As with all investments, it’s important to understand your exit strategy at the time of purchase. Many investors focus on the projected sales price for which they can liquidate the property. But other factors may contribute to a higher or lower price. These factors include loan availability for first time home buyers, FHA or VA buyers, or whether the buyer needs to put down 20%. All these facets of an investment need to be taken into consideration.
Condominium and townhome developments must now have FHA approval in order to qualify for an FHA loan. Spot approval for individual units is no longer permitted. As of January 1, 2011, FHA approval just got tougher.
Condominium developments must now meet additional eligibility requirements at the time of underwriting for an FHA loan which includes:
- No more than 25% of the property’s total floor area in a project can be used for commercial purposes
- No more than 10% of the units may be owned by one investor
- No more than 15% of the total units can be in arrears, meaning more than 30 days past due, of their condo association dues
- At least 50% of the units must be owner-occupied or sold to owners who intend to occupy the units
- At least 50% of the total units must be sold prior to endorsement
- FHA will not ensure more than 50% of a particular condo project
Consumers, when purchasing for personal use, tend to pay a higher price than an investor who is purchasing for straight cash flow. Consumers need to be able to reduce their down payment and obtain cheaper capital allowing them to pay a higher price. More financing options for your client (your exit strategy) creates a better selling environment for your investment.
The next time you are purchasing an investment property, consider your exit strategy at the time of your purchase to maximize your return on investment. Analyze all factors and current market conditions to smooth the process of successfully liquidating.
To discuss this or any other investment scenario, call 877-647-3911.
