Condos as Investment Properties: Why Buying a Condo Just Became a Lot Easier
1. Buyer only needs to put down 25%
2. A single buyer can own up to 4 units in a single complex
3. Owner occupied ratio/budget requirements for a 3-4 unit eliminated
Investment opportunities come in a variety of shapes and sizes. One of the soundest ways to create an additional income stream is to purchase a condo. However, up until recently certain restrictions have prevented some people from purchasing a condo who might otherwise have done so. Well, much of that has changed as the Federal National Mortgage Association – otherwise known as Fannie Mae – has revised its rules regarding how condos purchased as investment properties can be bought using conventional financing. Let’s take a look at these changes, how it makes purchasing a condo easier and why purchasing a condo can be a fruitful addition to your investment portfolio.
Fannie Mae’s Changes
Fannie Mae has made three changes to make it easier for buyers to purchase a condo as an investment property. First, all that is required of a buyer now is that he/she put down 25% in order to purchase a condo as an investment property. The 50% owner occupied ratio rule is no longer in effect. This makes purchasing a condo much easier to potential investors in that they can now purchase complexes in local markets that do not have 50% owner occupied ratios. A second way Fannie Mae has made it easier for people to purchase a condo as an investment is to allow a single buyer to own up to 4 units in a complex. The Single-Entity Ownership has increased 10% to 20% for projects with 21 and more. Finally, Fannie Mae has waived the project review requirements for 2-4 unit projects. This means that owner occupied ratio or budget requirements for a 3-4 unit has been eliminated.
Tips to Buy a Condo in a Complex with Less than 50% Owner Occupied Ratios
So how does one take advantage of these changes to Fannie Mae’s rules regarding the purchase of condos
as investment properties? Here are a ways:
-Buyers should put down a minimum of 25% on condos that have less than a 50% ownership ratio. By putting less than 25% down Fannie Mae’s Full Review will be triggered and the old rule of 50% Owner Occupied Ratios will be re-instated.
-Make sure that your loan application is run through Fannie Mae’s conventional underwriting system.
-If you are granted a “Limited Review Approval” then you will be exempt from the 50% ownership ratio rule.
-Work only with lenders who follow and are familiar with these new rules.
-As a realtor, make sure to let potential investors know about this rule change.
Why Buying an Investment Property is a Great Investment
As we said, at the start of this post, investments come in all varieties. Some are not sound at all and others
vary in the degree in which potentially create a healthy revenue stream for investors. Investing in a
property is one of the sounder investment methods a buyer can make. Why? Here are several reasons:
-Investors can take advantage of the annual rent increases which are trending upwards on average 3% – 4% in many local markets in California.
-They are more affordable. Buying a condo is on average cheaper than purchasing other kinds of real estate. Just be sure to factor in the cost of living in the desired area with HOA fees when making the decision to buy a condo.
-Maintenance is not your responsibility: As a real estate investor you are not directly responsible for maintaining the building or the grounds of your property. These are covered in your monthly condo fees. Other people will be doing the actual work of up keeping the property.
-Finally, there are many tax benefits of investing in a condo. For example, the interest on the mortgage is tax deductible, and the property taxes and any repairs are tax deductible.
As a Moorpark realtor, I know that one of the best ways to take advantage of the opportunities that this change in Fannie Mae policy presents to potential investors is to keep track of all developments in the real estate market. That means knowing about changes in lending, interest rates, etc. Contact me if you want to take advantage of any Moorpark homes for sale.