.
This technology was created by certified MAI designated appraisers using generally accepted appraisal processes and financial modeling that would normally cost you thousands if prepared by professional appraisers.
With this recently developed cloud based technology, there is a way you can obtain by yourself both the initial “as is” value for an apartment complex and the “as is” Bulk Market Value for a proposed condo conversion.
For more information, press HERE and take a look at a sample appraisal report you can generate yourself for appraising your property as an apartment complex. Or, Press HERE and take a look at a sample appraisal report you can generate yourself for appraising your property as a condo conversion.
Taking advantage of this new technology gives you an early advantage in this rapidly emerging condo conversion trend. By receiving more information about this new self help procedure, you will be given access to MAI designated appraisers that can answer all your questions.