Developing condominiums is one of the strategies we employ to achieve high-level short term profits. This is a strategy that many beginner developers can use to get their feet wet and transition towards more complicated projects (see our 3 Effective High Level Development Strategies article for more information on more advanced strategies).
There is a large segment of the population that prefers owning real estate in a condominium structure. There are a few reasons for this. First and foremost would be the reduced amount of time and care put towards building maintenance.
If you are a single family homeowner, then you are all too familiar with the upkeep necessary to keep your home up and running. Many buyers prefer the structure where you have a condominium association already set up that is run by a professional property management company. That way, if the parking lot needs to be resealed or there is snow to be plowed, they can simply pay a monthly condo fee rather than waste their time seeking out companies to perform all these maintenance and upkeep tasks.
Developing condominiums is one of the strategies we employ to achieve high-level short term profits. This is a strategy that many beginner developers can use to get their feet wet and transition towards more complicated projects (see our 3 Effective High Level Development Strategies article for more information on more advanced strategies).
There is a large segment of the population that prefers owning real estate in a condominium structure. There are a few reasons for this. First and foremost would be the reduced amount of time and care put towards building maintenance.
If you are a single family homeowner, then you are all too familiar with the upkeep necessary to keep your home up and running. Many buyers prefer the structure where you have a condominium association already set up that is run by a professional property management company.
That way, if the parking lot needs to be resealed or there is snow to be plowed, they can simply pay a monthly condo fee rather than waste their time seeking out companies to perform all these maintenance and upkeep tasks.
Modern buyers also find condominiums desirable because they seek to live closer to major employment centers, where the concentrated population requires more dense development. Our developments are in emerging markets surrounding cities with strong economic drivers. In these areas, it is not feasible to build sprawling single families. You need to develop denser multi-family properties that meet the current demand for housing.
Here are 5 key steps to making sure your condominium development is successful:
Modern buyers also find condominiums desirable because they seek to live closer to major employment centers, where the concentrated population requires more dense development. Our developments are in emerging markets surrounding cities with strong economic drivers. In these areas, it is not feasible to build sprawling single families. You need to develop denser multi-family properties that meet the current demand for housing.
Here are 5 key steps to making sure your condominium development is successful:
1. Understanding Comps in your Area:
1. Understanding Comps in your Area:
As with most real estate, comps, or comparable properties, are your key to understanding your market and better evaluate deals. There are several factors you will want to study in relation to comps that we will explain in more detail below, but some of the basics to start with are proximity to your potential development, local design trends, and amenities.
Don’t assume your plain, traditional building with vinyl siding is going to pull in the same type of sellout numbers as a very memorable and trendy building with contemporary design. How close your comps have to be will depend on the density of the area you are developing in. Also be aware of the fact that real estate is hyper-local and you might go down a few streets and find yourself in a new neighborhood with totally different price points.
Using map searches for comps is a great way to visually see these different neighborhoods in a data-based manner. Also pay attention to if parking is offered in other condominium buildings. Don’t expect your building with no parking to pull in the same prices as a building across the street that provided 2 parking spaces per unit.
As with most real estate, comps, or comparable properties, are your key to understanding your market and better evaluate deals. There are several factors you will want to study in relation to comps that we will explain in more detail below, but some of the basics to start with are proximity to your potential development, local design trends, and amenities.
Don’t assume your plain, traditional building with vinyl siding is going to pull in the same type of sellout numbers as a very memorable and trendy building with contemporary design. How close your comps have to be will depend on the density of the area you are developing in. Also be aware of the fact that real estate is hyper-local and you might go down a few streets and find yourself in a new neighborhood with totally different price points.
Using map searches for comps is a great way to visually see these different neighborhoods in a data-based manner. Also pay attention to if parking is offered in other condominium buildings. Don’t expect your building with no parking to pull in the same prices as a building across the street that provided 2 parking spaces per unit.
2. Local Zoning Regulations:
2. Local Zoning Regulations:
To know what can be built on your lot, the key is studying your local zoning code, as discussed in several other articles. The first step is to look at the use regulations to determine if multi-family dwellings can be constructed there. If you’re building 3 units or less, they will usually be referred to as 2 or 3 family dwellings. Also keep in mind the possibility of building townhouses or rowhouses, if the shape of the lot allows for it and this unit type is in demand for your area. Once you’ve determined your use, the next step is looking into dimensional regulations, which will determine the size and shape of the building. Finally, you need to research if there are any parking requirements for your area. These are usually done on a space per unit basis.
To know what can be built on your lot, the key is studying your local zoning code, as discussed in several other articles. The first step is to look at the use regulations to determine if multi-family dwellings can be constructed there. If you’re building 3 units or less, they will usually be referred to as 2 or 3 family dwellings. Also keep in mind the possibility of building townhouses or rowhouses, if the shape of the lot allows for it and this unit type is in demand for your area.
Once you’ve determined your use, the next step is looking into dimensional regulations, which will determine the size and shape of the building. Finally, you need to research if there are any parking requirements for your area. These are usually done on a space per unit basis.
3. Condominium Demand and Market Saturation/ Absorption:
3. Condominium Demand and Market Saturation/Absorption:
Of the utmost importance is determining if you live in an area where condominiums are in demand. They are usually more desired in denser urban centers; however it is possible to do a mid-sized or large multi-family development in suburban areas without much volume in sales. You just have to be able to determine the demand exists, even if there hasn’t been much supply to use as evidence. Also be aware of market saturation. Maybe there is demand for ten 2-bedroom condos every 6 months in your market. It might be risky to build a building with 30 2-bedroom units, as you are saturating the market beyond the normal absorption rate.
4. PPSF Sellout vs. Cost per Square Foot Construction:
4. PPSF Sellout vs. Cost per Square Foot Construction:
As is true of all development, you need to get a firm grasp on the construction costs in your area on a per square foot (or square meter) basis. Then you can compare those to the price per square foot sellout for units in your area. If you know the price per square foot and the cost per square foot, it’s easy to determine if properties are priced appropriately for your investment model, or if it’s an off market property, what price you should offer to the current owner.
5. Unit Sizes:
Say you are looking at a property where you have determined you can build a multi family building, with 10,000 square feet of living area upon completion. Whether that building should be divided into fifteen 650 square foot units or eight 1250 square foot units depends on the comps of your area. Of course, you will likely have a range of unit sizes, but this is just an example to make you understand the concept. Pay attention to what size units are in demand in your area. Two bedroom units are very popular options for multi-family condominium buildings in more expensive urban areas. You might be in a market where larger townhouse style condos have a high demand. Also keep in mind the fact that there may be few sales for a certain unit type simply because there is less supply available. In one of our recent projects, we included a studio unit, which is a little rarer for condominiums in that market, but it sold immediately because there was pent up demand for this unit size, but no supply to choose from.
Say you are looking at a property where you have determined you can build a multi family building, with 10,000 square feet of living area upon completion. Whether that building should be divided into fifteen 650 square foot units or eight 1250 square foot units depends on the comps of your area. Of course, you will likely have a range of unit sizes, but this is just an example to make you understand the concept.
Pay attention to what size units are in demand in your area. Two bedroom units are very popular options for multi-family condominium buildings in more expensive urban areas. You might be in a market where larger townhouse style condos have a high demand. Also keep in mind the fact that there may be few sales for a certain unit type simply because there is less supply available.
In one of our recent projects, we included a studio unit, which is a little rarer for condominiums in that market, but it sold immediately because there was pent up demand for this unit size, but no supply to choose from.
