Q: I’ve been a loyal listener to your radio show since 2006. I also purchased your book “Buy Close, Move-In.”
I am looking to buy a building that was formally a hotel (converted into condominiums quite some time ago). The building is in rough shape, located in South Florida, but its location is gold. Many homes in the area sell for millions and millions but condominiums in this building don’t sell for that much.
I’d like to buy the building and convert it back into a hotel. What steps would I have to take? There are quite a number of condominium units for sale in the building. The building seems mismanaged and the units are rented by the week and month. Should I buy individual units until I have a controlling vote for the building?
A: Thanks for listening to Ilyce’s radio show. We’d suggest you start your quest to buy this building by sitting down with a real estate attorney that has extensive knowledge of condominium law. Without discussing whether your idea is good or bad, you need to know that in some states, a supermajority of the owners can decide to sell a condominium building as a whole. However, in some condominium documents and in some states, you might need half, 67 percent, 75 percent or 100 percent of the owners to agree to sell in order to buy the building.
If the building you are looking at has fifty condominium units and each condominium unit owner is a 2 percent owner in the building, each incremental percentage number may make the purchase of the building more difficult and costly.
You and your attorney should review the condominium documents for that building and determine what percentage of the ownership is required to permit the building to be sold as a whole. Your attorney can also tell you if the laws of the State of Florida require a higher majority than what the document states.
We’re not sure buying units in the building is a good idea for you unless you’re fine owning units in the building without the ability to control the building as a whole. You should also know that if you buy a good number of units in the building, the other owner-occupied units might suffer in value down the line. A building that has a majority of investor-owned units has a greater chance of having difficulty obtaining financing through conventional channels. If other owners don’t want to sell and financing for units you don’t buy is hard to come by, the building’s maintenance and quality may suffer further. On the other hand, this might be the leverage you need to convince the remaining owners to sell.
Once you determine what level of owner approval you need to buy the property, you can decide how to proceed. If you need the approval of all of the owners, you know that you can give it a shot but expect there will be at least one owner that will make it quite difficult for you to buy the building. If the percentage of owners set forth in the declaration is less than 100 percent that must approve a sale, then you will need to gauge how difficult it will be for you to buy the building.
Remember, if you plan to buy units in the building and don’t research the process properly, you could end up owning multiple units in a poorly run building and losing on your investment.