Condo Conversions RI

[Elizabeth Newcombe]

Hi RI Investors, 

Looking for input. I have my eye on a 3 family property in Fox Point, Providence. I plan to do substantial renovations to turn the units into high-end condos and sell them individually. The only way the numbers make sense is if I do a condo conversion like this--The owner owes almost as much as the home is currently worth, so trying to whole-sale or do a traditional flip doesn't make sense, and i am not in a position to buy and hold it. I will be using a private lender, possibly combined with hard money. Is anyone doing condo conversions in Providence with success? I mean this is an amazing street, excellent, super walkable neighborhood near Brown and Risd, the best of Providence. My only concern is how fast and for how much condos are selling, if there is really a market for condos (I would need to sell them for approx. $240k each--2 bed, 1 bath, 1050 sq ft., luxury finishes). I anticipate the project start to finish, from purchase of the property to sale of the units, to take 18 months. I hope it will take less time, but with renovations and condo docs and having to close 2 units at once for new condos, I figured factoring holding costs for 18 months would be wise. I am confident in my construction team to do a great, efficient job, but if I can't sell the condos, there is no way this will sell as a 3 family for as much as I need it to in order to get my money out of it in the event of a worst case scenario flop. Advice from seasoned investors around here? Should I go for it??!!

Liz

[Anthony Thompson]

Elizabeth, generally I've learned to be very hesitant to get involved in deals where everything must go perfectly for it to work out. From what you've described I'd be very careful and possibly not do it at all.

I think you should research or talk to some people who had done condo conversions in the last cycle.

I didn't do any, but my impression was that they really took off when singles and small multis became prohibitively expensive, but the demand was still there.

While our market has certainly come back compared to, say, 5 years ago, I don't exactly get the sense that we're at that level of demand, the "condo conversion sweet spot" (when singles/multis get too expensive, but before the whole market falls).

Besides researching the condo market in general over the past couple of years, another thing you'll want to pay attention to is the "affordability index" for SFs as I believe that is related to condo demand.