Splitting multistory office building into residential condos and/or apartments
Hey guys, I’m looking into buying a 6 story downtown building in disrepair to covert into condos / apartments.

I have a few questions regarding laws around doing this.

First, much like tract home builders sell homes before they are built, would it be possible to have people sign for condos in an old building before the are converted? Would be sold with a contractor already lined up and quoted with the buyer able to choose appliances, countertops, colors etc. 

In this scenario, would the home buyer take on the debt for the renovations so the only thing I would be responsible for would be the cost of the un-remodeled building?

When tract build developers get paid? 

Regarding the split, ideally the building would be owner financed but if it is bank financed could there be issues with selling off a portion of a financed building? Could it be structured in a way that homes are reserved but not actually promised to buyers until a minimum number of units are sold to “guarantee” there are enough profits to pay off the building?

Seems like a crazy idea but also seems like a potentially great way to bring an old building back to life without a lot of cash up front (not a lot as in 100s of thousands and not millions).
[{"id": "hys8ai1", "text": "I mean no disrespect but if you are asking these kinds of questions you should start with a simpler / smaller project and learn first.", "replies": [{"id": "hys96di", "text": "No offense taken. You\u2019re probably right but no harm in exploring opportunities.", "replies": [{"id": "hysd22b", "text": "This \\^", "replies": [], "depth": 3}, {"id": "hyt5mfp", "text": "In that spirit, don't build condos. Depending on state law, your liability will continue for a long time after all the condos are sold. Build apartments and either sell it all, or hire a good management company.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hys90zp", "text": "Infill developer here. You are assuming that your buyers will a) be willing to pre-buy a condo and b) obtain construction financing from a bank to pay to a contractor to do the rehab. \n\nThere's a couple things you are missing here: 1) The building common areas will require substantial renovation. 2) Subdividing the office building into residential condo shells that meet the building code will require substantial design, engineering, and renovation. It's not just appliances and countertops, it's structural, hvac, electrical, and plumbing. \n\nThe typical way condo projects are done is by using a construction lender who finances 60%+ of the TOTAL PROJECT COST i.e. including all renovations. That lender will then require you to pre-sell a certain % of your total units before they will allow you to spend the loan funds.\n\n In homebuilding, the developers typically get the land in contract, grade it, pave it, and add utilities before a single lot is sold. That can add up to quite a bit of money, and it's likely that In this conversion project the upfront costs per unit will likely be much greater even than a tract housing build.", "replies": [{"id": "hys9ji1", "text": "Thank you! Exactly the kind of information I\u2019m looking for!", "replies": [], "depth": 2}], "depth": 1}, {"id": "hysa2z1", "text": "More realistic than a true pre-sell would be buyers putting down a deposit that you use to fund construction. Units are released from the developer's deed of trust as they're sold. You will need to have a certain percentage sold for buyers to be able to finance. Unlikely you'd get financing without experience. Get ready to be sued big-time if the project fails.\n\nI'd consider why the professionals aren't doing very many of these old office conversions. How's the floorplate, is the clear height sufficient to add plumbing, is it already sprinklered, are the elevators large enough, what's the parking ratio? Do the windows make sense for residential, or are you going to have to re-clad the entire building?\n\nGet through all that and I can see why it might by more efficient to just tear it down.", "replies": [], "depth": 1}, {"id": "hysandd", "text": "You doing this in PA/DE ?", "replies": [], "depth": 1}, {"id": "hysaopz", "text": "You may find that the cost to convert to condos might approach the cost of new construction, depending on the condition of the building, local code, and who you hire for construction.", "replies": [], "depth": 1}, {"id": "hysasi4", "text": "I am not trying to split hairs, or dispute any other comments. But you can't \"Sell\" a condo unit that doesn't actually exist yet. You can take reservations backed by deposits. But you can't close the sale until at least the dimensions of the unit can be measured. That cannot be done until the units are constructed.  So the idea that the unit pre-buyers will fund your conversion and build out costs is a non-starter. As has already been said, Pre-sales will help you get a loan from the bank, but not at anywhere near 100% of the unit sale prices.", "replies": [], "depth": 1}, {"id": "hysfk1n", "text": "You're going to spend over 100k in just in engineering/architect fees.  Pre-sales happen, but only with deposits.  You need a bank to lend using a construction loan, happens all the time.  But other posters are correct, this is job for an experienced developer, not a first timer.", "replies": [], "depth": 1}, {"id": "hytt11i", "text": "My friend, hire a quality real estate attorney that is very versed with zoning and building laws in your area", "replies": [], "depth": 1}, {"id": "hyvetqw", "text": "I finance condo buidings occasionally. So I'll answer what I can.\n\n&gt;First, much like tract home builders sell homes before they are built, would it be possible to have people sign for condos in an old building before the are converted? Would be sold with a contractor already lined up and quoted with the buyer able to choose appliances, countertops, colors etc. \n\nYes, this is very common. It's the same way you'd pre-sell a subdivision.\n\n&gt;In this scenario, would the home buyer take on the debt for the renovations so the only thing I would be responsible for would be the cost of the un-remodeled building?\n\nNo, you're responsible for financing the project until it's complete. Once you're issued the CO and the buyer is able to move in you can close. At this point they'll probably have financing lined up and you'll get paid pretty quick. These contracts always have a clause that requires the buyer to pay the remaining funds after the deposit within a certain # of days after the CO is issued.\n\n&gt;Regarding the split, ideally the building would be owner financed but if it is bank financed could there be issues with selling off a portion of a financed building? Could it be structured in a way that homes are reserved but not actually promised to buyers until a minimum number of units are sold to \u201cguarantee\u201d there are enough profits to pay off the building?\n\nThere is usually a minimum release price. The goal for the bank is to get out when there is still units left to sell - we always target an exit once 70% of the building or subdivision is sold. The final units to sell are *usually* less desirable, so the bank doesn't want to sit around with a construction loan on their books for years while you sell out of the b-grade condos in the building. This is the exact same way a subdivision is financed; however, in my experience the subdivisions have a much more difficult time selling those final lots. In the last town I lived it, the local HRDC office bought a bunch of orphan lots and put tiny homes on them for affordable housing.\n\n&gt;Seems like a crazy idea but also seems like a potentially great way to bring an old building back to life without a lot of cash up front (not a lot as in 100s of thousands and not millions).\n\nIt'll probably be pricey still. A 5 story building (depending on where you live) could still run 10s of millions, especially when you factor in bringing it to code. If you're really interested in this then you've got to do a lot of research and talk to some GCs to figure out pricing.", "replies": [], "depth": 1}]