James Hussaini, Real Estate Developer, Speaker and Author

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Invest in a Condo Conversion Project

The condo conversion case study below is an example only and the financial structure is simplified in order to demonstrate how to move a property from its current status to a higher-value use. Everything in a project can go more or less as planned, but the final exit is what makes or breaks it.

Here is a snapshot of the team involvement needed to highlight the complexity involved:

  • The Investor Group: puts up the money to purchase the property
  • Property Owner/Seller: is ready to pull equity from their building and either sell it to the group of investors or work with a condo conversion specialist to change the type of use
  • Project Development Team: this group comprises the services and individuals needed to complete the condo conversion and includes city planners and zoning officials from the regional municipality, architects, appraisers, building inspectors, surveyors, general contractor, condo reserve fund study professionals, condo management companies, condo conversion lawyers not to mention our experienced team that provides the overall management of the project development team to keep the condo conversion process on track

Case Study: Converting an almost-vacant building

Background: The owner was busy operating a manufacturing business and didn’t have the time, resources or expertise to manage the building. As a result the office building was not tenanted and the owner desperately wanted to let go of a property that he considered a distraction and a headache. When I came into the picture, I evaluated the property and found that it did not meet my basic criteria. The current income could cover the expenses but not the mortgage I needed to take out on the building.

Financing: Leading the investor group, I worked with the owner to overcome the mortgage issue. As the property had no mortgage, we struck a deal where the owner would provide an interest-free VTB (vendor take-back) for 75 percent of the purchase price until the end of the condo conversion process.

  • Purchase price: $2,000,000
  • VTB: $1,500,000
  • Down payment: $500,000

Adding value to the property: This building, located in a suburban downtown area, had about 20% occupied space so filling the vacant space became the primary focus of adding value to the project. Completing the condo conversion and filling it with new owners is the main focus to improving its value and allowing my group of investors to realize profit on their investment.

Marketing the condo units: Once the conversion was complete, and because of the type of financing arranged, we were able to offer potential condo owners a “Free Rent” option that allowed them to purchase their condo space with no down payment and use the accrued rent over 5 years as their down payment towards purchase once they have arranged their mortgage for the balance of the purchase price. This created a “win-win” situation for my investors and the tenant owners.

Exiting profitably: As the building fills up with new tenants that have an agreement in place to purchase their condo units, the investor group can realize substantial profit. It needs to be noted that individuals involved need to be entrepreneurial-minded and understand the concept of risk and reward. They must be prepared, both financially and emotionally, for ups and downs in the business. The return estimated on this project is as follows:

  • Purchase price: $2,000,000
  • VTB: $1,500,000
  • Down payment: $500,000
  • Condo conversion cost: $500,000
  • Total investment: $1,000,000
  • Appraised value after conversion: $3,500,000
  • Potential profit: $1,000,000
  • Project duration: Two years
  • Return on investment: 100% in two years

As a property owner, we can help you realize the full potential of your property through our experience with the condo conversion process, from start to finish.

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