As the condo market took
off in Jacksonville, pre-construction buying offered investors an easy way to make money - sign a contract before the development
is out of the ground, then flip it to another buyer and keep the profit without ever moving in or renting the space.
Prices and demand for condos has given investors an opportunity to make hundreds of thousands of dollars
during the two years it takes a development to go from the drawing board to occupancy. Similarly, buyers who purchased a condo
several years ago, can hold on for the day that they can sell their rental property and make a sizable return on their investment.
A recent study by the National
Association of Home Builders found that in "hot metro markets" investment buyers now account for 15 percent of multi-family
condominium projects being purchased (compared to 11 percent investor-ownership in single-family homes).
But, some builders, condo
managers and lenders are tightening the guidelines on how much investment they will allow in their units.
"I think their fears are based on what they are seeing in the larger metropolitan areas, especially in Miami and
Fort Lauderdale areas, Phoenix and in northern Virginia near the Washington D.C. area, where investors are buying more than
50 percent of the units in a given project," said Phil Pierce, a Realtor who specializes in pre-construction sales for Prudential
Network Realty in Atlantic Beach. "I don't think pre-construction buying is much harder today than it was when the boom began.
But some are rethinking how much investment they will allow in a given project."
According to Robert Fleischmann,
a loan officer at SunTrust Mortgage, the regulations on traditional lending through Freddie Mac or Fannie Mae already limit
the amount of investor ownership in condo developments.
"The guidelines require
that no more than 25 percent of the units can be purchased by investors and that the rest must be purchased by owners who
live there or use the property as a second home," Fleischmann said. "The guidelines also require that no more than 10 percent
of the owners are of a single entity, for example, a group of investors."
Fleischmann, who has been
in the mortgage business for nearly 20 years, said the guidelines are aimed at reducing the risk to the lender. They fear
that if the market weakens and a development has more than half of its units with investors, they will begin selling off the
properties - which may have a deteriorating effect on market value. And, if the lender is forced to foreclose and sell the
units it had financed, there will be more competing properties on the market.
"If you are loaning into
a project that has more than 25 percent investor owners and the market softens, those investors are typically the first owners
to get out," he said. "But, if it's your primary residence, you're more likely to stay the path and weather it out."
Michelle Cummings, also
with Prudential Network Realty, said that some sellers prefer an owner/occupier more than an investor, depending on the situation.
"Generally, most sellers
believe that people who own and occupy their units tend to care more for the property than an investor owner," she said. "Since
they are living there all the time, they keep up with the exterior looks of the unit so it will be up to par with the rest
of the units at the condominium."
Cummings said during the
construction phase, buyers who plan to reside at their condo also are apt to spend more on the units.
"An owner who is going to
make it their primary residence will typically request things like hardwood or special tile floorings, granite countertops,
different paint schemes, light fixtures and other upgrades to create a more personalized living space," she said.
Certainly, there are still
opportunities for investors. For example, Cummings is the listing agent for Las Olas, a 10-unit development that offers an
ocean view from Jacksonville Beach. She has sold two of the units during the last month.
"Nearly all investors look
for properties like Las Olas, where the sellers allow the buyer to 'assign' the contract after the purchase," she said. "This
gives the buyer the flexibility to sell the property after the purchase."
By not allowing the assignment
of the property to another buyer for a year or more, condo owners also can make the purchase less appealing to the pure investor.
To avoid the guidelines set up by Freddie Mac and Fannie May that limit investment ownership, Fleischmann said some buyers
can obtain financing through a "hard-money lender."
"However, going this route
means a mortgage at a much higher interest rate because either the borrower or the property represents a higher level of risk
for a traditional lender," he said.
Regardless of any tightening
of guidelines, whether by condo developers, lenders or condo associations, all agree that investors are extremely important
to the process Ð in nearly all cases serving as catalysts to get the new developments built that the people want.
"Selling to investors is
how many developers get the loans to keep the project going," said David Gauthier, who specializes in investor sales at Watson
Realty's Mandarin South office.
Gauthier said that while
most condominiums and other major residential developments could not get built if developers didn't have the support of investors
along the way, most make it hard on investors once the project is well under way.
"Once the developer receives
enough money from investment sales to fund the project, they get tougher on the investors," said Gauthier, who also invests
in properties. "They may require only a 5 percent to 10 percent deposit for an owner-occupier, while charging an investor
10 percent to 20 percent. Once they get the ball rolling, they also limit the number of floorplans they will sell to investors,
usually giving us the bottom of the barrel."
However, Gauthier does understand
why developers are weary of having too many investor/owners.
"At the end of the project,
I'm sure developers don't want to get into a situation where they're forced to compete against other investor-owned units
while they sell their remaining condos in the same complex," he said. "At the same time, I don't think investors should be
penalized in the buying process."
All information deemed reliable but not guaranteed. 
