Condominium living has been a choice for millions of people. Romans used this varietal of home ownership in 6 B.C., Europeans utilized condo living for centuries and America finally got with the program after WWII. Since the opportunity was legally created, cities such as Miami, San Francisco, Seattle and Boston, have experienced huge growth in the sector, however, thanks to the great recession the industry is once again shifting and entering a new evolutionary stage.
History of Condominiums
Mortgage Marvel defines condominiums as "A form of real estate ownership in which each owner has title to a specific unit in a project and joint ownership in the common areas of the project." This type of living arrangement has roots tracing back to the Roman civilizations of ancient times and overtime, the practice became commonplace worldwide. America was one of the last industrialized nations to adopt the concept.
Prior to WWII Americans could purchase single-family detached homes, rent apartments or houses or become owners in a cooperative structure. Puerto Rico first proposed condominium laws in 1948, however, the laws first passed in the Commonwealth of Puerto Rico in 1958. Prior to that time, the existing laws suggested that actual land was needed for property ownership rights and the new policies updated the belief and included physical living space in the mix. After the changes were implemented, Salt Lake City, Utah was accredited with hosting the first condominium structure in 1960.
Since that time, condo living has grown in popularity. The main reason that consumers opt for this type of living arrangement is that condo ownership can be affordable housing alternatives in desirable regions including (but not limited to) Los Angeles, Miami and Washington D.C.
Condo Sellers To Face Challenges
Courtesy of stricter loan guidelines implemented by the government and a lesser ability for consumers to meet said terms, the entire housing market is experiencing a retraction, however, condo sellers may be in for a harder time than their house owning counterparts. Homeowners Associations (HOA) are part of the condo living arrangement and the group is tasked with managing the finances and maintenance associated with the structure. The money for these expenses is generated by monthly HOA dues that are the responsibility of all owners in a complex and the economic climate is reaping havoc on the financial reserves.
When it comes to purchasing a condo, buyers have the added responsibility of conducting their due diligence and making sure the building they are selecting has enough money set aside to cover general upkeep as well as emergency reserves. Unfortunately, financially struggling condo owners may be neglecting their fiduciary responsibility and may opt to skip making their HOA dues. Skipping payments is not uncommon and lenders who have real estate owned (REO) condos on the books may neglect their responsibility until absolutely necessary and may wait until a unit sales before paying their dues. Ultimately the lack of funds may make a condo less attractive in the open market.
Low HOA reserves are a deterrent to lenders considering financing a condo sales transaction. Mortgage providers want to ensure the repayment of their loans, and an unhealthy condo investment where more than 15% of an HOA's members behind on their due payments are not seen in a favorable light. Historically, loans backed by the Federal Housing Administration (FHA) were the saving grace for this situation, but those opportunities are being limited as currently FHA has made changes to limiting their efforts to a total 30% of the units in a complex (Walletpop.com).
Condos Converting to Rentals
As a result of the complications currently associated with the condo real estate market, property management companies are becoming creative to ensure they can properly manage this bump in the road. One example of this thinking out of the box comes courtesy of one of the worlds most expensive real estate markets New York City. Within that exclusive market, 2010 marked a time period where management companies of luxury properties worked with the FHA to get approval for loans. This move was a first within city borders.
Additionally, the newest trend is converting luxury condo units to rental properties as renting is making a comeback. MSN.com has reported this action occurring in cities including San Jose, California. The action is being taken as the market is over saturated with vacant condos and developers need to create a revenue stream to offset their expenses. As a result, many construction companies are becoming landlords in order pay off the construction loans.
