Have you considered doing a condo conversion in Greater Boston? There’s lots of factors to consider in a condo conversion:
Ruth: Hi, everybody. It’s Ruth. I’m sitting here with my friend and attorney Ilya Fuchs, and we want to discuss condo conversions. We’ve had a lot of question about condo conversions recently, and we’re hoping this video will answer your questions if you are looking into it or considering it, but first, hi, Ilya.
Ilya: Hi, Ruth.
Ruth: Hi. Can you, let’s start by just simply defining what is a condo conversion?
Ilya: A condo conversion in Massachusetts is governed by the Massachusetts Condominium Act with Chapter 183A. Simply put, if you own a two-family house and you want to convert it into individual condos, there are legal steps to take, documents, which need to be prepared and recorded, to make that two-family two individual condominiums.
Ruth: It’s turning one property into several properties, essentially.
Ruth: What would be some of the very basic steps that somebody who’s considering a condo conversion?
Ilya: The basic steps are the homeowner needs to engage two important people in the process. One is an architect, and the second is an attorney. The architect is the person who prepares the condominium plans off of which the attorney prepares the master deed and the declaration of trust, two important documents. The master deed is the document, which, first of all, declares the property a condominium. It also sets out to define the units, define the property, define the percentage interest that each condominium has in the common areas, and things of that nature. That gets recorded. The second document is the declaration of trust, which also gets recorded. That sets up the association for the condominium, sets out the by-laws, the rules and regulations by which the condominium is governed.
Ruth: Really, what you need is an architect who specifically understands condo conversions in order for the attorney or for you to start being able to even put these documents together.
Ilya: I mean, yes, the architect needs to know the rules, which are simple rules in terms of what size paper, really, the Mylar has to be to be accepted at various registers of deeds, the various margins, et cetera. Believe it or not, not every architect is versed, so it’s better to work with an architect who knows those … Any architect can draw the plans, but it’s much easier for someone who’s versed in the condo conversion.
Ruth: What are some of the mistakes you’re seeing homeowners make when considering a condo conversion?
Ilya: I think that most homeowners don’t even know what’s involved in the condo conversion. Some of the mistakes are, if specifically a homeowner is going to retain one of the units for themselves and they’re going to live there, they really need to take into account the rules and regulations, the various items that go into the owners when drafting because they’re going to stay there. It’s one thing when you have a two-family or selling both units, you don’t really care, it’s generic, et cetera, but for units that are retained by the homeowner, it’s important to take a lot into account.
I think the way I do is it I spend time speaking with the homeowner asking them a lot of questions. I also visit the property because it’s important to see what’s being converted. Is there a yard? Do they want it shared? Is there going to be exclusive use areas of the basement? Are there parking spots involved? If there are, then it’s not just a master condo plan, but you may need to prepare or record a site plan for the property. There’s a lot that goes into it.
Also, if the units are currently tenanted. Most homeowners don’t know that each town has their own ordinances how to deal with condo conversions, and they supersede the state law. For example, if you have tenants, there are certain notice provisions you have to give before you can convert the property. Typically, it’s a year. Sometimes, you have to give the tenants a right of first refusal-
Ilya: … on the property. In Boston, for example, if you’re dealing with elderly or disabled tenants or low-income tenants, there may be a five-year period of notice for evictions. These are the things that need to be discussed up front before you even begin the process.
Ruth: What are some of the trends you’re seeing in the condo conversion market?
Ilya: I would say 15 years ago, I was doing a lot of condo conversions. Once the crash happened and the lending rules changed at around 2007, 2008, it stopped. Nobody was condo-converting. It was very difficult to get a mortgage for new homeowners, but I would say in the past year and a half or so, they’re back. Condo conversions are on the rise.
Ruth: And back.
Ilya: Couple of reasons are because there are a lot of young professionals and first-time buyers who can’t afford a single-family home. A condo is much more affordable. Also, because the lending rules and regulations have relaxed such that people are able to be the first person to buy in a three-unit condo, whereas before, lenders didn’t want to be the first bank to loan.
Ruth: Right. They were looking owner-occupancy and-
Ilya: Exactly, and that’s changed. I think also it’s a hot market. What I’m seeing is people who are converting the properties are pre-selling them before even the condo docs are recorded. Certainly, if you are a homeowner and you’re thinking of selling your three-family, you’re going to make a lot more selling three individual condos.
That being said, you need to be aware of the various tax ramifications when converting. Again, the biggest thing that I see is people who are going to retain one unit don’t know what it means. They’ve had a three-family. All of a sudden, they’re going to have two neighbors. Those are the things that you have to prepare. I do, I prepare my clients for that.
Ruth: We know that condo conversions for some homeowners can be very lucrative, that it’s much more profitable to sell it as three homes rather than one-
Ruth: … big one, but tell us a little bit about the cost involved.
Ilya: If you look at what you’re going to gain by selling, for example, three individual units, the cost involved is not that great. You’re looking anywhere, I would say under $10,000 for both the legal work and the architectural-
Ruth: And the architecture, yeah.
Ilya: … work, and that includes the recording of the documents, et cetera. A good size investment, but certainly not-
Ilya: … prohibitive. The other thing I can say is the way I work is I get paid upon the sale of the first unit. They’re not paying me up front. I know there are other attorneys who take retainers or half up front. I don’t take anything up front, and that helps people. The architect typically wants to get paid once they finish their work, but I wait to get paid until the first unit sells.
Ruth: That’s excellent. What would be the first step, if I’m considering a condo conversion, for the people out there considering, who just want to think about it, what would be the very first step?
Ilya: The first step is to call me because I think within a 20-minute conversation, I can educate the client, and I can also … They’ll figure out if this is something for them or not, because a lot of the times, you don’t want to go through the process of a month down the road, they’re going to say, “Wait a second. I didn’t know this,” or, “I wasn’t expecting that,” so I think that conversation is really important. I can certainly direct someone to an architect, they can find their own architect, but building a team between attorney, architect, and you is the most important thing because you’re ultimately the person who’s going to be selling them, and you also need to know the ins and outs. What I do besides the … When you’re marketing the property, besides the master deed and declaration of trust, a buyer wants to see a budget, a buyer wants to see the purchase and sale agreement, everything-
Ruth: So does the lender.
Ilya: Correct, and a lot of times, you want to have all of that ready upfront-
Ilya: … so you have a package to delivery to the buyer. It’s important to have that team so everyone knows their role. I prepare a 6D Certificate. We’re in a new association. There’s no trustee preparing it, so …
Ruth: There are few extra steps, the sale as well.
Ruth: If you’re thinking about a condo conversion, talk to me, talk to Ilya. We will help you figure out if it’s even the right thing for you and discuss the opportunity further.
We will have all of Ilya’s information available right below this video, so get in touch with Ilya. We are here in Brookline, Boston. We’re happy to help you anywhere in Greater Boston. Thank you.
Ilya: Thank you.