An increasing number of condominium units nationwide are being bought by investors who rent units to tenants.
In the Washington area, where there are an estimated 50,000 condominium apartments, it is estimated that more than 10,000 are occupied by tenants, or son-owners. One Washington mortage banker owns six condominum apartments here and in Florida, for instance. He in turn, rents a co-op apartment in the Watergate complex.
(Investing in condo apartments has become tougher here in recent months because of the tightening mortgage market. Lenders in many instances say they will make loans only for people who intend to occupy the units.)
In a recent article in the Journal of Property Management, Edward Alrutz, a community manager for the Shannon & Luchs real estate company, wrote: "It is not uncommon for garden and mid-rise condominium apartments to have between 25 and 60 percent of the units occupied by renters."
Although conceding that a "small percentage" of units in most condominium apartment builders were sold originally to investors or kept by the developer as investments, Alrutz wrote that most of the growth in condominium investment units resulted from previous owners moving out of the area or moving to large, more expensive dwellings - and deciding to keep the condo apartment as an investment.
In discussing the trend to individual ownerships of condominium apartments that are rented to tenants, Arthur Hiban, director of community management for Shannon & Luchs, said that the firm now manages more than 5,000 dwellings in more than 30 condominium and cooperative properties.
Hiban confirmed recurring reports that increasing numbers of available rental apartments are those in condominium ownership buildings.
In his article in the publication of the Institute of Real Estate Management, Alrutz pointed out that a high percentage of non-owner residents does not necessarily "adversely affect the community." He said that some associations make certain that the board of directors includes at least one non-resident owner. At the Bentana Park condominium in Reston, a special quarterly newsletter is sent to all non-resident owners.
Alrutz also stressed that renters cannot be neglected. He wrote that a vast majority of renters are "surprisingly interested in the affairs and activities of the condominium and that they should be welcomed to neighbors and invited to participate in community events" - even though renters do not have an equity interest in the community.
As the result of rent controls in parts of the Washington area and increasing costs of building rental apartments, developers have shown increasing interest in building condominiums and in converting existing apartments to condominium ownership. The latter procedure has proved to be profitable for those developers who are able to sell out condo conversions quickly.
With more condos being rented, the area's rental property supply has remained larger than one might suspect in view of the high level of condominium conversions in recent years. However, Hiban said that rent levels of units rented by non-resident owners tend to bring more money than would the same unit under a previously common ownership by one owner or group of investors acting as a unit.
The conversion to condominium ownership generally more than doubles the total taxes paid on the same number of units in a building because of the increase involved with individual tax bills and relatively high sale prices of the units in relation to new market value.
The owner also pays higher financing fees and a condominium fee - and expects to get a minimum cash flow from the rent, if possible, after a few years, or at least to hold down negative cash flow to a minimum.