Ask Gerald: How can we evaluate a condo’s resale and rental potential before we buy?

Q: Hi Gerald, I read somewhere that a condo is a stepping stone to a single family home. My boyfriend and I are thinking about buying a condo until we get married and start a family. How can we evaluate a condo’s resale and rental potential before we buy? Sandra, Philadelphia, PA

A: Hi Sandra, All economic activity is driven by demand, so your ability to resell a condo or any property is based primarily on how attractive that property is or will be to eligible buyers in the future. Unfortunately, nobody can predict real estate market movements. The best we can do is make the most informed buying decision possible based on concrete, verifiable information available to us today. Ask yourself before you buy, how attractive is this condo right now to buyers? How many other offers have been made from other buyers on this condo? Another huge factor affecting the sale-ability of a condo is the percentage of owner occupants who live in the condominium complex verses the percentage of renters. The higher the percentage of owner occupants in a condominium complex the more attractive the individual units in that complex are to lenders who in most cases would be providing mortgage loans to potential buyers. When you try to resell your condo unit, you must consider how your buyer will finance her purchase. When lenders evaluate risk associated with a mortgage loan for a condo, in addition to considering the credit worthiness of a potential buyer, they also do a risk assessment of the condominium complex itself. If lenders don’t like the building your condominium is in, it’ll probably take you longer to sell your individual unit. Evaluating the rental potential of a condo requires that you make an apples-to-apples comparison of your condo with other condos or apartments that are similarly sized and of similar quality in the same neighborhood (both and craigslist are good resources).