When Condominiums Go Rental

Over the course of the past 5 years, there has been an accelerated volume of new developments being built, the majority being condominiums. Sales increased ten fold as mortgage rates were down, creating the largest boom in Manhattan real estate history. However, it appears that the sizzling condo market is finally showing marked signs of a slowdown, as quoted by many including the National Association of Realtors. Condominium owners, who just a year ago had planned to quickly sell their properties for a sizable profit, are discovering that amidst the deluge of already and soon-to-be available condos in a buyers market, they have a scant chance of making a significant profit in a short time frame. This leaves new and old condominium owners only one choice; to take advantage of the low vacancy rate of less than 1% and rent out their units. Following the current market conditions, owners must begin to consider their property as a long-term investment, thereby finding a way to defray maintenance costs, and possibly turn it into positive equity. The simplest way for condominium owners to meet these aims is to try their hand at being a landlord. According to Daniel Baum, the chief operating officer of the residential rental and sales brokerage firm The Real Estate Group, N.Y. “with more than the traditional 10 percent down, an investor could cover his or her monthly expenditures and even generate positive cash flow by renting the property,” and this is exactly what owners are doing.

With such a high density population and a regularly increasing influx of new workers and residents, housing scarcity continues to grow. According to Manpower Inc.’s quarterly Employment Outlook Survey, New York City is home to many of the most prominent financial companies and law firms and more than a quarter of these businesses expect to employ more people in the coming weeks than they did a year earlier, creating an even scarcer rental market. In anticipation of a greater need to circumvent the rental shortage, this past spring Baum of The Real Estate Group, N.Y. directed his brokers to begin inquiring with and fielding calls from previous condominium owning clients, who were likely to consider renting their units. As such, new vacancies that have become available tend to be condominium owners, placing their units on listing services as rentals. Owners interested in selling their unit are finding that the overabundance of condominiums has made buyers more likely to hold out for price drops, less flexible in regards to desired amenities and features, and take longer in making decisions. Hence, owners are merely looking for a way to make a quick-flip turned long-term investment a more palatable experience by turning to real estate brokerages to rent out their units.

Many condo-owners purchased the property as a second or third home or expressly as an investment, therefore the vacant property could be a small source of income for owners. In addition to increasing the available pool of rentals, condominiums for rent often have amenities and accouterments, such as state of the art appliances and on-premise gyms that are unlikely to be found in older constructed rental buildings. Rebecca Heiberg, an agent of The Real Estate Group, N.Y., recently brokered a one year lease on a large, luxury one bedroom condo with a terrace view in The Rio building. As is often the case with luxury condos, the stylish upgrades in appliances and décor that are routinely issued by owners, become an unintended boon for renters.

For both the broker and the renter maneuvering through the apartment search is often a much more pleasant and beneficial experience with a private condo owner as opposed to that of a management company. When appraising rental candidates, management companies usually exercise strict adherence to predetermined criteria, in which credit scores and salary are paramount. Condominium owners are likely to utilize a more pliable approach, in which a mélange of financial and personal characteristics are evenly weighed to reach a decision. Unlike management companies, who strive to rent for top dollar, even at the risk of vacant apartments, condominium owners wish to ensure that their units are rented for as long as they so desire. Therefore, they tend to be more flexible in terms of rent and are more likely to make contractual provisions for future leases with a potential or current renter. As was the case in the deal at The Rio, in which the owner and renter negotiated an agreement for a second year lease with the rent remaining unchanged and that the building gym membership fee would be encompassed in the monthly rental fee of $3500, amounting to a hefty savings of at least $1000 annually for the renter.

The accommodating attitude that condominium owners have towards rental fees is offset by the fact that the rental inventory is grossly disproportionate to the need for housing. For every unit available on the market, Baum has at least three interested and qualified would-be renters. “We have a lot of clients offering more per month to secure the lease. If the rent is $4,000 to start, prospective tenants will offer $4,200 and up, as high as $4,500," he said. Anyway you slice it, the rental market is thriving. It’s putting money back into the pockets of condominium-owners and providing renters with a much needed expanded selection of luxury apartments.