Fast-flipping investors aren’t the only ones who love condos. For many empty nesters, nothing beats selling the big old house in the suburbs and hightailing it to a luxury development where sun and golf are plentiful and maintenance is minimal. And what better time to go shopping than during a real estate slowdown? It was a condo, after all, that rose the fastest and fell the hardest. There should be deals aplenty, right? As it turns out, it’s not that simple. Some markets have already recovered while others have yet to hit rock bottom - and not every place was as overbuilt as, say, Miami. To get the real picture, we zeroed in on five once-scorching cities and talked to brokers, analysts, buyers, and sellers. Read on to get some insight into the condo market.
The condo market has cooled along with the rest of the real estate market, but in some markets there is an oversupply of units giving buyers a great advantage if they are planning on staying put for a few years. The National Association of Realtors reports that in November (the most recent data available), there was a 13-month supply of condos clogging the market. This oversupply is predicted to remain well into 2009 according to the National Association of Home Builders. Demand is down because investors are putting their money elsewhere and many people who planned to downsize and move into condos cannot sell their current homes.
Across the country there are condo deals everywhere. Owning condos as rental properties was very popular, but the volatility of the market has many selling and moving their money into other investments. As a long-term investment purchase, condos can still be a good profitable place to put your money - you will just need to ride out the market’s downturn and wait for the rebound. In a slow market, you can't count on quick appreciation. You're most likely to recoup your money if you don't move for at least five years.
Sellers are cutting prices and offering incentives to entice buyers. You'll get a better deal if you look for highly motivated sellers or for builders' closeout deals -- especially from builders ready to move on and close the sales office. Resale units are sitting for months because builders can afford to cut deeper discounts and give bigger incentives than private home owners. If you accept incentives, be sure they add value to your deal. Try to find an offer that will benefit you over the long term such as paying down part of a percentage point on your interest rate that will benefit you over the life of the loan. Do not fall for front end cash incentives or other trivial bonuses just to get you in the door.
Watch out for unfinished construction in this market. Some buyers have been left in unfinished buildings, downsized units or with reduced amenities than what they signed on for. Some builders have even pulled the plug on condo projects all together.
When selecting a unit, keep in mind, the more amenities in the building, the higher the condo fees. Do you really want to pay for a club house and swimming pool you'll never use? Upgrades will raise your cost but not necessarily your return when you sell.
If you are purchasing a condo to live in personally, you want to live with fellow owners who pay the consequences of shared decision-making. Investors are far more likely to end up in foreclosure which puts owner-occupants on the hook to make up funds to pay the building's bills. Older, more established buildings may be more stable and have less risk. Ask the condo board or management company how many units are in foreclosure and the owner-occupancy rate, and then decide if they are numbers you can live with. Also, if you need to move but can't afford to sell, the condo association's rules may prohibit you from renting your unit. Know the rules before you sign on the line.
Condos can still be a good profitable investment if you can hang on for the long term. In Denver, where condo and town-house sales in the third quarter fell by 20% over the previous year, agent Debbie Harris urges sellers not to waste time “chasing the price down”. Instead, she says, be serious, assess your local market and competition, and price accordingly. Deals are everywhere. Study your local market and work with a real estate agent who knows the condo market and you are sure to find a great value for your money.