Now that you have been given the option to purchase your apartment complex, what should you do?
One suggestion is to form your own condominium, where each tenant would become the owner of the apartment. The first question always asked: "Why buy?"
Although there are numerous answers, the most obvious is that ownership provides for immediate tax benefits, as well as long-term appreciation in the value of an apartment. Although no one can predict the future of Washington's housing market, at the present time appreciation is great, and demand for in-town housing remains substantial.
In any event, faced with the choice of having your landlord convert the building into a condominium and selling the unit to you, or having the tenants association do the conversion, the cost savings of the latter appear obvious.
How do you go about converting the building? The requirements of D.C. law are complicated, but here is an outline of what tenant organizations must do.
1. Obtain the necessary research materials. You will need two basic documents, the Condominium Act of 1976 and the booklet entitled "Rules for Preparation of Application for Condominium Registration Required by the Condominium Act." A copy of the act is available from the D.C. City Council. The booklet is available free from the administrator of the Neighborhood Improvement Administration, Department of Housing and Community Development, Room 921, 1341 E St. NW, Washington 20004. Phone Number is 7248849.
Additional information is available from the federal Department of Housing and Urban Development.
2. Otain a certificate of eligibility. In order to proceed with the development of any conversion condominium, this certificate of eligibility to convert is required. It is issued by the Neighborhood Improvement Administration.
Generally speaking, a tenants organization will convert under the authority of Section 501 (b)(2) of the D.C. Condominium Act. This section permits conversions where the majority of the heads of households actually living in the apartment complex have signed a written-agreement consenting to the conversion. The consent form -- as well as the application form -- is available from the Neighborhood Improvement Administration.
3. Arrange for professional assistance. At the very least, you will need help from an architect and an attorney. Make your own arrangements with these professionals, whether on straight fee basis, an hourly basis or even a pro bono basis. You will find that professional assistance will not only expedite your plans, but will relieve the tenants' organization of a lot of the detail work.
4. Draft your plans and specifications. What plans do you want for the conversion? Will the units be remodeled, or will they be sold on an "as-is" basis? Will the entrance be upgraded, or left in its present condition? Are the heating, electrical, air conditioning, plumbing and elevator systems in good conditions, or will they be upgraded? How is the roof?
In all these decisions, keep in mind that you will be both the developer of the condominium as well as the ultimate buyer of the unit. Ask the questions that would concern you as a potential purchaser of a condomium unit.
5. Make a projected financial analysis. What will the project cost? It is important to estimate a maximum total budget prior to arranging any financial lending sources.
6. Obtain permanent financing commitments. At the end of the conversion project, you (the tenant) will no doubt buy your apartment. Unless you have adequate fianancial resources to pay all cash, you will have to obtain a mortage (called permanent financing).
It is absolutely important to arrange with a bank or a savings and loan association -- in advance of any other commitments -- that the permanent financing will be committed if and when the project is complete. Thus, the mortgage lender will make a commitment now to make the individual mortgage loans when the units are ready for sale.
Many lenders will be quite reluctant to commit themselves financially to a tenant's organization. The lender will be apprehensive about the success of the project. Thus, a sales job must be done on the lender to convince them of your sincerity and ability. After all, there are many commercial developers of condominiums in the District who did not have track records prior to obtaining their first loans.
7. Obtain purchase and construction funding. Now that you have a commitment for the end loans, you will need sufficient funds to do the renovation and construction work. You have to obtain this money from the same lender that will make the permanent loans or from someone else. Again, you will have to sell the lender on your ability.
8. Start the work. First, you will have to comply with the D.C. Condominium Act and prepare a comprehensive document, known as the public offering statement. This document spells out all of the details that the purchaser needs to decide whether to buy a unit.
Second, you will have to have a statement, certified by a licensed engineer or architect, stating the condition of the building. These statements must be furnished to the District government and the individual purchaser. Additionally, there are two-year warranties on the common elements of the building that must be given to the purchaser. You may want to sell on an "as-is" basis, which will keep your costs down substantially.
9. Register the condominium. Before any condo unit can be sold in the District, the entire condominium project must be registered by the city.
Next: Forming a cooperative.