As the best buildings in the most desirable neighborhoods are converted to condominiums, it was only a matter of time before developers turned to the aging and truly affordable rental properties in so-called “emerging” neighborhoods.
You know the buildings: just barely adequately maintained; one washer for 24 apartments; the places that when someone comes up the stairs, the coffee in your cup actually moves.
Depending upon your perspective, the units may be reasonably priced or wildly overpriced.
So if you are contemplating buying into such a condo conversion, here’s some advice.
Savor the granite countertops, marvel at the stainless steel appliances, then take a breath and look beyond the glitz.
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“If you’re buying a condo unit, making a substantial investment, what are your expectations going to be?” asks attorney Michael C. Kim of Michael C. Kim and Associates in Chicago. “If you are a tenant in an affordable apartment building, you sort of expect certain things. If tenants don’t like the situation, they can leave. They are not wedded to the property.
“A buyer is not like that. You need to think about things that are almost necessities,” Kim continues. For example, “Is the power supply adequate for all the things you want to use?”
How about the kind of wiring you’ll need or expect for your computer and other electronics? “You need to ask about what wiring the building has or could be added,” he says.
Speaking of electronics: If you’re spending, say, $239,000 for a two-bedroom condo, do you expect to be able to hear your neighbor’s soap opera as you’re trying to watch the Sox? Will you hear your neighbor’s music blaring as you sit down to read the Sunday paper? You may be a dog lover, but do you enjoy other people’s dogs barking at 3 a.m.?
“Sound is a key issue,” says Kim. “What has the developer done to enhance soundproofing? Is there any kind of assurance the developer can give that the sound transmission problems have been solved?”
Again Kim points to your expectations as a buyer. “Some of these things are basically trying to get a building from adequacy for rental to the expectations of buyers.
“You may have been told things in a sales pitch that are not going to be enforceable unless you have them codified,” Kim says. He advises getting copies of the building’s specifications from the developer.
“If you can, perhaps you could get the developer to actually specify what was built as part of the unit: soundproofing, power supply.”
Chances are the building has no parking on site. And, the City of Chicago is not requiring owners of these buildings to acquire or build parking when they convert to condos.
If you plan to park on the street, and it appears that there usually are spots on your prospective block, consider this: Your building probably was built in the early decades of the 20th Century when few city-dwellers owned cars. Chances are, if the building was formerly an affordable rental, perhaps half of the tenants did not own vehicles.
So, when you go to check the place out, probably on a Saturday or Sunday — when neighbors are out shopping with their cars — consider this: If the building has 24 units, it’s likely that when it’s sold out there will be at least 24 vehicles (maybe 36, or more) belonging to the owners.
When you’re shopping the building may be empty of tenants. Think: “What will the parking situation be on a hot weekday night, when everyone is at home? Will I end up parking two blocks away?”
Will you feel comfortable walking from your car to your condo? Just how much has the “emerging” neighborhood emerged? And what is it emerging from? Is it underdevelopment? Poverty? Gang domination?
If you’re fixating on interiors — refinished hardwood floors, closet organizers, marble bathroom — “you’re looking at a very small part of the picture,” Kim says. “If you take a look at the overall picture, you have to go beyond the superficial.”
The developers “aren’t going to volunteer it to you. They don’t have a legal obligation [to point out shortcomings] unless it is a code violation or a defect.” Get the legally required disclosures, Kim advises, but he adds: “Parking and noise [problems] are not necessarily defects.”
Now think about what happens when the residents take over the building. If most buyers were renters there, or first-time buyers who formerly rented or lived at home, will there be the will and expertise to run the building?
“You have a real challenge when you talk about small properties with buyers who have no exposure to condo living,” Kim says. “Small buildings don’t attract the attention of management companies” because the firms can’t make money from serving so few units.
“That means you’re going to be self-managed,” Kim continues. “If you are lucky and have people with talent and time,” that’s great, but “that won’t last forever” as folks move on.
You may say to yourself: “If I don’t like the place, after a year I can sell it.”
Even in a strong real estate market, “if you leave within a year, there’s a good chance you’re going to lose money,” Kim says.
Kim reiterates: “A different type of occupant brings along a different type of demand for the building and for the neighborhood.
“If you get something very economically,” Kim says, “and can wait until the neighborhood comes up, that’s fine.”
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Wayne Faulkner is editor of Real Estate. You can contact him at [email protected] or write to him at baiduhai, 435 N. Michigan Ave., Chicago, IL 60611.