2015 Apr 10th

Hoboken Condo – Over 50% tenant occupied. Investors must have 30% down.

Here’s an interesting notation on the MLS listing for a property for sale at 920 Jefferson Street. Once a condo building has more than 50% investors, it no longer meets the Fannie Mae requirements. That means that the bank making the loan to the buyer can no longer sell the loan to Fannie. It severely limits a buyers options as to where to get a loan and it usually makes the interest rate the buyer must pay a bit higher. Allowing that many renters in a condo association therefore hurts the marketability and value of ALL the units in that condo association.

What can be done? Well, one building, the Constitution, amended its governing documents to prohibit sales of units to investors. If you buy at 2 Constitution, you better do so planning to live in your unit, at least initially. There is a possibility to rent after a set period of time, I believe two years, based on the number of rentals in the building at that time. They (smartly) just don’t want to go over that 50% limit. When I explain this to people who own in a condo building they sometimes say “you can’t do that”! Well, yes you can.

By it’s nature, condominium ownership means you are part of a group ownership situation.  The condo board is given the power to make rules which have an impact on all owners.  Changing the rules may require a vote by the board or it may require a vote by the unit owners, typically a majority of the unit owners.   Often restricting the number of rentals allowed at a given time may also requires an amendment to the Master Deed of the condominium. But in the long run limiting rentals helps maintain the value of the property.

A condo building full of renters often has more room-mate situations and the atmosphere more like a college dorm, especially in Hoboken.  It is never going to be the same as a building full of owner-occupiers. It’s just not their place and they are never going to care as much as the actual owners who live there would. Furthermore, when the market takes a downturn, investors will be much more likely to walk away from an underwater mortgage – after all, it’s not their home. Which is why banks don’t like too many renters in one building in the first place – increase risk of default. There are many, many condo buildings in Hoboken that are now on the cusp of the 50% limit. Pay attention people, too many renters in your building can haunt you down the line and come back to bite you in the wallet.

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  1. Joe Federici

    920 Jefferson is a nice, newer building. I feel like there are enough buyers out there that it should not be too hard to find one who can get a portfolio loan.

    If there are not too many bidders then the buyer won’t have to bid against himself in the “highest and best” scam that’s been going on.

  2. Craig

    Fannie Mae has lots of fun rules that can trip you up. No litigation involving the condo association being allowed is another one I personally learned about the hard way as a seller.

    @Joe – getting a portfolio loan isn’t the problem. The problem is their terms suck. They almost always have higher interest rates than what Fannie Mae lenders offer – as much a whole point or more. So if obtaining one is the only way someone can buy your condo, it can become a tough sell.

  3. AAM

    I wonder if the current “hot” market will have many investors thinking about taking their gains and running to someplace with a better return? When I was President of our HOA we kept really tight tabs on the number of rented units – and sometimes it is not always easy to do. Oftentimes just because someone other than the owner is occupying the residence doesn’t mean its necessarily rented…

  4. Zach Turner

    @ Joe–I’m not sure that ‘highest & best’ deserves to be called a “scam”.

    If there are multiple parties interested in a property, how is it anything other than fair to give everybody the opportunity to present their best offer?

  5. Joe Federici

    Zack, because in an honest negotiation, an offer should be met with a counteroffer – not a request for a better offer.

  6. Lori

    @Joe Asking multiple bidders to present their best offer IS a counter offer. How would you propose it work? The seller should negotiate with each potential buyer individually? If you’ve ever handles such a scenario you would realize that chaos quickly ensues.

  7. Joe Federici

    Communicate the basic terms of the bids. Its not hard and it makes everything honest and open.

  8. Lori

    There is nothing preventing a seller from doing so. It is always their decision as to what, if anything, they wish to disclose. Most sellers believe they will obtain the highest price by not disclosing terms.

  9. Lori

    There is nothing preventing a seller from doing so. It is always their decision as to what, if anything, they wish to disclose. Most sellers believe they will obtain the highest price by not disclosing terms. There is no way
    to know for sure but I suspect they may often be right.

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