Condos- To Buy or Not to Buy?

As I was on my way to the townhomes at Upper Larimer to work my open house the other day I noticed an entire development project for sale- not just individual units for sale but the whole project-all of the units to be sold to one buyer. The construction seemed to be over and the units were just sitting like so many forgotten toy soldiers- still at attention... waiting...just waiting for their new owners- for the families, the people, who would move in and bring the project to life, much as children bring their toys to life.

So you wonder: why is it that some developer who had the knowledge (or know-how) and the moxy to purchase land and go through the entitlement process- the process of getting the city to agree to let you build whatever you intend to build on your land, as well as actually bringing a development out of the ground and getting to the point where he or she could "turn the lights on" would essentially give up. Why didn't this apparently savvy developer who built what appears to be a reasonably viable project turn his back on it instead of renegotiating his pricing and his loans? Unfortunately, mis amigos, I suspicion ze answer lies with the current mortgage market.

The mortgage industry has essentially turned its back on condominiums, both acquisition financing and refinance monies. As my grandfather would say, "it's scarcer than hens' teeth." Much if not most, of what happens in the mortgage world is predicated by the infamous Fannie Mae. And Fannie Mae currently says that she doesn't care if it's a townhome or a traditional condominium there will not be any conforming conventional financing until at least 70% of the units are sold. That means that the consumer, the buyer, can not get a fixed rate conventional loan to buy a condo until the majority have already sold...the buyer has to rely on so called portfolio loans which can have a higher interest rate and a shorter term. In a strange quirk most of the existing condos can qualify...if and only if they were built as condos adn not converted from apartments to condos. Sound confusing? It is but none of it is insurmountable. However, it makes it all the more important to have a qualified mortgage lender- be it banker or broker and an experienced Realtor to help you navigate the waters.

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Investors Beware

As our community, our global community, is assaulted daily with frightening financial news we start to think about exploring alternatives to traditional financial investment vehicles. And this is the time to beware, despite the tightening of credit guidelines, or perhaps because of the new lending practices,there are predators on the street. These wolves may look very innocent and seem as though they want nothing more than a "win-win." Instead of the traditional predatory practices that led up to our current economic situation, the new predator offers opportunities to invest with them and realize greater cash returns than through banks or other financial institutions.

Typically they will ask you to loan them money to acquire real estate promising that once the investment property is sold you will realize 10% 20% or even more annually on your money. They will claim that your investment is safe as it is secured by real property. It is important to remember that your investment is only secured by real estate if you are on the title- typically a warranty deed of some sort or you hold a lien on the property. If the entity offers you a personal note this does not guarantee that your money is directly tied to any particular property. So if approached by an individual or group offering this type of "opportunity," be smart, contact a lawyer and ask them to review any and all documents prior to signing anything or handing over any money. You should also contact a tax professional as even though you may actaullay realize the promised returns, there could be serious tax consequences.

I am not suggesting that real estate is a bad investment - in fact there are many financially distressed properties that could present significant equity gain in coming years but rarely is it a short term investment. The wise investor consults with his or her real estate professionals, broker and mortgage banker as well as their attorney and tax consultant, and sets specific goals for the investment. Historically, over the long term there have been very few vehicles with as strong of returns as real property. So if you decide to invest in real estate do your homework-we call it due diligence- learn everything you can and analyze, analyze, analyze and plan for any unforseen contingencies.

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