Nonwarrantable condos in Naples (Cape Coral: real estate, renters, HOA)

[Sandgal]

I am planning to buy a two bedroom condo in Naples for investment. Under what circumstances is purchasing a nonwarrantable condo a good idea? This particular complex I'm considering does not qualify for conventional financing; it has over 50% investment properties, one owner that owns 40% of the condos, and reserves are only 6.5%. But it's in a good location (central location north of pine ridge road) and I think I would get just as much in rent. What would be a proper discount of the purchase price to compensate for these issues?

Would you buy a nonwarrantable condo in central Naples or a condo that qualifies for financing with a better HOA in East Naples? (for the same price).

I also fear that many of the condo complex in Naples may have the same issues? Does anyone know?

Also, any opinions on the Naples annual rental market for a two bedroom condo? I understand it's very strong right now, but would like additional opinions.

Someone suggested a 3 bedroom SFH in Cape Coral instead. Would this be a better investment idea?

I would appreciate input! Thanks.

[lynnc99]

im not sure why you feel the non-warrantable unit would qualify for a discount. We mortgaged a condo a few years back, financing less than 50% of purchase price, and actually had to put a larger down payment in because it was not our primary home. By definition, the unit won't be eligible for conventional financing...period.

Mortgage companies are extremely invested in the soundness of the HOA. If there are litigation issues or insufficient reserves, it puts the entire deal at risk under the best of circumstances. If the association cannot cover amenities, maintenance, long term repairs, or legal action you as the owner become at risk because your property value is in jeopardy.

The best buyer for this unit would likely be a cash buyer - and there are many in the Naples area. You do have the option of a land contract if you can negotiate something that way, but I would use a good attorney along the way to protect yourself because of the unusual ownership configuration of this complex.

IMO, an investment in central Naples would always be my choice over East Naples or Cape Coral. The record stands for itself on what future tenants may be looking for - and it's location, amenities, and atmosphere. We've always said, "There's Florida....and then there's Naples."

Also, if you are interested in seasonal rentals, be sure to verify that short term rentals are permitted. Many developments allow rentals only 3 months or longer. Of course, if you're looking for annual rentals it's often no issue but renters may have to be approved.

[JWatral2016]

I am planning to buy a two bedroom condo in Naples for investment. Under what circumstances is purchasing a non-warrantable condo a good idea?

I can't think of a reason why it would be a "good' idea (unless new construction, see below) but "typically" it will be harder and more expensive to get financing and therefore harder to resale.

This particular complex I'm considering does not qualify for conventional financing; it has over 50% investment properties, one owner that owns 40% of the condos, and reserves are only 6.5%. But it's in a good location (central location north of pine ridge road) and I think I would get just as much in rent. What would be a proper discount of the purchase price to compensate for these issues?

Naples is somewhat of an aberration in that there are a lot of cash buyers around, especially in the price range you are looking at. Therefore, I would have to agree with lynnc99.....for now,none.

Would you buy a non-warrantable condo in central Naples or a condo that qualifies for financing with a better HOA in East Naples? (for the same price).

That would depend on how risk adverse you are. There are positive and negatives to both. North Naples, better schools and preferred location, will have a stronger rental market than East Naples. Although right now both markets are strong. Because of the single large investor and low reserves there is far more financial risks than your typical condo HOA, which is why it is harder to get financing. There is a good chance you may be assessed for any future major repairs because of the low reserves.

I also fear that many of the condo complex in Naples may have the same issues? Does anyone know?

Actually, any "new construction" condo development is non-warrantable. The developers get around this by offering there own financing through a partnership with a financial institute which keeps it in their own portfolio. Once sold out it is no longer non-warrantable and they can then resale the mortgages to Freddie Mac or Fannie Mae. Other than that I am only aware of one other non-warantable community, which is Fairway Preserve at Old Cypress.


Also, any opinions on the Naples annual rental market for a two bedroom condo? I understand it's very strong right now, but would like additional opinions.

Yes, rental market is still crazy, for everything.

Someone suggested a 3 bedroom SFH in Cape Coral instead. Would this be a better investment idea?

I am not familiar with the Cape Coral market so can not answer that for you. Typically, a 3/2 SFH will have a stronger resale and rental potential than a 2/2 condominium.

I would appreciate input! Thanks.

[Sandgal]

This is very helpful thank you!! And to clarify, financing is not an issue since seller is willing to finance on good terms. My worst fear is one entity owning 40% of the units and being at their mercy.

[JWatral2016]

Originally Posted by Sandgal

This is very helpful thank you!! And to clarify, financing is not an issue since seller is willing to finance on good terms. My worst fear is one entity owning 40% of the units and being at their mercy.

Exactly, if he/she should go bankrupt it will cause beau-coup problems.

[lynnc99]

Yes, if that 40% owner hits big problems, those problems become yours.

And yes, you may be looking at serious assessments for major maintenance when it's due. Roofing, pool maintenance and renovation, exterior paint, doors and windows...all are high priced items that the low reserve may not cover.

If you decide to move forward, I urge you to consult with a good real estate attorney. Take the development covenants and information about their association and management company along with you. Lindsay and Allen Professional Counsel is one I would recommend for real,esatae questions.

[Sandgal]

Thanks for these additional thoughts to both of you!