Buyers who acquire one or two units with the same strategy in mind will find themselves undercut, McCabe says. "Because of their size and economies of scale, the vultures have the ability to rent at a lower rate than you can. They're therefore more likely to pull in tenants while your unit sits empty."
Zalewski says the vulture funds with which he consults expect to drop rents "well below market value, so that they'll be able to poach renters from a mature market to bring them to an overbuilt market. They hope they can then convert to higher rents or sales in the future."
Quality of life impacted The safety net designed by many condo associations that limits the number of units that can be inhabited by renters at any given time, McCabe says, motivates many bulk owners to try to acquire a controlling interest in the association.
"They don't have to buy a majority of units to do that," he says. "Many times a large number of individual unit-owners are absentee and don't show up to vote. So ownership of even a fourth of the total units may, in essence, give them control.
"In most cases they want control so they can change the association rules to be more amenable to their strategies. That means allowing more renters. Chances are that their renters are not of the same caliber in income and creditworthiness as past buyers. So resident owners may find themselves living with people who may not be trustworthy or take care of the property as well as an owner would."
Under these circumstances, McCabe adds, "daily rentals are a possibility, and you may see some condo documents rewritten to allow fractional sales."
When vulture funds swoop down on a property:
|•||Banks become reluctant to lend||•||Condo sales may be hindered|
|•||Properties often depreciate||•||Amenities may disappear|
|•||Rents may be undercut||•||Condo rules may change|
|•||Vultures may take control||•||Buildings may deteriorate|
One often-cited benefit of condo living is resort-style amenities. Yet pools, gyms, on-site business centers, spas and mini-movie theaters are perks that create expenses a vulture landlord may not want on the balance sheet.
"Bulk buyers are looking to maximize returns," Zalewski says. "That means the elimination of many services. They'll run a skeleton operation."
"Their purchase price will dictate their operating procedures," McCabe says. "If they paid a price that will require them to continue to pay monthly expenditures -- or if their income from the property doesn't cover operating expenses -- they'll look to cut down on costs. It could be something as simple as lowering the hot-tub temperature from 104 to 98 degrees, but for someone looking to buy a particular lifestyle, there are obviously inherent risks."