Should I sell or keep my condo in Colorado Springs

Question

Hi BP, I'm posting this for a friend.

She's the owner of a Condo in Colorado Springs, the vacant lot/field next to the condos were going to be more Condos. Due to the recession the owner was not able to secure financing for construction.  The land was placed for sale and an out state builder and a local housing management company have joined forces to propose apartment buildings for the location for affordable housing.  The builders have received $1.1 million Federal Low Income Housing Tax credit by the Colorado Housing And Financing Authority.

There are a lot of pros and cons to this project and they are still in the process of fighting it because ultimately it would bring the value of their property down.

The question is do they try to sell it now or try to keep it and ride it out.

Michael Boyer · Answer

Much depends on the specific facts in your case, but I would not make a hasty decision.

A similar thing happened in my town, a low income housing complex sited next to some fairly nice upper/mid-level condos. Of course, some condo owners were concerned. Some sold.

But the end result looks pretty good right now. The brand new affordable housing is state of the art and high design, high efficiency (5 star + with storage, etc).

Oddly, to me the vinyl siding condos (built 1997) are the less attractive feature of the hillside--not the affordable housing (which is pretty stunning). Add in all the new black top and it screams shiny new. The condos not so much.

And the condos continue to sell at market--even with lower income, working class folks next door. It did not seem to be a deal breaker in this case. I don't have an MLS to see any reductions but have seen "sold" signs. I think the properties share access off the main road,  so that may be a more concrete issue than income level.

So I would find out more about the project and the management.

A mixed economic neighborhood may or may not be such a bad thing. It works in many places across the US. People have images of "the projects" going up next door and it just may not be the case.

Also, you might be surprised to learn many Section 8 tenants are already in the area. This was the case anyway in the above example having several low income housing projects in the vicinity (just not adjacent). So a new element moving in may not even be noticeable. Look at the income limits and you may find some of the condo owners on fixed incomes might even qualify. So try and look at facts and be objective.

The problem with selling now is the buyers will know about the uncertainty and maybe discount in the offering price that it "might" be a bad end result (and they may benefit if it turns out ok or even a net positive). I would not panic sell and may look more into the facts of the development and  the integrity of my own condo association in making my decision (like its reserves, buildings, management, etc).

Maybe look at some of the developer's past projects and the manager's current portfolio. Are they ugly boxes and run amok eyes sores littered with junk cars and mattresses or very sharp properties? This may help in the decision, too. It could be that it is a time to sell, or it could be your association will have to up its game to keep up with the lower income neighbors in terms of curb appeal...

Photo of the affordable housing (at end of article):

http://www.ktoo.org/2016/10/11/numbers-juneaus-eco...

Adjacent Condos in a recent listing (approx 300-325 K in my estimation)

https://juneau.craigslist.org/reb/6099961791.html

You be the judge....

Best of luck!

Bill S. · Answer

@Adriel Liwag so to "mention" someone. Type the @ symbol and the first three letters of their name and wait a few seconds. A drop down menu should appear with a list of names that could match your typing. Pick the one you want and their name will appear highlighted in blue. The benefit of this is that we will get a message telling us you "mentioned" us. It's a way to let us know the conversation is ongoing.

To answer your question from 2 months ago, you have to define "better". Making more cash flow, in a more popular neighborhood, cash in the bank, or whatever. Once you define "better" that gives you the yardstick for comparing this condo to other opportunities that might exist.

What do they want to accomplish with their time and money?

Adriel Liwag · Answer

Does anyone else in the Colorado Springs area have anymore input on this?

Adriel Liwag · Answer

Does anyone else have anymore input on this? We still haven't really been able to come to a decision and looking for more advice.

Thanks guys!

Adriel Liwag · Answer

Thanks everyone for your feedback.

@Bill S and @Bill E what would determine or how can we determine if a 1031 Exchange will put them in a better position?

They bought the condo as a rental investment seeing that that particular area was developing and they were told that more condos would be built, but they didn't exactly buy right as far as the purchase price and cash flowing ratios. They've owned for quite some time now and are barely cash flowing and barely anything at that. If they sell now, they would break even.

Bill Exeter · Answer

I think the OP is describing the lady next door that owns the condo and is trying to decide whether to sell the condo.  The condo would likely qualify for a 1031 Exchange as long as it has been held for rental, investment or business use purposes.  I think the most important point to make is that if you sell and structure a 1031 Exchange it should put you in a better position, otherwise I would not sell and 1031 Exchange.

Dave Foster · Answer

@Bill S., It's not at all clear that they would be able to use the 1031.  There is a lot of the scenario specifics that need to be uncovered.  Because at first blush what you described is a developer with a lot who is selling to another buyer.  Even though the first development fell through your friend needs to prove that intent was to hold after trying to do a development.  Without a little more digging it looks they started out as developers with the intent to create inventory and that doesn't appear to have changed.

But it's possible....

Bill S. · Answer

@Adriel Liwag so to the question of should you sell just because the property next door is going to be low income housing? I don't think there is a one answer fits all. Personally, I have not found low income housing to be desirable neighbors. The short answer is I would sell. To sum it up, given the choice between two otherwise identical properties and one has low income housing as neighbors, I think the most desirable would be the one not adjacent to low income housing. Right now we are in a market with tight supply so that preference would be muted. Better any house than no house but in a more balanced market, I think it will penalize the property near low income housing.

The long answer is, how does a 1031 exchange come into play? Would they be paying capital gains taxes on the growth? Would they/ could they find a suitable replacement property? I'm not a fan of losing 20% of my hard earned money. If they don't have the ability to replace the property with something similar then perhaps holding is best. Also what are their plans with the property? How does selling fit with their overall plan? Just some thoughts, but probably more questions than answers.

Adriel Liwag · Answer

Thanks Michael, you brought out some good points. I will pass this info on.

Should I sell or keep my condo in Colorado Springs

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