With the real estate values gradually rising, it is hardly unreasonable if you try to get as much value as you can from your property. One of the ways to maximize the total value is by converting your property into smaller units that can be sold to occupants. If you are wondering whether you can turn your duplex into a smaller and potentially more profitable unit, say a condo, read on to find out if you can achieve this, and if so, the process you will be required to follow.
Can a duplex be a condo? You can convert your duplex into a condo unit through a process known as condominium conversion or simply condo conversion. Condo conversion is a process that entails dividing real estate that is held under one title, into units that are individually owned and share common elements such as recreational facilities, a lobby, or exterior walls. Almost any type of unit can be converted into a condo, including a duplex.
The size of a condominium development typically varies and may be very large or as small as two units. Condo conversions are an increasingly popular trend, especially in densely populated cities, since they provide aspiring homeowners with affordable alternatives in an urban area in addition to providing investors with a profitable revenue stream. However, there are a number of legal steps to be taken as well as quite a bit of paperwork along the way in order to accomplish a condo conversion.
It is not unheard of to want to turn your duplex into a condo. In fact, many people are warming up to the idea of converting their units into condos. Converting your duplex into a condo development makes sense when the smaller units would earn you more profit than together as property under one title.
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Here is what you can expect if you intend to convert your duplex unit into a condo
1. Before you get started
Converting your duplex into a condo is not as straightforward as you may believe- conversion must be within local and state laws. Before you get started, it is important to take into consideration the current market for condos, the cost of the somewhat lengthy legal procedures to be undertaken, the time and cost of renovations in compliance with local building codes and establishing utility services for each unit, and local and state laws that protect the right of existing tenants. In most states, you are required to give existing tenants a specific period of notice and relocation assistance. In some cases, you will even be required to give the tenant a first right to purchase the unit if they are interested. It is also important to have a reasonable budget ready before you begin the whole process.
2. The process involved
In order to turn your duplex into a condo, seek the assistance of an attorney and a surveyor and collaboratively prepare and file documents with the Register of Deeds/ land records of the area you reside in. In order to accomplish the conversion, you will typically require a condominium plat or survey that indicates the physical division into units and a declaration of condominium ownership. This declaration includes a description of the common areas such as any available recreational facilities and the lobby, as well as any shared roofs and walls. It will also include a formula that determines each unit’s share of these common elements.
Other important documents that should be filed include articles for integration for a homeowners association (HOA), which is the body that is responsible for governing a condo community. Additionally, bylaws that will dictate how the HOA will operate should also be recorded, and covenants, conditions, and restrictions (CCRs) which prospective buyers are expected to follow should also be set. In most states, you will be required to prepare disclosure documents and provide them to every purchaser before closing.
It is essential to inform potential condo owners of how the condominium complex is to be operated so that everyone is on the same page. For example, unlike in a duplex, there won’t be a landlord to take care of repairs on demand in a condo. Repair and maintenance within a converted unit is the responsibility of the occupant of the unit, whereas the rest of the property is considered to be either a common element or limited common element. Common elements are partly owned by each unit owner, and they include exterior walls, a common driveway, the roof, and a shared garage if present. Limited common elements, on the other hand, are areas of the condominium complex that are owned by all unit occupants, but only one of the owners has access to it. Examples include attached balconies, decks, and patios. Since a limited common element is still categorized under common elements, all unit occupants share the cost of repair and maintenance of these areas.
In most condos, an HOA is responsible for organizing the maintenance and repair of the common elements. Moreover, the HOA is responsible for fire and casualty insurance for the whole property, exempting the units, as well as a liability insurance policy that is meant to protect all of the residents from personal injury claims on common element areas.
The cost of repair, maintenance, and insurance are assessed on a monthly basis and billed to each unit owner. On top of this expense, unit owners also have to bear with the cost of mortgage payments, taxes, and insurance for their unit itself.
Keep in mind that the repair and maintenance duties will be based on how you define the common elements in the condominium declaration. With the help of your attorney, you can establish these definitions and create the rules and regulations that you expect prospective unit owners to abide by. You generally get to decide who owns what and how the various costs are to be shared. Remember, if you intend to live in one of the converted units, you will also be subject to the condo declaration and the HOA rules.
After all the necessary documents are recorded, you can then begin selling your newly converted condo units (after making the appropriate physical modifications, of course.) Local or state law usually dictates that after a specific number of units have been sold, control of the HOA has to be transferred from the owner to an executive board that is elected by individual owners of the converted units.
3. Organization of the HOA
Each occupant of the converted condos has to be a member of the HOA, and everyone is expected to provide input when it comes to decision-making. All decisions are to be made according to the stipulations in the condominium declaration and association rules. For example, if there is a leak in the roof but it only affects one unit, all unit owners are required to give a contribution to cover the cost of repair since the roof is a common element.
4. Painting the exterior
When it comes to painting the exterior, the colors for walls, gutters, trims, and downspouts are usually uniform, so unit residents will have to come to an agreement regarding painting the exterior wall and any consequent costs.
5. Repairing exterior doors and windows
In most condominium declarations, the windows and doors are considered to be part of an individually owned unit, so the resident is expected to take care of repairs and make replacements as required.
6. Maintenance of other common areas
Since the maintenance of driveways, lawns, sidewalks, and other common areas is the responsibility of the HOA, these services are most likely to be taken care of by contracted third parties, but in some cases, unit owners may take care of these tasks so as to save on costs. In this case, the condo declaration has to provide for these alternatives.
7. Payment of utilities
The process of converting a duplex into a condo should involve the installation of separate electric and gas meters for each unit. Depending on the layout of the plumbing in your duplex, consider installing separate meters as well. If this is not possible, the water/sewer bill would then be directly paid to the HOA and assessed to the unit owners. However, this could result in conflict, especially if one of the unit owners is irresponsible in his/her water usage.
8. Handling of the insurance
Although the HOA usually purchase the casualty/fire and liability insurance, each resident is expected to buy their own separate insurance policy for their unit that covers them in case of damage to the unit and its contents, including liability insurance for the owner. The association and the unit owners should consider purchasing the respective policies from the same insurance company so as to eliminate potential coverage issues.
Whether converting your duplex into a condo is a good idea heavily depends on the housing market. If you establish that the converted units will sell more profitably than as a duplex, then a condo conversion is a viable venture. However, remember that condo buyers may have certain expectations when it comes to the quality of the units and amenities provided, so make sure your budget is adequate.