I know to get a FHA loan for a condo the condo must be primarily residential units and not mostly rented out - that may be what you are referring to.

Fannie and Freddie have limits to the percentage of condos owned by investors. Once you reach that percentage, then your buyers have to pay cash which puts a downward pressure on the price of the units that is market driven because the units can't be financed with a conventional or government mortgage. Some portfolio lenders will issue a loan, but those are very rare. The rest of the units have to be sold for cash (no mortgage). Would that be an issue? Depends on where you are located

I think a buyer can get a loan if they put down 20% even if there are a lot of rentals in the complex. What I read is that renters may not make as good neighbors as an owner, and that's why buyers might not want to buy at such a condo.

The condo is in one of the better neighborhoods in Philadelphia, which has a lot of not so good neighborhoods. It's a pretty inexpensive condo though. I don't know if those factors would make it easy or hard to sell.

I own a co-op in NYC and the ratio of rentals to owner-occupied units is very important in terms of finding bank financing. I purchased the unit with a private mortgage, but when I decided to refinance through a traditional bank it was somewhat tricky to find a lender because my building didn't meet the magic number for many banks (on top of Fannie and Freddie's rules, banks can set their own standards, and standards in general have gotten much stricter since the crash in 2009).

In my experience, most NYC co-ops don't limit the number of units that can be rented out, but they often place restrictions on how long an owner may rent their unit (no more than 2 years at a time, or no more than 2 years out of 5, etc.). This type of restriction deters owners who are just looking for an investment rental property, and keeps the overall number of renters in a building down. My building has no such restrictions and therefore there are quite a few renters, which does contribute to a less stable tenant base and more frequent tenant turnover, which can be a good or a bad thing, depending on the tenant. My upstairs neighbor owns and he is a nightmare for me, whereas the units on either side are rentals and I have had some good and some bad neighbors there - but either way, they are usually gone in a year or two.

Anyway, all of this is highly location and situation specific, so what applies to me in NYC may not apply to you in Philly. I would suggest talking to a couple of mortgage officers at banks and see what they can tell you about their rules for condo financing. You might also check with the management company at the condo in question and see if they will tell you who some of the common lenders in the building are. My management company is happy to share this information with potential buyers (and current owners looking to refinance) because it saves them quite a few headaches as well if buyers work with a bank they know accepts our building's numbers.

There is another condominium complex that I am considering. It has more units (80). I'm wondering if it would be easier to sell a condo there because the percentage of renters is more likely to be lower, due to it having more units. One downside of this place is that it is a bit smaller than the other condo.

The percentage of renters is much more likely to be dependent on the condo's rules regarding rentals rather than the number of units. If they only allow them for short periods, etc., it's unlikely that there will be a lot of investor-owned rentals in the building. The management company should be able to share this information with you.

Our condo we sold had a rule that we could only rent our unit for a one year period, no less. This means that there aren't transients renting for a couple of months and because of the rule, the majority of the units are owned by those living in them.

It is location specific and it is best to speak to your lender because it has nothing to do with the down payment per se. The condo form sent by the lender to the condo association for information is very specific as to the total units and the total rented. As pointed out earlier there are lender restrictions and when the percentage is large enough, you can't get an institutional type mortgage (conventional nor government). You can put down 50% or more and still not get the mortgage because the lender won't loan in the community. I'm in S Fl and we have several condo communities dominated by tenants and the only way you can purchase is by paying cash or having the seller hold a note.

PS This issue, the percentage of tenants, is entirely different from the non-warrantable condo issue. If you are a buyer, check into that as well.

Do buyers care a lot about how many units in a condo are being rented?

I would care..A LOT!

To pallmpsest: Do you think the problems you encountered, like board members not living in the complex, are more likely to happen in a small condo complex; with fewer units? The place I'm looking at doesn't have a gym or a pool. It's just living units.

Yes, as palimpsest mentioned, there are many reasons a buyer should care about the owner occupant ratio, not the least of which is the ability to get financing. If the building is in a nice enough neighborhood with high enough rents, the maintenance and tenant behavior concerns will be less of an issue, but still something to think about.

Board members not living in the complex has nothing to do with amenities or size of building. It has everything to do with the rules regarding renting units and/or investor owners. If those rules are flexible, there will be more renters. My co-op has no restrictions on renting, which is why I kept it after we bought our house - it is now an investment rental property. If there were restrictions, I would have sold it immediately once we moved.

I don't like large complexes for resale value. You always have lots of competition and some sellers can/will sell cheap hurting your value. That said, in my area condos can vary greatly in quality and cost. Some are 2 unit complexes built with high quality and high priced, one just sold for over $4M.

My condo was a medium-sized condo in a HCOL neighborhood. Not the highest, but second tier. It was not a doorman building, but they were less common when I bought the first unit.

The rents were actually relatively high because owners had to pay mortgage, plus a condo fee, plus a utilities fee (because it had originally been rental units without individual control over heat), plus the assessments. At one point our rents were similar to doorman buildings because our monthly condo fees were high. (There were people paying over $1000 a month in condo fees in a non-doorman building).

I think we actually had more problems with people moving in with a sense of entitlement because they were moving into a relatively high rent place for the neighborhood and we had a pool. We had one tenant who would call up the board president, laughing, and say "I am having a party this weekend, what are my fines up to now? I will have my friends all write checks" His fines were over $500 a pop at that point (because they were escalating fines), and we would get five or ten checks for $50-100 written by his friends. We had people move into a no dog building with dogs. They would pay or not pay fines, whatever they felt like. It's not like we could arrest them, or anything, condo boards don't have a lot of legal teeth on their own. The ability to pay rent does not make someone a better person to live around.

I would never live in a very small condo. We have some as small as 2-3 units in my neighborhood. The smaller the number of units, the bigger the slice you pay when you need to do capital improvements. I know people that were hit for bills in 5 figures when something needed to be done. If I am going to have that much responsibility I would rather own a house and not be tied to other people financially in that way.

I am trying to decide between the 30 and 80 unit condo complexes. I like the 30 unit place better but am concerned that it there could be problems with too many renters because it is small.

Are you Allowed to have a washer/dryer in the unit? Some of the older ones you are not, or it can be on a unit per unit basis, and you might have to do something like get your neighbors to sign off on it. One of my neighbors said to me "I have used the laundry room the entire time I have lived here. I always lived in apartments with laundry rooms. I don't know why people need their own washer and dryer. I think that's being lazy."

Make sure that's the sort of thing you don't have to deal with, it gets tedious.

There is no hook up for washer and dryer. I would have to have it installed. I hate using laundry rooms.

Is an 80 unit condo less likely to have problems with too many renters, and board members who don't live in the complex, than a 30 unit condo? Might 50 more units make a difference?

" When there were a large number of rental units, at one point several members of the board did not even live in the complex. And when things like budget and assessments and reserve fund were voted on, the vote always came out to spend as little as possible on maintenance and capital improvements."

I very much agree with this statement. In my previous condo, the live in owners could never get responsible maintenance done in a timely manner because the off-site resident owners wouldn't agree.

in addition to whatever limits your lender imposes, I would steer clear of a condo which has over 33% of investor owners. The lower the %, the better.

Is an 80 unit condo less likely to have problems with too many renters, and board members who don't live in the complex, than a 30 unit condo? Might 50 more units make a difference?

It has nothing to do with the size of the condo, whether 80 unites, 30 units or 1000 units. It has to do with what are the rules of the condo. Do they allow rentals and if so, what are those parameters? Can they rent out the units weekly? Monthly? Bimonthly? Can they rent the units 1x a year? 2x? 6x? What percentage of the units are allowed to be rented out and who decides? Does the board have a say as to who is renting? In our building, anyone renting has to be approved by the board.

We lived in a community with 80 condos(or rather townhouses)

First, they(HOA) had a strict rule about how many condos can be rented out at the same time. I forget but I think it was 15%? along these lines

Second, they were very involved. For better and for worse. Non stop maintenance, beautifying, and sending out letters . They didn't miss a thing.

So it was slightly irritating at times, but on the other hand very well maintained indeed. All the exterior repairs/maintenance were on them. Also some things inside the house..for example if you got a major leak they were to cover the costs..so after couple major leaks they just re-piped every unit..very smart of them, even though it was a huge disruption.

The landscaping was beautiful. The pool was sparkling. (we also had there jacuzzi and showers etc). Rules were not to be broken even if they were minor and really silly actually-say they insisted all the cars(guests' cars, since owners were supposed to park only in their garages, or on the street) would look the same direction..:) Like it would hurt resale value or something.

You are very influenced by recent sales in such a community, that's true. We were unlucky in that regard, we had two condos before us sold for too low.

Then after we sold (we didn't get our asking price yet still sold much more successfully) the comps obviously went up again. I knew for sure couple other owners were waiting to see what happens with ours, before listing theirs. Very smart of them. I'd do the same, at least wait for spring when people are actually buying. I was too exhausted having two houses to look after, and wanted out. DH didn't really want to sell at first, but I wasn't keen on being a landlord again-been there, done that. And no, I can't see our board committee doing with something less than perfect, whether we lived there or not. They'd cut our throats..:)

If buying in condo community again-I'd make very very sure I mostly like how said community is run. How it looks like also says a lot, generally. If it's beautiful-means somebody's diligently painting, cleaning, blowing the leaves, mowing the grass, doing this, redoing that...watches like a hawk over where your trash bin stands..:) etcetera

@ahorsefly:

Some condo associations do not allow washer/dryer in individual units.

How high are the condo fees, and do you know what the reserves are?

^^Very important points by nosoccermom. Not only what the reserves are now, but how much is set aside for reserves each year. This will determine if the condo is warrantable or not and will affect whether you can finance it or have limited options to finance it. Not that being able to finance it is the only goal, but it would be a huge obstacle for the average buyer if financing were not an option.

DS lives in a small condo community in Philly. There are 28 - 30 units arranged around a cobblestone courtyard. He rented there for 2 years and then when a 2 BR unit came on the market he jumped on it. Even as an attorney he was unaware of some of the real estate intricacies that are involved in condos.

It took him a little longer to get a mortgage because as a few others pointed out most lenders want a higher ratio of homeowners to renters. It makes for a more stable community since on site owners tend to have a more personal view of maintenance issues, assessments and dues.

His buildings are fairly old and they were once worker's housing for some of the manufacturers in the city. I can't remember if it was the Stetson factory or one of the breweries. It had been empty for several years and a developer purchased the complex and turned it into individual units and then tried to sell them just as the market took a dive. He sold most of them but retained ownership of 6 and rented them - which wasn't a plus in the lender's eyes. He also failed to pay his monthly condo fees - even though he could have included it in the rent he charged. That's also something that a lender checks. He finally sold the last condo and since the HOA had placed a lien on his property he had to pay back fees with interest.

After DS became an owner he started attending the condo meetings and ended up being appointed HOA president. The other owners found it very convenient to have a president who could read a contract. He's already notified them that the monthly condo fees need to go up because after putting on a new roof on one of the buildings they don't have the necessary cash amount in reserve.

Before purchasing a condo I would check the finances of the HOA, find out what the monthly fees are, what is the cash reserve, are they expecting any major improvements which might require a special assessment. I would also speak with the HOA president or another owner in the condo and find out what the problems are. We have an HOA at our vacation place and it's very difficult to get enough homeowners to show up at the annual meeting to vote on anything. All the other owners are full time residents and we're the only part-timers but for some reason they just aren't interested.

And to answer one of your questions - yes buyers do care how many renters are in a complex. DS told me that as president he's had several inquirers from possible buyers and that's one of the top questions.

Maire

Good luck with your selection.

marie_cate: Some of the problems you mention are the kind of thing I worry about, like one person owning 6 units or finding enough owners interested in voting on important issues. This could be more likely to be a problem in a small complex like the one I'm looking at. 6 condos are a lot in a small place.

Unfortunately they don't limit the number of units that can be rented. I don't know if a person can own more than one unit.

I will check the rules and finances of the place, but I can't find that out until I commit and make an offer.

The condo/townhome I sold and moved out of at the beginning of August was in a 250 unit complex. We had a special assessment for the roof replacement done the year before which had to be done but without the assessment would have put us under the reserves required. The assessment is supposed to stop next year but knowing the board it will undoubtedly not so effectively the association dues will stay where they are $ wise. After moving I can't see myself ever living in a traditional HOA again. Where we moved to, in another state, the HOA is responsible for lawn, snow, and painting - we pay less than $100 for that and most things are decisions we get to make on our own instead of being restricted to what the association allows. I think that these types of housing fill an important niche but people considering moving into one need to research to make sure the specific one is right for them.

Jennifer: So at your old condo the board didn't manage the money well? The owners weren't able to make them do a better job?

Part of the problem was that the board WAS made up of all-volunteer owners who live within the HOA. The Davis-Stirling Act that California has (which is where that HOA condo/townhome is located) helps by setting out in statute what is required of all such developments in the state but I've found most homeowners living in a HOA to be reluctant when it comes to bringing legal action against theirs due to the impact a lawsuit has on everyone living within it.

Ask for a copy of the HOA rules and regulations before you place your offer.

Maire

I have excellent credit but was not able to refinance to a lower rate because the underwriters did not like some of the finances of the association as a whole.

I think a big part of it was I was refinancing for a shorter term and not taking any equity out. But after making me jump through hoops for almost a year, that's what they came up with, the financial stability of the association as a whole.

That's when I put my unit on the market and bought a house.

I'm just glad our new home doesn't require us to do the lawns or deal with the snow. :P

Agree with palimpsest, that is the problem with buying in a COA. The condo finances can totally kill any financing you want to do on your own unit - even if you as an individual have perfect credit, income, and virtually no debt. That doesn't happen with houses or townhouses - even if they are in an HOA community. Only condo communities.

I'd have to pay to get a copy of the condo rules and regulations in advance. I think it costs $200+.

Hah ours that we had to get the buyer were like...$800

I have a rental condo that is 40 units. About 1/3 are owner-occupied. It is about 20 minutes from a very large university and there are a good amount of students there.

But the students aren't "typical" students (really!!). Myself and many of the other rentals are owned by the college students' parents. It is far enough from school to not have the wild partiers but close enough to travel to school.

One thing I have noticed recently--myself included-- (although I don't know a lot of people there-actually mostly same as me-parents of kids living there)--is that there is a lot of remodeling/upgrading going on within the individual units.

These units are now worth around 100K and you could get in 5 years ago for 50K--plus rents have gone up a lot here. I recently had new flooring and a new bath put in. Many people are doing upgrades-putting 10K plus into these.

And this is very state-specific--our governor recently changed our college bright futures scholarships--basically if you are in the very top percentage in HS--tuition is paid for.

So instead of these parents paying 10K for tuition (most of the students I know there are engineering/difficult subject majors--therefore I would think recipients of the tuition being paid for) --the parents are paying for much-needed upgrades to the condos instead.

So not all rentals are bad. Us helicopter parents keep an eye out and make sure they are well-maintained!

It is a well-kept condo complex and yes probably most were paid for with cash.

I don't want to discourage anyone from buying a condo. It was my entry into a neighborhood that I would have had a hard time breaking into buying a single house. And not having to worry about common areas and things like that was good for me at that time. You just have to know what is going on at that particular condo association to make an informed decision. And people don't even read the key parts of the document because the documents are so bulky.

But we had someone buy with a dog (two people actually). One, because he thought he would be able to get the documents changed (he nearly did) , and the second couple because the Realtor was unfamiliar with the building and said they could ave a dog . It's clear in the documents that they couldn't, but they never read them. They tried to sue the realtor, they were unpleasant to everyone in the complex for being "dog haters" (that wasn't really the issue) and they ended up defaulting on their unit. You don't need to read the whole thing, but you should at least confirm the parts that are important to you.

I'm used to the legalese way that the docs are written due to my occupation - most people you can see their eyes glaze over after a couple paragraphs. It doesn't help when there are pages with a line through the text and the newest update to the crossed out parts follows on the next available page. How the average person who doesn't think reading through new statutes is fun (ok so I do think it's fun but I'm weird) is supposed to make sense of the whole mess they are presented as cc&rs, bylaws, etc... it's ridiculous.

ahorsefly, most likely the $200 is for the estoppel fee. You can specify the COA docs from the seller as part of your contract without expense to you. It is normal for the seller to provide those documents to the buyer within an agreed upon period after the contract is executed. Typical is 3 to 5 days after contract signing. You want all the docs including (and most especially) the COA financials to make sure the association is solvent.

I believe I can get the rules, regulations and financial information on a condo without charge, but I have to make an offer first. My realtor says I will need to set up an inspection also to show I'm serious. So I guess I have to pay for an inspection in order to see the HOA documents.

The way things are set up so that a person has to have signed the contract before getting to see what they're getting into with the HOA is weird to me. I mean I know that sellers don't want to have their time wasted but I would have been willing to let my buyer look at the copy I had if they asked. They didn't, but their mortgage lender required a new copy which I as the seller had to shell out for - at least I've set aside what I'll need for taxes on the sale. Planning ahead saves a headache.

I can't speak for all areas of the US but in mine (Missouri) after an offer is accepted the HOA/COA (if it is a resale) will provide a Resale Certificate which should include all recorded documents related to the Condominium Project...once a Buyer receives the Resale Certificate they have 5 days from acceptance to cancel the contract for any reason...i f the condo is new and being sold by the Developer then a Buyer is provided with an Original Sale Certificate and once received the Buyer has 10 days to cancel the contract for any reason.

Let's say that an owner "shares" their HOA documents with a Buyer from a year or so ago or when they purchased....who is going to get sued if there has been additions/deletions to the HOA documents from your old copy? And this does happen.

There is a good reason that resale/original sale documents aren't passed around..let the HOA, title company or attorney make sure all documents are up to date.

^^^Problem with doing it this way is the documents are provided last after the inspection period is over. Most of our larger associations here have their documents posted online in their property management area so the documents can be downloaded right away. What isn't usually available are the condo financials. This is the critical part because the buyer needs to ascertain if the COA is solvent or operating in the red and having to pass special assessments for operating expenses. Some associations don't provide the information and that is a red flag. It is far better to have this information right up front so the buyer can decide with the proper information whether to stick with the deal or cancel.

Denita....Why do you say that the documents would be provided last after the inspection period is over? The Resale Certificate is usually obtained in a couple of days and if an Original Sale Certificate is required it usually is provided at presentation of offer...inspections are usually 10-15 days after effective date.

There were 810 condos closed in our MLS in the previous 12 months and it works for us.

It could be that you are more efficient than we are here. In my MLS we had 27,435 condos close in the last 12 months and our inspection period is usually anywhere from 3 days to 15 days with the vast majority ranging from 7 to 10 days. It is negotiated in each contract. None of our condo property management companies provide the documents quickly - unless they are posted to their website and not all property management companies do that. In general, it takes quite a bit of pressure & time to actually get the documents from the property management company if the seller doesn't have them. The property management company does use this as leverage for additional funds. We just had a new law passed, effective July 1, 2017, limiting what the condo associations can charge for fees for docs, for applications and for rush fees. Looks like the process is different here (S Fl) than where you are located.

One more note: we don't get a Sale Certificate. We get a Certificate of Approval from the condo association for the buyers but that takes 30 days.