Minimizing Risk in a Condo Purchase
Mick Jagger once said “It’s alright letting yourself go, as long as you can get yourself back”. I like that…and think the phrase is apt when considering a condo purchase. I bought in a building that was perceived to have a hint of risk (in terms of value retention)-
but I snagged the condo at such a great price, I know that if I ever want to move to the moon– I can sell my condo without losing money.
But you do have to be wary of the units I call the “HOTEL CALIFORNIA” condos- meaning you can check out anytime you like, but you can never leave- because you simply can resell the damned thing.
Here are 5 things to consider when determining the risk of a condo purchase:
1) The Cost of the Condo- If you buy a Center City condo at half the price similar condos are selling for- then most of the risk is removed. It gets back to one issue- NOT OVERPAYING.
2) Owner Occupancy Ratios can be an issue in SOME buildings- as a lack of Fannie Mae Warrant-ability can be a sign of a risky condo purchase. BUT by no means is this the only factor- it may just be a factor in assessing the risk.
3) Reputation and Resale History- There are buildings in town where NO CONDO has resold for 5 years. Not as rare as you might think. If no one else is buying in the building- you need to start asking me questions as to why.
4) Deferred Maintenance– I can name two buildings off the top of my head that need HUNDREDS OF THOUSANDS of dollars of repair, upkeep and maintenance work just to put them on par with their competition. I generally would avoid, unless of course you can just steal the condo outright (at a killer price). Otherwise, future assessments may wreak havoc on your investment dollars in that Philadelphia condo.
5) Buying within the Price Frames of the building- Buying a $2M condo in a building where the average price is $250,000 and is overwhelmingly populated with say studios may not be in your best financial interest, and may be a risky purchase.
