A “condo conversion” is relatively simple in concept. The process transforms your multifamily residence into several, separate units that can be sold and owned independently, but the process is more complicated.
Why do a condo conversion?
Whether or not it’s a good idea depends on your housing market. A condo conversion makes sense when the units would sell for more individually than together as a multifamily. It’s perfect for those who both have money to invest, and who want immediate income. Condos are often worth more than their multi unit counterparts, which can lead to long term appreciation.
How to do a condo conversion?
The condo conversion process is a collaboration among attorneys, architects, and surveyors. The attorney creates the master deed that defines which property belongs to which units or is part of the common area. The attorney also creates the governing documents for the home owners association. Well-prepared master deeds and trusts help prevent conflicts and misunderstandings in the future among unit owners. The other professionals, the architect and the surveyor, prepare plans that visually describe the building and land. These plans illustrate the attorney’s written description of the property. Good ones prevent confusion in the future.
While some municipalities have a condo conversion tax (e.g. Boston) and others have an approval process (e.g. Arlington), most condo conversions are accomplished simply by filing these documents and plans with your county’s registry of deeds. Once complete, the individual units become separate property, ready to be sold or owned independently. A conversion can also impact your property tax and capital gains tax considerations.Because of all of these factors, the timing of the conversion depends on your particular municipality, tax situation, vacancy rate, and goals.
Once you start the process of a condo conversion, state law requires that you notify any tenants. This notice establishes their right of first refusal to purchase the unit. More importantly, it triggers a period of time when you can’t evict them except for good cause – no matter what the lease says or when it ends. State law gives tenants at least one year to stay put (2 years if elderly or disabled). Some towns give much greater periods. Boston, for example, provides disabled and elderly tenants the right to stay for 5 years with only very limited increases in rent.
How much does it cost?
For a typical small project, budget about $8,000 for all fees – attorney, architect, surveyor, and government fees. If you’re in a municipality that charges a tax or has an onerous approval process, the budget should be higher. Many owners also do physical maintenance on their property to improve amenities for future occupants, if this is part of your plan, make sure to budget this in as well.