Property Management Archives

Your Guru gets asked every now and again to help a buyer, who fancies himself/herself an investor, locate a condo that can make a little income (or perhaps a lot of income) on the side. You should know that there are virtually NO condos in the area that allow AirBnB, VRBO or short term rentals.

Why can’t I rent my condo short term?

Here’s the reason: The over-supply of condos in 2005 heralded the “beginning of the end’ of the condo building boom in South Florida. We led the nation in the real estate “bust” and in turn, led the nation in the recovery.

Cash investors bought up the bargain-priced inventory and used those condos as rental properties – in any way they saw fit. There were traditional long-term rentals, but those investors also treated their investments like short-term rentals and even as alternative to hotel rooms.

Lending on condominiums ground to a halt because so many condos had more tenants than owners. Most lenders didn’t see condominiums as viable investment for their lending portfolios – they believed they’d lose money on every one of them.

Condominium boards also got an earful from angry residents as tranquil buildings turned into transient communities and party-pads. Associations responded by enacting rules requiring anything from a year of ownership before an owner could rent their unit, to restrictions on lease length, and outright bans on short-term leases. In most cases here in South Florida you’ll find a condominium association will have a minimum of a 6-month lease, or 12 month lease, or a restriction that a unit may only be leased once or twice per year.

Our marketplace and season has matured as well. We don’t get as many snow-birds as in the past who drove the short-term rental demand. The Fort Lauderdale and Miami metro areas are not as tranquil as they once were, contributing to the decline in demand for quiet short term housing.

It’s a common question during the first interview with buyers who may be seeking a condominium here in South Florida:

“So do you have a 25% – 30% down payment for your purchase?”

It seems to be lost on home sellers during the current frenzy of activity that is fueled by investors and foreign buyers that are flush with cash these days, but the predominant purchasers of condominiums used to be first-time homebuyers that may not have saved up enough cash to put down $30,000, $50,000 or even $100,000 on a new condominium home.

However, buyers who use FHA financing, however can purchase homes with as little as 3.5% down-payment.

There’s a hitch, though! You have to find a building that is already FHA, VA or Fannie Mae approved, and here in Fort Lauderdale, there are only a handful!

How does a condo get approved?

It’s a great question, and one we wish more Home Owners Associations would ask about.

It’s not that hard, but does have some cost. The fees typically run around $2,000 plus the cost of a consultant if you decide to use someone who is versed in the process to guide you through it.

Typically it’s the HOA and the management company that make the decision to get the condominium FHA approved.

FHA will look at a number of factors, and three are of critical importance:

the ratio of homeowner’s to investors – no more than 50% of homes can be investment properties.
the number of delinquent HOA dues – no more than 15% of homeowners can be delinquent.
the amount of money in reserves – typically FHA looks for an HOA to have an amount equal to a year’s worth of assessments in the reserve.
mixed uses – your HOA should not have more than 20% of the total space for non-residential uses.

Considering that first time buyers make up the majority of potential condominium purchasers, it makes sense to your association to undertake this effort.

Low down-payment financing is not just for low income resident – in fact it’s far from the reality of what can happen if your property is only attractive to investors! Investors are typically the kinds of buyer that are looking for the best deal available, and a preponderance of investors buying in your HOA can serve to hold values stagnant or even drive values down!

I’m hoping we all see your condo or HOA on the FHA Approved List one day soon!