The Untold Truth About Fractured Condo Deals

Q: Gerald, my broker just gave me a tip on a fractured condo deal in Florida.  Do you think these are safe real estate investments? Jack, Ashville, NC

A: Interesting question, Jack.  Let’s first define what we’re talking about for everyone out there.  A fractured condo project is one in which only some of the individual condo units were sold by the initial real estate developer.  The unsold units present both potential investment opportunity as well as potential risks.   These fractured condo deals are appealing because an investor may be able buy them at a big discount from the price the developer initially sold the early units for.  However, even if that’s the case, it doesn’t necessarily make it a wise purchase.

One of the biggest considerations in my view when evaluating a deal like this is financing, or the lack thereof, because getting a mortgage or some other permanent debt for a fractured condo acquisition may be difficult.  And the more important question from an investment perspective in my view is how financeable the units are for your buyer if and when you choose to sell the condo after you buy it.

The importance of how ‘salable’ this condo is will depend on how long you plan to own the condo.  If you plan on owning the condo unit for a very long time, salability may not be that big of a factor, however, local real estate market conditions change over time, neighborhood patterns in the area where the condo is may change over time and your personal financial situation may change over time, so I suggest for your own financial safety that you have more than one exit strategy for any property you buy, especially for a fractured condo deal that a professional real estate developer wasn’t able to successfully sell.

Thanks for your question, Jack.  Good luck.

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