are condos a bad investment? (Raleigh, Cary: rental homes, mortgage, loan)

[confused about Triangle]

Hi,

I am now considering condos in the $120-$170K range. Some examples would be Trailwood in Raleigh or Cheasapeake Pointe in Cary. But, people have been telling me that once the complex reaches a certain ratio of non-owner-occupied (ie rentals), that I would only be able to resell to a cash buyer because mortgage lenders stop offering mortgages due to increased risk. Is that true?

[MikeJaquish]

Originally Posted by confused about Triangle

Hi,

I am now considering condos in the $120-$170K range. Some examples would be Trailwood in Raleigh or Cheasapeake Pointe in Cary. But, people have been telling me that once the complex reaches a certain ratio of non-owner-occupied (ie rentals), that I would only be able to resell to a cash buyer because mortgage lenders stop offering mortgages due to increased risk. Is that true?

That is slightly over-simplified, but there is some truth to it.
NOO (Non Owner Occupied) rates over certain percentages means that some banks will just not finance for anyone in that complex.
For some banks the magic number is 50% NOO, and for some it is as high as 70% NOO.
These high rental percentages make the loan riskier, and difficult to resell. Fannie Mae may not warrant the loan. "NonWarrantable."
Appreciation is often affected by condition of the property and tendency of absentee owners to defer investing in repairs and maintenance.
There are some lenders, but you should be prepared to pay a higher interest rate.
You might analyze condos for a cash flow investment and make appreciation a secondary consideration.

You can see the same dynamic in residential neighborhoods where poorly-kept rental homes affect the values around them, particularly when rentals account for more than 25%-30% of properties.
Even at that, lending on SFR's is less risky than condo lending for the banks.

I wish this topic was titled "Condo Financing Issues" to see if we could draw some of the lending guys in for better comment and explanation.

[Dave O]

There are so many condos going up in every medium sized town in the nation right now that there is bound to be a glut on the market in a year or two.

[saturnfan]

Two many absentee landlord owners can turn a condo into a piece of garbage by:

1. Poor tenant selection
2. Opposition to any expenses for maintenance/improvement

A condo with liberal rental provisions is a bad choice. The right to rent should be limited in duration.