Investing in Condominiums

While the majority of condominium buyers choose to live in their condos, some owners see their purchase as purely an investment. Many buyers in Los Angeles do not have the time or patience to actually remodel a unit that needs work, and investors who purchase condos to fix them up and resell or lease then out know that buyers are willing to pay a premium for units that are “done.” There are a number of developers who specialize in taking older condo units and fixing them up with spectacular kitchens and baths.

Then there are the investors that we affectionately call “flippers.” These buyers invest in unfinished units in new and old condominium buildings with the intent to close the escrow and re-list the property as soon as the building is completed. In most cases, the price they paid to secure the unit is far less than it will be worth when they finally re-sell. The "flippers" are not out there right now. The market has changed and tehy are concerened about overpayinig for a unit and the time it will take to fix it and where the market will be when they are done.

In Los Angeles, with housing and land prices finally starting to readjust, there are also some buyers who purchase condominiums as a long-term investments, fix them up and rent them out to cover their costs. Since many first-time buyers cannot either afford L.A.’s staggering home prices or even condo prices as the prices continue to decline which they should for some time there will be many opportunities for Westside investor especially if they are all cash. Also, many people in transition are more than willing to rent a condominium unit as a temporary situation after a divorce or while looking to buy a house or a more luxurious condo. Condominium buildings offer a level of service and security (as well as some sensational views) that people find highly desirable.

The first rule of real estate—location, location, location—is, if possible, even more important for investors. Is the area expanding and becoming more of a hub for city residents? Are there signs of upgrading and enhanced amenities that will attract future buyers?

As an example, Century City is one of the hottest growing areas on the Westside of Los Angeles. Just minutes from Beverly Hills, and packed with offices, shopping, movies, markets and fine dining. Century City at present features Century Park East, Century Towers, Park Place, Century Hill, Le Parc and Century Woods. The Related Companies out of New York purchased the St Regis Hotel and hired architect Robert A.M. Stern to create “The Century at 2055 Avenue of the Stars” on the site. This should be the premier condominium building in Los Angeles once it is completed and rumors have it that penthouse units will be offered for $30,000,000. At the same time, Westfield Development has entitlements to build up - 280 units where the mall is. JMB of Chicago plans two 21 story towers on Constellation with about 450-480 units. Asking prices for newly-completed Century City condominiums will start at more than $1000 a foot and will undoubtedly push the prices of existing buildings up in value. With all of this proposed development in Century City, any condominium purchase there holds great potential as a long-term investment choice no matter where the market is this minute.

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Of course, investments must also take into consideration factors such as appreciation, depreciation, income and operating expenses, and investors would be well advised to speak with an accountant or CPA to discuss the upside and downside to owning and managing rental property. Among other costs, owners normally have to pay a commission to lease out a unit—a process that could take a few months.

Another concern for condominium investors is how many of the units are rented rather than owner occupied. If 20 to 30 percent of the units are occupied by renters, it usually indicates two things: for some reason the owners of those units would rather be living elsewhere, and resident owners must contend with renters who do not always share their priorities. Last but not least, some banks will decline the mortgage if the percentage of rentals exceeds the loan criteria. Also some condo buildings have a rule that you must live in the unit for a year prior to being able to rent it out.

For long term peace of mind with no regrets, investors should aggressively research the records kept by the condominium complex to determine if all is well and well managed within the Association. If you don’t feel comfortable doing this yourself, Coco Clayman-Cook can help you find a real estate attorney that specializes in condominiums and their rules and regulations.

If you have questions or you’re ready to start shopping for investment property, contact us at Buying@LACondoLifestyles.com or 310-278-6033.

Some areas of interest on our site for those interested in Investing in the Greater LA area: